Net Realizable Value Method, Decision to Sell at Split-off or Process Further
Pacheco, Inc., produces two products, overs and unders, in a single process. The joint costs of this process were $50,000, and 14,000 units of overs and 36,000 units of unders were produced. Separable processing costs beyond the split-off point were as follows: overs, $18,000; unders, $23,040. Overs sell for $2.00 per unit; unders sell for $3.14 per unit.
1. Allocate the $50,000 joint costs using the estimated net realizable value method. When required, round your answers to the nearest dollar.
Allocated Joint Cost
2. Suppose that overs could be sold at the split-off point for $1.80 per unit. Should Pacheco sell overs at split-off or process them further? Show supporting computations.
This solution illustrates the way to decide whether to sell a product at its split-off point or to process it further.