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 $450,000 and results in 80,000 units of RBL and 120,000 units of CBL. Each RBL sells for $10 per unit and each CBL sells for $12 per unit
Required:
a. Assuming that no further processing occurs after the split-off point, how much of the joint costs are allocated to commercial lumber (CB) on a physical measure method basis?
b. If no further processing occurs after the split-off point, how much of the joint cost is allocated to the residential lumber (RBL) on a sales value basis?
c. Assume that the CB is not marketable at split-off but must be planed and sized at a cost of $300,000 per production run. During this process, 10,000 units are unavoidably lost and have no value. The remaining units of CB are salable at S14 per unit. The RBC, although salable immediately at the split off point, is coated with a tarlike preservative that costs $200,000 per production run. The RBC is then sold for $12 each. Using the net realizable value basis, how much of the completed cost should be assigned to each unit of CB?

d. Based on information in part 3 above, should NBP choose to process RBC beyond split-off ?

Answer 1

Answer:

Northwest Building Products (NBP)

The completed cost that should be assigned to each unit of CB is $5.18.

Explanation:

a) Data and Calculations:

Joint cost = $450,000

Residential building lumber (RBL) produced = 80,000 units

Commercial building lumber (CBL) produced = 120,000 units

Total units produced = 200,000

RBL selling price per unit = $10; Total revenue = $800,000

CBL selling price per unit = $12; Total revenue = $1,440,000

Total revenue for RBL and CBL = $2,240,000

a. Joint costs allocation on physical measure method:

RBL = $450,000 * 80,000/200,000 = $180,000

CBL = $450,000 * 120,000/200,000 = $270,000

b. Joint costs allocation on sales value basis:

RBL = $450,000 * $800,000/$2,240,000 = $160,714

CBL = $450,000 * $1,440,000/$2,240,000 = $289,286

c. Net Realizable value after further processing:

RBL: Completed cost = $380,000 ($180,000 + $200,000)/

Total revenue =             $960,000 ($12 * 80,000)

Total cost of production  380,000

Net realizable value =   $580,000

CBL: Completed cost = $570,000 ($270,000 + $300,000)

Total revenue =                $1,540,000 (110,000 * $14)

Total cost of production =    570,000

Net realizable value =        $970,000

Cost per CBL = $5.18 ($570,000/110,000)