Question

Iowa Soy Products buys soy beans and process them. Each ton of soy beans can be purchased for $300. At a cost of $200, each ton of soy beans is processed into 500 pounds of soy meal and 100 galons of soy oil. At the split off point, a pound of soy meal can be sold for $1.00 and soy oil can be sold for $4.00 per gallon. The joint products can be processed further. At an additional cost of $300, the soy meal can be proccesed into 500 pounds of cookies and sold for $2.00 per pound. The soy oil can be further processed at the cost of $200 into 100 gallons of Soyola. Each gallon of Soyola can be sold for $5.00 per gallon.

a. Using the Net Realizable Sales Value at Split Off method, assign the joint production costs to the two products and calculate the inventory value per unit at the Split Off Point.

b. If the products are further processed, what is the ending inventory value ?

Answer 1

Cost of purchase of one ton of soy beans	$300
(+) Cost of processing one ton of soy beans	$200
Total joint cost	$500

One ton of soy beans is processed into 500 pounds of soy meal and 100 galons of soy oil

a. Calculation of Joint cost allocation using net realizable sales value at split off method

	Soy meal	Soy oil	Total
Final sales value	$1,000 [ 500 pounds of cookies * $2 per pound ]	$500 [ 100 gallons of Soyola * $5 per gallon ]
(-)Additional processing cost	( $300 )	( $200 )
Net realizable value (NRV) at split off point	$700	$300	$1,000
% of total NRV	70% [ ( $700 / $1,000 ) * 100 ]	30% [ ( $300 / $1,000 ) * 100 ]
Joint cost allocation [ Total joint cost * % of total NRV ]	$350 [ $500 * 70% ]	$150 [ $500 * 30% ]

Calculation of inventory value per unit at the split off point

	Soy meal	Soy oil
Joint cost	$350	$150
( / ) Total units	500 pounds	100 gallons
Inventory value per unit at the split off point	$0.7 per pound	$1.5 per gallon

b. Calculation of ending inventory value if the products are processed further :

	Soy meal	Soy oil
Joint cost	$350	$150
(+) additional processing cost	$300	$200
Ending inventory value after further processing	$650 [ Cookies ]	$350 [ Soyola ]