Business, 06.05.2020 08:39 HtetPaing9358

Joint manufacturing costs: $900,000 Quantity Produced Price at Split-OffGrade (Board Feet) (per 1,000 Board Ft.)Firsts and seconds 1,500,000 $300No. 1 common 3,000,000 225No. 2 common 1,875,000 140No. 3 common 1,125,000 100 Total 7,500,0001Allocate the joint manufacturing costs to each grade, and calculate the cost per board foot for each grade: (a) using the physical units method of allocation and (b) using the sales-value-at-split-off method. Which method should the mill use? Explain. What is the effect on the cost of each proposed job if the mill switches to the sales-value-at-split-off method?.

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Answer from: izaguirrelopez3

a) using the physical units method of allocation

Grade Units Allocated Joint Cost ($)

Firsts and seconds 1500000 180000

No. 1 common 3000000 360000

No. 2 common 1875000 225000

No. 3 common 1125000 135000

7500000 900000

The joint cost in the above table is allocated on the basis of units. For e.g. for Firsts & Seconds Cost = 900000 * 1500000 / 7500000 = $180000

b) using the sales-value-at-split-off method

Grade Units Price Sales Value ($) Allocated

Joint Cost ($)

Firsts and seconds1500000 300 450000000 270000

No. 1 common 3000000 225 675000000 405000

No. 2 common 1875000 140 262500000 157500

No. 3 common 1125000 100 112500000 67500

7500000 1500000000 900000

If physical quantity of joint-products closely reflect their costs then joint cost may be allocated using physical quantity method but when physical quantity of joint products does not reflect their value and a reliable estimate of sale value at split off point can be easily made then sales-value-at-split-off method should be used.

If the mill switches to the sales-value-at-split-off method, then cost allocated to No 2 & 3 common would decrease while for First & Seconds & No 1 common would increase since the selling price of First & Seconds & No 1 common is higher.

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Joint manufacturing costs: $900,000 Quantity Produced Price at Split-OffGrade (Board Feet) (per 1,00...

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