Question

16-23 Joint cost allocation: Sell immediately or process further. Illinois Soy Products (ISP) buys soybeans and processes them into other soy products. Each ton of soybeans that ISP purchases for $340 can be converted for an additional $190 into 575 pounds of soy meal and 160 gallons of soy oil. A pound of soy meal can be sold at splitoff for $1.24 and soy oil can be sold in bulk for $4.25 per gallon.ISP can process the 575 pounds of soy meal into 725 pounds of soy cookies at an additional cost of $380. Each pound of soy cookies can be sold for $2.24 per pound. The 160 gallons of soy oil can be packaged at a cost of $240 and made into 640 quarts of Soyola. Each quart of Soyola can be sold for $1.35.

1.Allocate the joint cost to the cookies and the Soyola using the following:a.Sales value at splitoff methodb.NRV method

2. Should ISP have processed each of the products further? What effect does the allocation method have on this decision?

Answer 1

1) the allocation of joint cost using sales value ayt split off point method :

particulars	cookies	soyola	total
sales (units * cost per unit)	(725*2.24) =1624	(640*1.35)=864	2488
persentage of sales(sales value/total)	65.27%	34.73%	100%
allocation of joint cost :
(340+190)*65.27%	346
(340+190)*34.73%		184
cost per unit (joint cost/total units)
(346/725 pounds)	$0.48 per pound
(184/640 quart)		0.29 per quart

2)allocation of joint cost using NRV method :

particulars	cookies	soyols	total
sales	1624	864	2488
additional cost	380	240	620
NRV	1244	624	1868
persentage (nrv /total)	66.6%	33.4%	100%
allocation of joint cost :
(340+190)* 66.6%	353
(340+190)*33.4%		177
cost per unit : (joint cost / total units)
353/725 pounds	0.49 per pound
177/640 quart		0.27 per quart