Question

Valley Fruit Limited produces joint products orange and lime from a process that yields a paste that can be sold to Colgate Palmolive Limited. The paste is considered insignificant in value and can only be sold for a nominal market value. The cost assigned to the paste is its market value less incremental cost incurred subsequent to the point of split-off. Information concerning a batch produced in June 2014 at a joint cost of $100,000 as follows:
Products Units produced Additional cost Market values
Orange 10,000 $25,000 $60,000
Lime 20,000 $20,000 $60,000
Paste 4,000 $ 2,000 $7,000

Answer 1

Management deems the additional cost to be incurred after split off point.
Required:
a. Assuming, the entity uses the units to production method and that the NRV of the paste is to be credited to the process account, calculate how much joint cost is to be allocated to orange and to lime.
b. Assuming, the entity uses the NRV method and that the NRV of the paste is to be credited to a miscellaneous income account, calculate how much joint cost is to be allocated to orange and to lime.
c. Assuming, the entity uses the relative sales value method and that the NRV of the paste is to be credited to the process account, calculate how much joint cost is to be allocated to orange and to lime.

Answer 2

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