Euclid Corporation processes a patented chemical P1 and prod

Euclid Corporation processes a patented chemical, P-1, and produces two outputs, P-11 and P-12. In August, the costs to process P-1 are $165,000 for materials and $280,000 for conversion costs. P-11 has a sales value of $688,000 and P-12 has a sales value of $172,000. Required Using the net realizable value method, assign costs to P-11 and P-12 for August. (Do not round intermediate calculations.)

Solution

CALCULATION OF COST OF THE PRODUCT P-11 & P-12 UNDER NET REALIZABLE METHOD P-11 P-12 Total Sales $                    6,88,000 $                 1,72,000 $    8,60,000 Ratio                                 0.80                              0.20 Ratio Or 4/5 1/5 Cost of Material (A) $                    1,32,000 $                     33,000 $    1,65,000 ($ 165,000 X 80%) ($ 165,000 X 20%) Conversion Cost (B) $                    2,24,000 $                     56,000 $    2,80,000 ($ 280,000 X 80%) ($ 280,000 X 20%) Total Cost of P11 & P12 (A+B) $                    3,56,000 $                     89,000 $    4,45,000 Answer = Cost of P-11 $                    3,56,000 Cost of P-12 $                        89,000