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Decision to Sell at Split-off or Process Further

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.

Required:

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

Overs $
Unders $

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.

Solution Summary

This solution illustrates the way to decide whether to sell a product at its split-off point or to process it further.

$2.19