Question

Tempe Inc. produces two products—Basic and Fancy–by a joint process. The company incurred joint costs of $200,000. The company has gathered the following information: Basic Fancy Units produced 30,000 20,000 Sales price $25 $35 Units sold 20,000 18,000 Beginning Inventory 0 0 Determine the value of ending inventory for Basic and Fancy using the sales value at splitoff method.

Answer 1

Answer:

Basic ending inventory = $27,777.78

Fancy ending inventory = $11,666.67

Explanation:

                                                Basic            Fancy

Units produced                    30,000          20,000

Sales price                             $25                 $35

Units sold                             20,000           18,000

Beginning Inventory                0                      0

joint costs incurred = $200,000

The sales value at splitoff method allocates joint costs based on the products' prices.

Basic is allocated $25 / ($25 + $60) = 41.67% x $200,000 = $83,333.33 of joint costs. Production cost per unit = $83,333.33 / 30,000 = $2.78.

Ending inventory = (30,000 - 20,000) x $2.7778 = $27,777.78

Fancy is allocated $35 / ($25 + $60) = 58.33% x $200,000 = $116,666.67 of joint costs. Production cost per unit = $116,666.67 / 20,000 = $5.83333.

Ending inventory = (20,000 - 18,000) x $5.83333 = $11,666.67