Question

Joint Cost Allocation-Net Realizable Value Method Nature's Garden Inc. produces wood chips, wood pulp, and mulch. These products are produced through harvesting trees and sending the logs through a wood chipper machine. One batch of logs produces 20,304 cubic yards of wood chips, 14,100 cubic yards of mulch, and 9,024 cubic yards of wood pulp. The joint production process costs a total of $32,000 per batch. After the split-off point, wood chips are immediately sold for $25 per cubic yard while wood pulp and mulch are processed further. The market value of the wood pulp and mulch at the split-off point is estimated to be $22 and $24 per cubic yard, respectively. The additional production process of the wood pulp costs $5 per cubic yard, after which it is sold for $30 per cubic yard. The additional production process of the mulch costs $4 per cubic yard, after which it is sold for $32 per cubic yard. Allocate the joint costs of production to each product using the net realizable value method. Joint Product Allocation Wood chips Wood pulp Mulch Totals

Answer 1

Solution:

Product	Units sold	*	Price (after addt'l processing	=	Sale Value after Addt'l processing	Separable Processing Cost	Net Realizable Value (Sale Value-Separable Cost)	Allocation Ratio in Net Realizable Value	Joint cost	Allocated Joint cost
Wood chips	20304		$25		$5,07,600		$5,07,600	45.00%	32000	14400
Wood pulp	9024		$30		$2,70,720	$45,120	$2,25,600	20.00%	32000	6400
Mulch	14100		$32		$4,51,200	$56,400	$3,94,800	35.00%	32000	11200
Total	43428						$11,28,000			$32,000