Problem 16-31 (12th edition): Joint and byproducts, NRV method (CPA)

Dimas Radhitya Wahyu Pratama

Operational Management Course
Master of Business Administration
School of Business Management - Institut Teknologi Bandung
Given:
The Harrison Corporation produces three products: Alpha, Beta, and Gamma. Alpha and Gamma are joint products,
and Beta is a byproduct of Alpha. No joint costs are to be allocated to the byproduct. The production processes for
a given year are as follows:

a. In Department 1, 110,000 pounds of DM, Rho, are processed at a total cost of $120,000. After processing in Dept. 1,
60% of the pounds are transferred to Dept. 2, and 40% of the pounds (now Gamma) are transferred to Depart. #3.

b. In Department 2, the material is further processed at a total additional cost of $38,000. Then 70% of the pounds
(now Alpha) are transferred to Department 4; and 30% emerge as Beta, the byproduct, to be sold at $1.20 per
pound. Separable marketing costs for Beta are $8,100.

c. In Department 4, Alpha is processed at a total additional cost of $23,660. After this processing, Alpha is ready for
sale at $5 per pound.

d. In Department 3, Gamma is processed at a total additional cost of $165,000. In this department, a nornal loss of
Gamma occurs, which equals 10% of the good pounds of output. The remaining good pounds of output are then
sold for $12 per pound.

Department # 4
$23.660 Alpha:
A $5

46.200
Pounds
70%
Department # 2
$38.000
D C
Separable
66.000 Marketing
Department #1 Pounds Costs
60% $8.100 Beta:
B $1,20
$120.000 Beta is a byproduct of Alpha
DM Rho is processed 19.800
Pounds
110.000 30%
Pounds

Department #3
$165.000 Gamma:
E $12

44.000 Waste = 10% of Good Output 40.000

Pounds Let X = good output Pounds
40% 44,000 - 0.1X = X
44,000 = 1.1X
X= 44,000/1.1
X = 40,000

1. Prepare a schedule showing the allocation of the $120,000 joint manufacturing costs between Alpha and
Gamma using the NRV method. The NRV of Beta should be treated as an addition to the sales value of Alpha.

Relative sales value at point A: $207.340 $5 X 46,200 - $23,660

Relative sales value at point B 15.660 $1.20 X 19,800 - $8,100
Relative sales value at point C $223.000
Less Department # 2 separable costs (38.000)
Relative sales value at point D $185.000
Relative sales value at E 315.000 $12 X 40,000 - $165,000
Total sales value at 1st splitoff point $500.000
$120.000
2. Independent of your answer to requirement 1, assume that $102,000 of total joint costs were appropriately allocated to
Alpha. Assume also that there were 48,000 pounds of Alpha and 20,000 pounds of Beta available to sell. Prepare an
income statement through the gross-margin line item for Alpha using the following facts.

a. During the year sales of Alpha were 80% of the pounds available for sale. There was no beginning inventory of Alpha
b. The NRV of Beta available for sale is to be deducted from the cost of producing Alpha. The ending inventory of
Alpha is to be based on the net cost of production.
c. All other costs and selling-price data are listed in A through D above.
Department # 4
$23.660 Alpha:
A $5

48.000
Pounds
70%
Department # 2
$38.000
D C
Separable
66.000 Marketing
Department #1 Pounds Costs
60% $8.100 Beta:
B $1,20
$120.000 Beta is a byproduct of Alpha
DM Rho is processed 20.000
Pounds
110.000 30%
Pounds

Department #3
$165.000 Gamma:
E $12

44.000 40.000
Pounds Pounds
40%

Sales of Alpha $192.000 .80 X 48,000 X $5

Less: Cost of Goods Sold
Joint mfg. costs assigned $102.000
Separable mfg. costs: Depart. # 4 $23.660
Separable mfg. costs: Depart. # 2 38.000
plus: sales of Byproduct beta (15.900) $1.20 X 20,000 - $8,100
Net mfg. costs $147.760
Less ending inventory (20%) (29.552)
Cost of Goods Sold (80%) $118.208
Gross Margin from sales of 80% of Alpha $73.792