Question

Northwest Building Projects manufactures two lumber products from a joint milling process: residential building lumber and commerical building lumber. A standard production run incurs joint costs of $350,000 and results in 120,000 units of residential building lumber and 120,000 units of commercial building lumber. Each residential building lumber sells for $12 per unit and each commerical building lumber sells for $8 per unit.

1) Assume that the CBL is not marketable at split-off but must be planed and sized at a cost of $220,000 per production run. During this process, 10,000 units are unavoidably lost and have no value. The remaining units of CBL are salable at $10 per unit. The RBL, although salable immediately at the split-off point, is coated with a tarlike preservative that costs $250,000 per production run. The RBL is then sold for $13 each. Using the net realizable value basis, how much of the completion costs should be assigned to each unit of CBL?

Answer 1

Calculation of Net Realizable Value:

Particulars	CBL	RBL
Selling price per unit at final point	$ 10	$ 13
Units (Total units-lost units)	110000 units	120000 units
Total Sales Value	$ 1100000	$ 1560000
Less: Separate production cost	$ 220000	$ 250000
Net Realizable Value	$ 880000	$ 1310000

Allocation of Joint Cost using NRV ratio :

For CBL

$ 350000*88/219 = $ 140639.27

After round off = $ 140640

For RBL

$ 350000*131/219 = $ 209360.73

After round off = 209360

Statement of Profit of CBL and RBL

Particular	CBL	CBL	RBL	RBL
	Value at split-off	Value after final processing	Value at split-off	Value after final processing
Selling price per unit	$ 8 (could not be sold at split-off)	$ 10	$ 12	$ 13
Units		110000	120000	120000
Total Sale Value		$ 1100000	$ 1440000	$ 1560000
Less: Cost
1. Split-off cost	$ 140640	$ 140640	$ 209360	$ 209360
2. Separate Cost	0	$ 220000	0	$ 250000
Profit		$ 739360	$ 1230640	$ $ 1100640