Nelson Inc AAccount for All Costs Using a Physical Basis for Allocation

question 37

Essay

Nelson Inc.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:
$$\begin{array} { c c c c r } & \text { Sales Value } & \text { Costs after } & \text { Final } \\\text { Praduct } & \text { Units } & \text { Separation } & \text { Separation } & \text { Value } \\\hline\mathbf { X } & 200 & \$ 4,000 & \$ 2,000 & \$ 10,000 \\\mathbf { Y } & 400 & 5,000 & 6,000 & 12,000 \\\text { By-praduct } & 150 & 500 & 500 & 1,500\end{array}$$
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:

Incremental Cash Flows

The additional cash flow a company receives from undertaking a new project, considering only revenues and expenses directly related to the project.

Discount Rate

The interest rate used to determine the present value of future cash flows in discounted cash flow analysis.

Privately Owned

A business that is owned by private individuals or entities and not by the government or public investors.

Shares Of Stock

Units of ownership in a corporation that give shareholders a claim on part of the corporation's earnings and assets.