Question

Benjamin Company produces two products from a joint process: X and Z. Joint processing costs for this production cycle are $8,000.

Yards

Sales price

per yard at

split-off

Disposal

cost per yard at

split-off

Further

processing

per yard

Final sale

price per

yard

X 1,500 $6.00 $3.50 $1.00 $7.50

Z 2,200 9.00 5.00 3.00 11.25

If X and Z are processed further, no disposal costs will be incurred or such costs will be borne by the buyer. Refer to Benjamin Company. Using sales value at split-off, what amount of joint processing cost is allocated to Product Z (round to the nearest dollar)?

Select one:

a. $4,757

b. $4,000

c. $5,500

d. $2,500

2

Oregon Forests uses a joint process to manufacture two grades of wood: A and B.

During October, the company incurred $48,600,000 of joint production cost in

producing 81,000,000 board feet of Grade A and 27,000,000 board feet of Grade B lumber. The company allocates joint cost on the basis of board feet of lumber produced. The company can sell Grade A lumber at the split-off point for $0.70 per board foot and Grade B lumber at the split-off point for $0.50 per board foot. Alternatively, Grade A lumber can be further processed at a cost of $0.75 per board

foot and then sold for $1.50 per board foot. No opportunity exists for processing

Grade B lumber after split-off.

a. How much joint cost should be allocated to Grade A and to Grade B lumber using the physical units method?

Grade A $Answer

Grade B $Answer

b. 1. If Grade A lumber is processed further and then sold, what is the incremental

effect on Oregon Forests’ net income?

Processing further will result in an Answer $Answer

2. Should the additional processing be performed? Answer

Please answer all parts of the question.

Answer 1

1	Benjamin Company:
	Joint costs to be allocated=$ 8000
	Allocation of joint costs:
		Yards	Sales price per yard at split-off	Sales value at split-off	Percent of sales value	Joint cost allocated
		a	b	c=a*b	d	d*8000
	X	1500	6	9000	31.25%	2500
					(9000/28800)
	Z	2200	9	19800	68.75%	5500
					(19800/28800)
				28800
	Amount of joint processing cost allocated to Product Z=$ 5500
	Answer is
	c. $ 5500
2	Oregon Forests:
a.		Units	Percent	*	Joint cost	=	Allocated joint costs
	X	81000000	75.00%		48600000		36450000
	Z	27000000	25.00%		48600000		12150000
	Total	108000000					48600000
b.
1	Incremental effect on net income:
						$
	Sales value of A after further processing				(81000000*1.50)	121500000
	Less:Sales value at split-off				(81000000*0.70)	56700000
	Incremental revenue					64800000
	Less:Further processing cost				(81000000*0.75)	60750000
	Incremental net income					4050000
2	Additional processing should be performed since it results in an increase in net income of $ 4050000