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LO.3 (Physi

LO.3 (Physi

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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LO.3 (Physical measure allocation) Michigan Timber uses a joint process to manu- facture two grades of wood: A and B. During October 2010, the company incurred $12,000,000 of joint production cost in producing 18,000,000 board feet of Grade A and 6,000,000 board feet of Grade B lumber. The company allocates joint cost on the basis of board feet of lumber produced. The company can sell Grade A lumber at the split-off point for $0.80 per board foot. Alternatively, Grade A lumber can be further processed at a cost of $0.75 per board foot and then sold for $1.90 per board foot. No opportunity exists for processing Grade B lumber after split-off. a. How much joint cost should be allocated to Grade A and to Grade B lumber? b. If Grade A lumber is processed further and then sold, what is the incremental effect on Michigan Timber's net income? Should the additional processing be performed? LO.3 (Sales value and physical value allocation) Cal-C-Yum produces milk and sour cream from a joint process. During June, the company produced 120,000 quarts of milk and 160,000 pints of sour cream (there are two pints in a quart). Sales value at split-off point was $120,000 for the milk and $280,000 for the sour cream. The milk was assigned $45,000 of the joint cost. a. Using the sales value at split-off approach, determine the total joint cost for June. b. Assume, instead, that the joint cost was allocated based on the number of quarts produced. What was the total joint cost incurred in June?
Transcribed Image Text:LO.3 (Physical measure allocation) Michigan Timber uses a joint process to manu- facture two grades of wood: A and B. During October 2010, the company incurred $12,000,000 of joint production cost in producing 18,000,000 board feet of Grade A and 6,000,000 board feet of Grade B lumber. The company allocates joint cost on the basis of board feet of lumber produced. The company can sell Grade A lumber at the split-off point for $0.80 per board foot. Alternatively, Grade A lumber can be further processed at a cost of $0.75 per board foot and then sold for $1.90 per board foot. No opportunity exists for processing Grade B lumber after split-off. a. How much joint cost should be allocated to Grade A and to Grade B lumber? b. If Grade A lumber is processed further and then sold, what is the incremental effect on Michigan Timber's net income? Should the additional processing be performed? LO.3 (Sales value and physical value allocation) Cal-C-Yum produces milk and sour cream from a joint process. During June, the company produced 120,000 quarts of milk and 160,000 pints of sour cream (there are two pints in a quart). Sales value at split-off point was $120,000 for the milk and $280,000 for the sour cream. The milk was assigned $45,000 of the joint cost. a. Using the sales value at split-off approach, determine the total joint cost for June. b. Assume, instead, that the joint cost was allocated based on the number of quarts produced. What was the total joint cost incurred in June?
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