Problem 11-71 (Static) Estimated Net Realizable Value and Effects of Processing Further (LO 11-3, 4)

Lipton Liquids produces three products by a joint production process. Raw materials are put into production in Department 1, and at the end of processing in this department, three products appear. Alpha is sold at the split-off point with no further processing. Beta and Gamma require further processing before they are sold. Beta is processed in Department 2, and Gamma is processed in Department 3. Lipton Liquids uses the estimated net realizable value method of allocating joint production costs.

No inventories were on hand at July 1, the beginning of the quarter. No raw material was on hand at September 30. All units on hand at September 30 were fully complete as to processing. Following is a summary of costs and other data for the period ended September 30:

Products	Alpha	Beta	Gamma
Units sold	28,000	82,600	98,000
Units on hand at September 30	70,000	0	56,000
Sales revenues	$ 126,000	$ 743,400	$ 1,029,000

Departments	1	2	3
Raw material cost	$ 470,400	$ 0	$ 0
Direct labor cost	201,600	339,780	805,350
Manufacturing overhead	84,000	88,620	307,650

Required:

1. Determine the following amounts for each product: (1) estimated net realizable value used for allocating joint costs, (2) joint costs allocated to each of the three products, (3) cost of goods sold, and (4) finished goods inventory costs, September 30.
2. Assume that the entire output of Alpha could be processed further at an additional cost of $12 per unit and then sold for $16.30 per unit. Compute the incremental income (loss) from further processing Alpha.
3. Considering the results of part b, should Lipton Liquids process Alpha further?