Cola Drink Company processes direct materials up to the splitoff point where two products, A and B, are obtained

ACCOUNTING

Multiple Choice

Cola Drink Company processes direct materials up to the splitoff point where two products, A and B, are obtained. The following information was collected for the month of July:

Direct materials processed: 2,500 liters (with 20% shrinkage)


Production: A 1,500 liters

B 500 liters


Sales: A $15.00 per liter

B $10.00 per liter

Cost of purchasing 2,500 liters of direct materials and processing it up to the splitoff point to yield a total of 2,000 liters of good products was $4,500. There were no inventory balances of A and B.

Product A may be processed further to yield 1,375 liters of Product Z5 for an additional processing cost of $150. Product Z5 is sold for $25.00 per liter. There was no beginning inventory and ending inventory was 125 liters.

Product B may be processed further to yield 375 liters of Product W3 for an additional processing cost of $275. Product W3 is sold for $30.00 per liter. There was no beginning inventory and ending inventory was 25 liters.


What is Product Z5's estimated net realizable value at the splitoff point?

a. $11,100

b. $22,350

c. $34,225

d. $34,375

Click here for the SOLUTION