Problem 7-43 Joint Products [LO 7-6] Northwest Building Products (NBP) manufactu
ID: 2336707 • Letter: P
Question
Problem 7-43 Joint Products [LO 7-6] 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 $470,000 and results in 110,000 units of RBL and 60,000 units of CBL. Each RBL sells for $10 per unit and each CBL sells for $14 per unit. Required: 1. Assuming that no further processing occurs after the split-off point, how much of the joint costs are allocated to commercial lumber (CBL) on a physical measure method basis? 2. If no further processing occurs after the split-off point, how much of the joint cost is allocated to the residential lumber (RBL) using a sales value at split-off method? 3. Assume that the CBL is not marketable at split-off but must be planed and sized at a cost of $330,000 per production run. During this process, 10,000 units are unavoidably lost and have no value. The remaining units of CBL are salable at $15 per unit. The RBL, although salable immediately at the split-off point, is coated with a tarlike preservative that costs $170,000 per production run. The RBL is then sold for $11 each. Using the net realizable value basis, how much of the completion costs should be assigned to each unit of CBL? 4. Based on information in requirement 3, should NBP choose to process RBL beyond split-off? Complete this question by entering your answers in the tabs below Required 1Required 2 Required 3 Required 4 Assuming that no further processing occurs after the split-off point, how much of the joint costs are allocated to commercial lumber (CBL) on a physical measure method basis? (Round intermediate calculations to 2 decimal places and final answer to nearest whole dollar amount.) Allocated joint cost Required 1 Required2>Explanation / Answer
1) Allocation of the Joint Costs to CBL on physical measure method basis : Joint cost * CBL units / CBL+RBL units = $470000 * 60000 / (110000+60000) = $165882.35 2) Allocation of the Joint costs to RBL on sales value at split-off : joint costs * RBL sales volume / (CBL+RBL) sales volume 470000 * (110000*10) / (110000*10 + 60000*14) = $266495 3) Completion costs assigned to each unit of CBL : joint cost allocation + further costs / good units 165882 + 330000 / 50000 = $9.92 per unit of CBL. 4) Margin per unit of RBL before split-off = $10 - $266495/110000 = $7.58 Margin per unit of RBL after further processing = $11 - (266495+170000)/110000 $11 - $3.97 = $7.03 So, company should not process further RBI as margin got reduced on further processing.