Becker CPA Review Course Registered to: James Chang

Question CPA-03477 Lecture B5 Topic B 5-01

A processing department produces joint products Ajac and Bjac, each of which incurs separable production costs
after split-off. Information concerning a batch produced at a $60,000 joint cost before split-off follows:

Separable Sales
Product costs value
Ajac $ 8,000 $ 80,000
Bjac 22,000 40,000
$30,000 $120,000
What is the joint cost assigned to Ajac if costs are assigned using the relative net realizable value?

a. $16,000
b. $40,000
c. $48,000
d. $52,000

Explanation

Choice "c" is correct. Using the relative net realizable value method of allocating the joint costs, the net realizable
value of both products needs to be calculated:
Ajac Bjac
Sales $ 80,000 $40,000
Separable costs (8,000) (22,000)
Net realizable value $ 72,000 $18,000
The joint costs are allocated based on relative net realizable values. The two products together have a net
realizable value of $90,000 ($72,000 + $18,000). Ajac contributes 80% of this total (72,000 / $90,000 = 80%).
80% of the joint costs are thus allocated to Ajac: 80% x $60,000 = $48,000.
Choice "a" is incorrect. This answer uses only the separable costs, not the net realizable value. The sales value
must also be taken into consideration.
Choice "b" is incorrect. This answer uses only the sales value, not the net realizable value. The separable costs
must also be taken into consideration.
Choice "d" is incorrect. The net realizable value (sales value less separable costs) must be computed in order to
allocate the joint costs using the net realizable value method.

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