E s timated net r ealisab l e v alue method, by-p r oducts.

E s timated net r ealisab l e v alue method, by-p r oducts.

Flori-Dante Srl grows, processes, packages and sells three joint apple products: (a) sliced apples that are used in frozen pies, (b) apple sauce, and (c) apple juice. The apple peel, processed as animal feed, is treated as a by-product. Flori-Dante uses the estimated NRV method to allocate costs of the joint process to its joint products. The by-product is inven- toried at its selling price when produced; the net realisable value of the by-product is used to reduce the joint production costs before the split-off point. Details of Flori-Dante pro- duction process are presented here:

^● The apples are washed and the peel is removed in the Cutting Department. The apples are then cored and trimmed for slicing. The three joint products and the by-product are recognisable after processing in the Cutting Department. Each product is then trans- ferred to a separate department for final processing.

^● The trimmed apples are forwarded to the Slicing Department, where they are sliced and frozen. Any juice generated during the slicing operation is frozen with the apple slices.

^● The pieces of apple trimmed from the fruit are processed into apple sauce in the Crushing

Department. The juice generated during this operation is used in the apple sauce.

^● The core and any surplus apple pieces generated from the Cutting Department are pul- verised into a liquid in the Juicing Department. There is a loss equal to 8% of the weight of the good output produced in this department.

^● The peel is chopped into animal feed and packaged in the Feed Department. It can be kept in cold storage until needed.

A total of 270 000 kg of apples were entered into the Cutting Department during November. The following schedule shows the costs incurred in each department, the pro- portion by weight transferred to the four final processing departments and the selling price of each end-product.

Processing data and costs November 2007

Proportion of

product by weight Selling price per transferred to kilogram of final

Department Costs incurred departments product

Cutting	€60 000
Slicing	11 280	33%	€0.80
Crushing	8 550	30	0.55
Juicing	3 000	27	0.40
Feed 700 10 0.10 –––––––– – ––––– – ––––––
T otal	€83 530	100%
	–––––––––	––––––

Required

1 Flori-Dante uses the estimated NRV method to determine stock cost of its joint products; by-products are reported on the balance sheet at their selling price when produced. For the month of November 2007, calculate the following:

a The output for apple slices, apple sauce, apple juice and animal feed, in kilograms.

b The estimated NRV at the split-off point for each of the three joint products.

c The amount of the cost of the Cutting Department assigned to each of the three joint products and the amount assigned to the by-product in accordance with corporate policy.

d The gross margins in euros for each of the three joint products.

2 Comment on the significance to management of the gross-margin monetary informa- tion by joint product for planning and control purposes, as opposed to stock-costing purposes.

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