Title: Allocation of Joint Cost in Food Production and Further Processing
American Manufacturers produces two types of food products from raw milk: full-cream and half-cream milk. The two products share common or joint costs. In June 2020, the following information was recorded regarding the production and sales of the company:
Joint cost:
275,000 liters of raw milk were produced for $1,000,000
Products:
Full-cream milk liters
Half-cream milk liters
Opening inventory
Production
Closing inventory
Sales
0
62,500
50,000
0
187,500
75,000
Selling price per liter:
$20
$10
From the information given below, calculate the following:
1. Allocation of joint cost using the sales value method.
2. Allocation of joint cost using the net realizable value (NRV) method.
American Manufacturers has the option of further production of the joint products into full-cream ice cream and half-cream ice cream. The following information is available for further production:
Joint cost:
275,000 liters of raw milk were produced for $1,000,000
Full-cream Ice Cream
Half-cream Ice Cream
Separable processing cost
$700,000
$1,300,000
Full-cream milk
Half-cream milk
Full-cream Ice Cream
Half-cream Ice Cream
Opening inventory
Production in liters
Transferred for further production
Closing inventory
Sales
0
62,500
62,500
0
187,500
187,500
0
50,000
20,000
30,000
0
125,000
12,500
112,500
Selling price per liter:
$62.50
$55