Question

Nature's Garden Inc. produces wood chips, wood pulp, and mulch. These products are produced through harvesting trees and sending the logs through a wood chipper machine. One batch of logs produces 20,304 cubic yards of wood chips, 14,100 cubic yards of mulch, and 9,024 cubic yards of wood pulp. The joint production process costs a total of $32,000 per batch. After the split-off point, wood chips are immediately sold for $25 per cubic yard while wood pulp and mulch are processed further. The market value of the wood pulp and mulch at the split-off point is estimated to be $22 and $24 per cubic yard, respectively. The additional production process of the wood pulp costs $5 per cubic yard, after which it is sold for $30 per cubic yard. The additional production process of the mulch costs $4 per cubic yard, after which it is sold for $32 per cubic yard.
Allocate the joint costs of production to each product using the net realizable value method.
Joint Product Allocation
Wood chips $
Wood pulp
Mulch
Totals $

Answer 1

Answer:

Product Output Selling price per cubicyard net realizable value

Wood chips

20,304 cubic yards $25 507,600

Wood pulp

9,024 cubic yards $22 198,528

Mulch

14,100 cubic yards $24 338,400

Product Percentage of Net realizable value

Wood chips 48.60%

Wood pulp 19%

Mulch 32.40%

Product Allocation of Joint costs

Wood chips $15,552

Wood pulp $6,080

Mulch $10,368

Explanation:

Allocation of the joint costs of production to each product using the net realizable value method.

Joint Product Allocation

Product Output Selling price per cubic yard net realizable value

Wood chips

20,304 cubic yards $25 507,600

(20,304 x 25) = 507,600

Wood pulp

9,024 cubic yards $22 198,528

(9,024 x 22 )= 198,528

Mulch

14,100 cubic yards $24 338,400

(14,100 x 24 )= 338,400

Total $1,044,528

(507,600+198,528+338,400)

Product Percentage of Net realizable value

Wood chips 507,600/1,044,528= 48.60%

Wood pulp 198,528/1,044,528= 19%

Mulch 338,400/1,044,528= 32.40%

Total $1,044,528

Product Allocation of Joint costs

Wood chips 48.60% *32,000=$15,552

Wood pulp 19%*32,000=$6,080

Mulch 32.40% *32,000=$10,368

Total $32,000