Smokey Enterprises Buys Liquid Charcoal for $0

Essay

Smokey Enterprises buys Liquid Charcoal for $0.80 a gallon. At the end of processing in Department 1, the liquid charcoal splits off into Products U, V, and W. Product U is sold at the split-off point, with no further processing. Products V and W require further processing before they can be sold; Product V is processed in Department 2, and Product W is processed in Department 3. Following is a summary of costs and other related data for the most recent accounting period:

There were no beginning inventories and there was no liquid charcoal on hand at the end of the period. All gallons on hand in ending inventory were complete as to processing.
Required:
a. Determine the product cost for U, V, and W, assuming the physical quantities method is used to allocate joint costs.
b. Determine the product cost for U, V, and W, assuming the net realizable value method is used to allocate joint costs.