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# NRV and Physical Units Method of Allocation

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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

## Bubble Corp Joint Costs: Allocate using physical units, NRV, constant GP %

Problem 1:
Bubble Corporation manufactures two products, I and II, from a joint process. A single production costs \$4,000 and results in 100 units of I and 400 units of II. To be ready for sale, both products must be processed further, incurring separable costs of \$1 per unit for I and \$2 per unit for II. The market price for Product I is \$20 and for Product II is \$15.
Required:
1. Allocate joint production costs to each product using the physical units method.
2. Allocate joint production costs to each product using the net realizable value method.
3. Allocate joint production costs to each product using the constant gross margin percentage method.

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