Question

Innerva Soy Products ​(​MSP) buys soybeans and processes them into other soy products. Each ton of soybeans that MSP purchases for $340 can be converted for an additional $220 into 500 lbs of soy meal and 80 gallons of soy oil. A pound of soy meal can be sold at splitoff for $1.24 and soy oil can be sold in bulk for $4 per gallon.

MSP can process the 500 pounds of soy meal into 550 pounds of soy cookies at an additional cost of $320. Each pound of soy cookies can be sold for $2.24 per pound. The 80 gallons of soy oil can be packaged at a cost of $270 and made into 320 quarts of Soyola. Each quart of Soyola can be sold for $1.25.

Complete the diagram below.

Cookies/ Soyolal Soy Oil $ Soy Meal $ 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 $ $ $ Requirement 2. Should ISP have processed each of the products further? What effect does the allocation method have on this decision? Begin by calculating the profit or loss that would occur if ISP processed the products further. (Use parentheses or a minus sign for losses.) Cookies/ Soyolal Soy Meal Soy Oil Sell at splitoff: Revenue $ $ $ Process further : NRV Profit (Loss) from processing further $ $

Answer 1

1.a		Cookies / Soy Meal	Soyola/Soy oil	Total
	Sales Value of total production at split off	620	320	940
	Weightage	0.660	0.340	1.000
	Joint Cost allocated	370	190	560
1.b	NRV Method	Cookies / Soy Meal	Soyola/Soy oil	Total
	Total Production	550	320
	Selling Price per unit	2.24	1.25
	Final Sales Value	1232	400	1632
	Less : Seperable Cost	320	270	640
	Net Realisable Value	912	130	1042
	Weightage	0.875	0.125	1.000
	Joint Cost allocated	490	70	560
2		Cookies / Soy Meal	Soyola/Soy oil
	Sales Value of total production at split off	620	320
	Net Realisable Value - Process further	912	130
	Profit / ( loss )	292	-190
	Cookies / Soy Meal should be processed further
	Soyola/Soy Oil shoukd be sold at split off
	As the Joint cost is same in both the allocation methods, so it
	does not effect the decision of process further or not, It is not relevant Cost