(Process costing; joint cost allocation; by-product) Michelle’s Fitness Center provides personal training services and sells a variety of apparel products for its clients. The center also generates some revenue from the sale of used towels, which are periodically sold to a rag-rug manufacturer. The net realiz¬ able value of used towels is accounted for as a reduction in the joint cost assigned to the Personal Training Services and Apparel Products. Used tow¬ els sell for $0.60 per pound. The cost of bundling the towels is $0.10 per pound, and their selling costs are $0.05 per pound.

The following information is available for 2006 on apparel inventory, which is purchased by the fitness center:

Joint cost is to be allocated to Personal Training Services and Apparel Products based on approximated net realizable values (revenues less sepa- rate costs). For 2006, total revenues were $753,000 from Personal Training Services and $289,000 from Apparel. The following joint costs were incurred:

For the year, 2,510 pounds of used towels were collected and sold.

a. Diagram this problem similar to diagrams in Exhibits 11-4 and 11-9.

b. What is the total net realizable value of towels that is applied to reduce the joint cost assigned to Personal Training and Apparel?

c. What is the joint cost to be allocated to Personal Training and Apparel?

d. What is the approximated pre-tax realizable value of each main product or service for 2006?

e. How much joint cost is allocated to each main product or service?

f. Determine the net income produced by each main product or service. LO1.

Transcribed Image Text:

Beginning inventory Ending inventory Purchases $ 35,000 21,500 181,350