Question

Assume that the CBL 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 CBL are salable at $14 per unit. The RBL, although salable immediately at the split-off point, is coated with a tarlike preservative that costs $200,000 per production run. The RBL is then sold for $12 each. Using the net realizable value basis, how much of the completion costs should be assigned to each unit of CBL

Answer 1

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 $350,000 and results in 100,000 units of RBL and 90,000 units of CBL. Each RBL sells for $13 per unit and each CBL sells for $13 per unit.

Assume that the CBL 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 CBL are salable at $14 per unit. The RBL, although salable immediately at the split-off point, is coated with a tarlike preservative that costs $200,000 per production run. The RBL is then sold for $12 each. Using the net realizable value basis, how much of the completion costs should be assigned to each unit of CBL

 

Answer:

Completion cost per unit of CBL=$5.82

Explanation:

Joint cost is the total cost incurred from the start of start of production process up until the split off point where two or more products result from the same process. The joint products in this case are CBL and RBL

The completion cost of CBL is the sum of the apportioned joint cost at the split-off point plus the further processing cost

Completion cost = apportioned joint cost + further processing cost

Joint cost can be apportioned using the net realizable value as follows

Total net realizable value at the split of point for the two product=

RBL =$13 × 100,000=1,300,000

CBL =$13 × 90,000=1,170,000

Total                         2,470,000

Apportioned joint cost to CBL = sales value of CBL/Total sales of product× joint cost

= (1,170,000/2,470,000)*$350,000=   165,789.47  

Completion cost =  165,789.47   +  300,000 =  $465,789.47

Completion cost per unit of CBL =  Completion cost/Expected unit

                                                       =$465,789.47/(90,000-10,000) units

                                                       =$5.82

Note that the expected units is that available for sale after normal loss as be accounted for. So, we deduct the loss units

Completion cost per unit of CBL=$5.82