Question

Exercise 11-53 (Algo) Physical Quantities Method with By-Product (LO 11-8, 10) 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 129,000 logs at a total cost of $354,000. The output of the process consisted of 34,400 units of grade A, 51,400 units of grade B, and 15,400 units of sawdust. The sawdust can be sold for $10,800. 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? (Do not round intermediate calculations.) nces Product Joint costs Grade A Grade B

Answer 1

Processing cost = $354,000

Sale value of sawdust = $10,800

Net processing cost = Processing cost-Sale value of sawdust

= 354,000-10,800

= $343,200

Product	Units	% of units	Allocation Joint cost
Grade A	34,400	34,400/85,800 = 40.0932401%	343,200 x 40.0932401% = 137,600
Grade B	51,400	51,400/85,800 = 59.9067599%	343,200 x 59.9067599% = 205,600
Total	85,800		$343,200

Product	Joint Cost
Grade A	$137,600
Grade B	$205,600

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