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 $390,000 and results in 80,000 units of RBL and 100,000 units of CBL. Each RBL sells for $10 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 planned and sized at a cost of $270,000 per production run. During this process, 10,000 units are unavoidably lost and have no value. The remaining units of CBL are salable at $17 per unit. The RBL, although salable immediately at the split-off point, is coated with a tarlike preservative that costs $170,000 per production run. The RBL is then sold for $11 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?

a. Yes because it can charge a higher price for the residential lumber after the additional processing.

b. Yes because total revenue for the residential lumber exceeds the incremental cost of the additional processing.

c. No because the increase in sales revenue is less than the extra processing costs.

d. No because additional processing results in an unavoidable loss of 10,000 units of CBL.

1. Allocated joint cost	?
2. Allocated joint cost	?
3. How much of the completion costs should be assigned to each unit of CBL?	?
4. Based on the information in requirement 3, should NBP choose to process RBL beyond split-off?	?

Answer 1