Estimated net realisable value method, by-products. (CMA, adapted) (30 minutes) 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 outside skin of the apple, 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 inventoried 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 production process are presented here:

® The apples are washed and the outside skin 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 transferred 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 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 pulverised 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 outside skin 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 proportion by weight transferred to the four final processing departments and the selling price of each end product. kio

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 1999, 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 information by joint product for planning and control purposes, as opposed to stock-costing purposes.

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Processing Data and Costs November 1999 PROPORTION OF PRODUCT BY WEIGHT SELLING PRICE PER TRANSFERRED TO DEPARTMENTS KG OF FINAL PRODUCT DEPARTMENT COSTS INCURRED Cutting EUR 60,000 Slicing 11,280 33% EUR 0.80 Crushing 8,550 30 0.55 Juicing 3,000 27 0.40 Feed 700 10 0.10 Total EUR 83.530 100%