Joint cost allocation: Sell immediately or process further. Illinois Soy Products (ISP) buys soybeans and processes them into other soy products. Each ton of soybeans that ISP purchases for $340 can be converted for an additional $190 into 575 pounds of soy meal and 160 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 $4.25 per gallon.
$380. Each pound of soy cookies can be sold for $2.24 per pound. The 160 gallons of soy oil can be packaged at a cost of $240 and made into 640 quarts of Soyola. Each quart of Soyola can be sold for $1.35.
Allocate the joint cost to the cookies and the Soyola using the following:
a. Sales value at splitoff method
b. NRV method
Should ISP have processed each of the products further? What effect does the allocation method have on this decision?
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