Question

3. Interlock Soy Products (USP) buys soybeans and processes them into other soy products. Each ton of soybeans that USP purchases for $320 can be converted for an additional $200 into 675 lbs of soy meal and 120 gallons of soy oil. A pound of soy meal can be sold at splitoff for $1.28 and soy oil can be sold in bulk for $4.25 per gallon. USP can process the 675 pounds of soy meal into 825 pounds of soy cookies at an additional cost of $370. Each pound of soy cookies can be sold for $2.28 per pound. The 120 gallons of soy oil can be packaged at a cost of $210 and made into 480 quarts of Soyola. Each quart of Soyola can be sold for $1.45. Read the requirements? Requirement 1. Allocate the joint cost to the cookies and the Soyola using the (a) Sales value at splitoff method and (b) NRV method. a. First, allocate the joint cost using the Sales value at splitoff method. (Round the weights to three decimal places and joint costs to the nearest dollar.) Cookies/ Soy Meal Soyolal Soy Oil Total Sales value of total production at splitoff Weighting Joint costs allocated b. Now allocate the joint cost to the cookies and the Soyola using the NRV method. (Round the weights to three decimal places and joint costs to the nearest dollar.) Cookies Soyola Total Final sales value of total production Deduct separable costs Net realizable value Weighting Joint costs allocated

Options for 1-6:

(1):  process further / sell as is (2):  decreases / increases (3):  process further /  sell as is (4):  be higher if they do / be lower if they do (5): different / the same

(6): is / is not

Answer 1

Total joint cost= 320 $ + 200 $= 520 $

(a)

Particulars	Cookies/ Soya meal	Soyola/ Soya oil	Total
Sale value at splitoff	864	510	1374
Weighing	62.88%	37.12%	100%
Joint cost allocated	326.99	193.01	520
(b)
Particulars	Cookies/ Soya meal	Soyola/ Soya oil	Total
Final sale value of production	1881	696	2577
Deduct separable cost	-370	-210	-580
Net realizable value	1511	486	1997
Weighing	75.66%	24.34%	100%
Joint cost allocated	393.45	126.55	520
(c)
Particulars	Cookies/ Soya meal	Soyola/ Soya oil
Sale value at splitoff	864	510
Process Further: NRV	1511	486
Profit (loss) from process	647	-24

USP should (1) process further the soya meal because it (2) increases the profit. They should (3) sell as is the soya oil because profit will (4) be higher if they do. Since the joint cost is (5) same under both allocation method, it (6) is not a relevant cost for decision to sell at splitoff or further process.