Net r ealisab l e v alue c o s t-al l ocation method, further p r o c e s s decision.

Net r ealisab l e v alue c o s t-al l ocation method, further p r o c e s s decision.

Langholmen-Sverige, AB, crushes and refines mineral ore into three products in a joint-cost operation. Costs and production for 2007 were as follows:

^● Department 1, at initial joint costs of SKr 420 000, produces 20 000 kg of Vadstena,

60 000 kg of Vättervik and 100 000 kg of Birgitta

^● Department 2 processes Vadstena further at a cost of SKr 100 000

^● Department 3 processes Vättervik further at a cost of SKr 200 000. Results for 2007 are:

^● Vadstena: 20 000 kg completed; 19 000 kg sold for SKr 20 per kg; closing stock, 1000 kg

^● Vättervik: 60 000 kg completed; 59 000 kg sold for SKr 6 per kg; closing stock, 1000 kg

^● Birgitta: 100 000 kg completed; 99 000 kg sold for SKr 1 per kg; closing stock, 1000 kg; Birgitta required no further processing.

Required

1 Use the estimated NRV method to allocate the joint costs of the three products.

Calculate the total costs and unit costs of closing stock.

2 Calculate the individual gross-margin percentages of the three products.

3 Suppose Langholmen-Sverige receives an offer to sell all of its Vättervik product for a price of SKr 2 per kg at the split-off point before going through Department 3, just as it comes off the production line in Department 1. Using last year’s figures, would Langholmen-Sverige be better off by selling Vättervik that way or processing it through Department 3 and selling it? Show computations to support your answer. Disregard all other factors not mentioned in the problem.

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