Question

Trans-Pacific Lumber runs a mill in the Northwest that produces two grades of lumber, A and B, and a by-product, sawdust. The company chooses to allocate the costs on the basis of the physical quantities method.

Last month, it processed 130,000 logs at a total cost of $355,000. The output of the process consisted of 34,500 units of grade A, 51,500 units of grade B, and 15,500 units of sawdust. The sawdust can be sold for $19,600. This is considered to be its net realizable value, which is deducted from the processing costs of the main products.

Required:

What share of the joint costs should be assigned to grade A and grade B?

Product              Joint Cost

Grade A             $

Grade B              $

Answer 1

Assignment of joint cots
Total Joint cost	$         3,55,000
Less:
Net realizable value of sawdust	$           -19,600
Net Joint Cost to be assigned	$         3,35,400
Product	Joint cost
Grade A ($335400/86000 units *34500 units)	$         1,34,550
Grade B ($335400/86000 units*51500 units)	$         2,00,850