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First, calculate the net realizable value of each product, total them, and find Product C's percentage of the total NRVs of all the products. Multiply that percentage by the total costs per batch of $315,000 to find the total cost to be allocated to Product C per batch. Divide that total cost allocated to C by the number of units of C to be produced per batch to find the cost allocated to each unit of Product C. Product A Product B Product C Total Final sales value per unit $5.00 $6.00 $7.00 Minus: Addtl. processing & marketing cost/unit ? .70 ?3.00 ?1.72 Net realizable value per unit $4.30 $3.00 $5.28 Multiply by number of units produced ×20,000 ×30,000 ×50,000 Net realizable value $86,000 $90,000 $264,000 $440,000 Percentage of total NRV 19.5% 20.5% 60.0% Product C's net realizable value is 60% of the total net realizable value of $440,000 ($264,000 ÷ $440,000 = .60). Therefore, 60% of the total cost per batch should be allocated to Product C: $315,000 × .60 = $189,000. The allocated cost per unit is $189,000 ÷ 50,000 units in each batch = $3.78.
This answer results from using the physical unit method to allocate the joint cost. The problem says to use the net realizable value method.
This answer results from calculating the NRV per unit of each product, totaling the per unit NRVs, and finding the percentage of the total represented by Product C, which is 42%. The total cost of $315,000 multiplied by 42% and then divided by 50,000 units of Product C per batch equals $2.65. This is incorrect because it does not account for the fact that the number of units produced per batch is different for each product. The NRV per unit for each product needs to be multiplied by the number of units produced per batch of that product to find the NRV per batch for each product. Then the three per batch NRVs need to be totaled to find the total NRV for one batch of all three products. The NRV for a batch of Product C divided by the total NRV for one batch of all three products equals the percentage of the joint cost to allocate to one batch of Product C. That amount divided by the number of units in one batch of C equals the amount of joint cost allocated to each unit of Product C.
This answer results from allocating 1/3 of the total cost to each product. The problem says to use the net realizable value method of allocating the joint cost.