Question

Saskatchewan Soy Products (SSP) buys soy beans and processes them into other soy products. Each tonne of soy beans that SSP purchases for $380 can be converted for an additional $190 into 700 lbs of soy meal and 80 gallons of soy oil. A pound of soy meal can be sold at splitoff for $1.12, and soy oil can be sold in bulk for $4 per gallon. SSP can process the 700 lbs of soy meal into 750 lbs of soy cookies at an additional cost of $330. Each pound of soy cookies can be sold for $2.12 per pound. The 80 gallons of soy oil can be packaged at a cost of $220 and made into 320 quarts of Soyola. Each quart of Soyola can be sold for $1.35. Required 1. Allocate the joint cost to the cookies and the Soyola using: a. Sales value at splitoff method b. NRV method 2. Should the company have processed each of the products further? What effect does the allocation method have on this decision? Requirement 1a. Allocate the joint cost to the cookies and the Soyola using the sales value at splitoff method. (Round the weightings 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

Answer 1

Joint Cost Cost of Each ton of Soyabeans $ 380 Conversion Cost 190 Total Joint Cost 570 1. a Cookies/Soy Soyola/Soy Oil 784 $ Meal Total 320 $ 1,104 $ Sales value of total production at split off point Weighting (a) Join cost allocated (ax$570) 0.710 0.290 1 405 $ 165 $ 570 Working Notes: 1) Sales value of total production at split off point Cookies/Soy Soyola/Soy Oil Meal Production (a) Sale price (b) Sales value of total production at split off point (a x b) 700 80 $ 1.12 $ 4.00 784 $ $ 320 Weighting 0.710 0.290 (784/1,104) (320/1,104)

Total Cookies Soyola 1,590 $ 1.b Final Sales value of total production 432 $ $ 2,022 Deduct separable cost 330 220 550 212 1,260 $ Net realizable cost 1,472 Weighting (a) Join cost allocated (ax$ 570) 0.856 0.144 1 82 $ 488 570 Working notes Final Sales value of total production Soyola Cookies Total final production (a) Sale price (b) Final Sales value of total production (a x b) 750 320 2.12 $ $ 1.35 1,590 $ $ 432 1,260 $ Net Realizable Value 212 Weighting 0.8560 0.144 (1,260/1,472) (212/1,472) Requirement 2) Cookies/Soy Meal Soyola/ Soy Oil 784 $ Sell at split off: Revenue (a) 320 Process further NRV (b) 1,260 212 476 $ (108) Profit (Loss) from further processing (b-a) SSP should process the soy meal because it increase the profit. They should not process the soy oil because profit will decrease. Since the total joint cost is same under both allocation method. It is not a relevant cost to the decision to sell at split off or process further.