The Mallak Company produced three joint products at a joint cost of $124,000. Two of these products were processed further. Production and sales were:Product Weight Sales Additional Processing CostsP 312,000 pounds $ 266,000 $ 212,000Q 112,000 pounds 42,000 0R 112,000 pounds 202,000 112,000What is the net income of Mallak Company if the estimated net realizable value method of joint cost allocation is used?
Question
The Mallak Company produced three joint products at a joint cost of 266,000 $ 212,000Q 112,000 pounds 42,000 0R 112,000 pounds 202,000 112,000What is the net income of Mallak Company if the estimated net realizable value method of joint cost allocation is used?
Solution
To calculate the net income of Mallak Company using the estimated net realizable value method of joint cost allocation, we need to follow these steps:
Step 1: Calculate the Net Realizable Value (NRV) for each product. The NRV is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion and disposal.
For Product P: Sales - Additional Processing Costs = 212,000 = $54,000
For Product Q: Sales - Additional Processing Costs = 0 = $42,000
For Product R: Sales - Additional Processing Costs = 112,000 = $90,000
Step 2: Calculate the total NRV for all products. This is done by adding the NRVs of all products together.
Total NRV = NRV of P + NRV of Q + NRV of R = 42,000 + 186,000
Step 3: Calculate the joint cost allocation for each product. This is done by dividing the NRV of each product by the total NRV, and then multiplying by the total joint cost.
For Product P: (186,000) * 35,806.45
For Product Q: (186,000) * 28,000
For Product R: (186,000) * 60,193.55
Step 4: Calculate the net income for each product. This is done by subtracting the joint cost allocation and additional processing costs from the sales.
For Product P: Sales - Joint Cost Allocation - Additional Processing Costs = 35,806.45 - 18,193.55
For Product Q: Sales - Joint Cost Allocation - Additional Processing Costs = 28,000 - 14,000
For Product R: Sales - Joint Cost Allocation - Additional Processing Costs = 60,193.55 - 29,806.45
Step 5: Calculate the total net income. This is done by adding the net incomes of all products together.
Total Net Income = Net Income of P + Net Income of Q + Net Income of R = 14,000 + 62,000
So, the net income of Mallak Company using the estimated net realizable value method of joint cost allocation is $62,000.
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