MARYLAND CORPORATION manufactures three liquid products - Alpha, Beta and Gamma using a joint process with direct materials, direct labor and overhead totaling $560,000 per batch. In addition, the process results in 5,000 lbs. of "Twinkle", which it sells on the open market for $0.40 per pound. The company treats "Twinkle" as a by-product and has chosen to "inventory" the by-product by recognizing the sales in the period of production. The following information is available regarding these products resulting from the processing of one batch: 

	At Split-Off Point		After Split-Off Point
		Value per		Processing		Final Selling
Product	Gallons	Gallon		Cost/gallon		Price
Alpha	4,500	$ 14		$ 4		$ 24
Beta	18,000	8		5		15
Gamma	135,800	18		2		22
Twinkle (in lbs)	5,000	$0.40

Round all allocation rates to 4 decimal places if necessary, and use your rounded number in all subsequent calculations.

Required:

For questions 1-3, account for the by-product by deducting the market value of the Twinkle byproduct from the joint costs before allocating to main products (the preferred manner, called "inventorying the costs" or "recognizing the by-product at the time of production").

1. Allocate the joint costs using the physical unit method.Using this method, what would the journal entry be to reflect the allocation of joint costs on the books of the company?

1. Allocate the joint costs using the sales value at split-off method.

1. Allocate the joint costs using the net realizable value (NRV) method.

1. WHY do you think that inventorying by-products is preferred? What about this treatment seems right? What advantages are there to doing it this way?

1. Suggest another way that they could handle the costs of the by-product and the possible future sales proceeds. Does this seem right or wrong? WHY or WHY NOT?

1. Assume you are using the NRV method and the further processing of Gamma was $7 per gallon instead of $2 per gallon. Would this change your allocation? WHY or WHY NOT? If your allocation would change, what would the revised allocations be?

Answer rating: 100% (QA)

To solve this problem we need to follow the steps provided in the question 1 Allocate the joint costs using the physical unit method accounting for th... View the full answer