Question

Illinois Soy Products (ISP) buys soybeans and processes them into other soy products. Each ton of soybeans that ISP purchases for $340can be converted for an additional $180into 675 poundsof soy meal and 140 gallonsof soy oil. A pound of soy meal can be sold at split off for $1.28 and can be sold in bulk for $4.75per gallon.

ISP can process the 675 pounds of soy meal into 825 pounds of soy cookiesat an additional cost of $340.Each pound of soy cookies can be sold for $2.28 per pound. The 140 gallons of soy oil can be packaged at a cost of $200 and made into 560 quarts of Soyola. Each quart of Soyola can be sold for $1.15

Requirements.

. 1 Allocate the joint cost to the cookies and the Soyola using the following:

            a.         Sales value at splitoff method

            b.         NRV method

2.         Should Upper MMSP have processed each of the products further? What effect does the allocation method have on this decision?

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/	Soyola/
	Soy Meal	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

Requirement 2. Should Upper OOSP 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 Upper OOSP processed the products further. (Use parentheses or a minus sign for losses.)

	Cookies/	Soyola/
	Soy Meal	Soy Oil
Sell at splitoff : Revenue
Process further : NRV
Profit (Loss) from processing further

Answer 1

1
a.	Joint cost=$ 340
					Cookies/ soy meal	Soyola/ soy oil	Total
	Sales value of total production at split off				864	665	1529
					(675*1.28)	(140*4.75)
	Weighting				0.57	0.43	1
					(864/1529)	(665/1529)
	Joint costs allocated				194	146	340
					(340*0.57)	(340*0.43)
b.					Cookies	Soyola	Total
	Final sales value of total production				1881	644
					(825*2.28)	(560*1.15)
	Deduct separable costs				340	200
	Net realizable value				1541	444	1985
	Weighting				0.78	0.22
					(1541/1985)	(444/1985)
	Joint costs allocated				265	75	340
					(340*0.78)	(340*0.22)
2					Cookies/ soy meal	Soyola/ soy oil
	Sell at split off : Revenue				864	665
					(675*1.28)	(140*4.75)
	Process further : NRV				1541	444
	Profit (Loss) from processing further				677	-221
	Decision				Process further	Sell at split off