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NRV and Physical Units Method of Allocation

Breakfast time cereal company manufactures two breakfast cereals in a joint process. Cost and quantity information is as follows:

Joint Cost Cereal Quantity at splitt-off Point Sales Price per Kilogram
$30,000 Yummies 12,000 kilograms $2.00
Crummies 8,000 kilograms $2.50

Required: Use the physical units method to allocate the company's joint production cost between yummies and crummies.

Breakfasttime cereal company has an opportunity to process it Crummies further into a mulch for ornamental shrubs. The additional processing operation cost $.50 per kilogram, and the mulch will sell for $3.50 per kilogram.

Required:
1. Should Breakfasttime's management decide to process Crummies into the mulch? Why?
2. Suppose the company does process Crummies into the mulch. Use the net-realizable-value method to allocate the joint production cost between the mulch and the yummies.

Solution Summary

2 Word attachments to answer two questions on a breakfast cereal company that involve the net-realizable-value method of joint allocation and the physical units method.

$2.19