# CMA Study Group

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## Joint Cost allocation using Net Realizable Value

• #### 1.  Joint Cost allocation using Net Realizable Value

Posted 23 days ago
Hello,

For Joint cost allocation, how can we determine when to ignore the by-product cost or include in the calculation

Atlas Foods produces the following three supplemental food products simultaneously through a refining process costing \$93,000:

• Alfa-10,000 pounds of Alfa, a popular but relatively rare grain supplement having a caloric value of 4,400 calories per pound
• Betters-5,000 pounds of Betters, a flavoring material high in carbohydrates with a caloric value of 11,200 calories per pound
• Morefeed-1,000 pounds of Morefeed, used as a cattle feed supplement which has a caloric value of 1,000 calories per pound

The joint products, Alfa and Betters, have a final selling price of \$4 per pound and \$10 per pound, respectively, after additional processing costs of \$2 per pound of each product are incurred after the split-off point. Morefeed, a byproduct, is sold at the split-off point for \$3 per pound.

Assuming that Atlas Foods does not inventory Morefeed, the byproduct, the joint cost to be allocated to Betters using the net realizable value method is:

Based on the question mentioning that Atlas does not inventory Morefeed, I reduced \$3,000 from total Joint cost of \$93,000 and used 90,000 for allocation but the answer included all 93,000 for allocation cost. It did ignore Morefeed in determining the allocation %. My confusion is when Morefeed was not included in determining the allocation %, why \$93,000 cost was used. It should have been \$90,000....Please advise

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