Question

Northwest Building Products (NBP) manufactures two lumber products from a joint milling process: residential building lumber (RBL) and commercial building lumber (CBL). A standard production run incurs joint costs of $370,000 and results in 90,000 units of RBL and 80,000 units of CBL. Each RBL sells for $13 per unit and each CBL sells for $15 per unit

Required:

1. Assuming that no further processing occurs after the split-off point, how much of the joint costs are allocated to commercial lumber (CBL) on a physical measure method basis?

2. If no further processing occurs after the split-off point, how much of the joint cost is allocated to the residential lumber (RBL) using a sales value at split-off method?

3. Assume that the CBL is not marketable at split-off but must be planed and sized at a cost of $240,000 per production run. During this process, 10,000 units are unavoidably lost and have no value. The remaining units of CBL are salable at $16 per unit. The RBL, although salable immediately at the split-off point, is coated with a tarlike preservative that costs $220,000 per production run. The RBL is then sold for $15 each. Using the net realizable value basis, how much of the completion costs should be assigned to each unit of CBL?

4. Based on information in requirement 3, should NBP choose to process RBL beyond split-off?

Answer 1

Answer:

1)
	RBL	CBL	Total
Units of Production	90,000	80,000	170,000
Percentage of Total	52.94%	47.06%
Allocated Joint Cost	$195,882.35	$174,117.65	$370,000.00
2)	RBL	CBL	Total
Units of Production	90,000	80,000
Sales Price	$13.00	$15.00
Sales Value of Production	$1,170,000.00	$1,200,000.00	$2,370,000.00
Less: Separable Costs	0	0	0
New Realizable Value	$1,170,000.00	$1,200,000.00	$2,370,000.00
Percentage of Total NRV	52.94%	47.06%
Allocated Joint Cost	$195,882.35	$174,117.65	$370,000.00
3)	RBL	CBL	Total
Units of Production	90,000	80,000
Lost Untis		10,000
Sales Price	$15.00	$16.00
Sales Value of Production	$1,350,000.00	$1,120,000.00	$2,470,000.00
Less: Separable Costs	$220,000.00	$240,000.00
New Realizable Value	$1,130,000.00	$880,000.00	$2,010,000.00
Percentage of Total NRV	56.22%	43.78%
Allocated Joint Cost	$208,009.95	$161,990.05	$370,000.00
Plus: Separable Costs	$220,000.00	$240,000.00
Total Costs	$428,009.95	$401,990.05
Units Produced	90,000	70,000
Cost Per Unit	$4.76	$5.74
4)
Yes, NBD should process further