Nelson SA Obtains Two Products and a By-Product from Its Production

question 30

Essay

Nelson SA. obtains two products and a by-product from its production process. By-product revenues are treated as other income and a noncost approach is used to assign costs to them. During the period, 1,200 units were processed at a cost of £12,000 for materials and conversion costs, resulting in the following: Required:
a.
Account for all costs using a physical basis for allocation.
b.
Account for all costs using net realizable value as the basis for allocation.
c.
Account for all costs using final sales value as the basis for allocation.
d.
How much joint costs should be allocated to the by-product?

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Definitions:

Complementary Goods

Products or services that are used together, where an increase in demand for one leads to an increase in demand for the other.

Substitute Goods

Products or services that can be used in place of each other by consumers.

Price of Oil

The amount of money required to purchase a barrel of oil, influenced by global supply and demand, geopolitical events, and other factors.

Natural Gas

Natural gas is a fossil fuel consisting mainly of methane and other hydrocarbons, used as a source of energy for heating, cooking, and electricity generation.