Question

Raynor Manufacturing purchases trees from Tree Nursery and processes them up to the split off point, where two products (paper and pencil casings) are obtained. The products are then sold to an independent company that markets and distributes them to retail outlets. The following information was collected for the month of October.

Trees processed:
50 trees (yield is 30,000 sheets of paper and 30,000 pencil casings and no scrap)

Production:
paper	30,000 sheets
pencil casings	30,000
Sales:
paper	29,000 at $0.04 per page
pencil casings	30,000 at $0.10 per casing

Cost of purchasing 50 trees and processing them up to the split off point to yield 30,000 sheets of paper and 30,000 pencil casings is $1,500.

Raynor Manufacturing's accounting department reported no beginning inventories; however, ending inventory amounts reflected 1,000 sheets of paper in stock.


QUESTION: What are the approximate joint costs assigned to the paper ending inventory if joint costs are allocated using the sales value at split off method?

	A)	$435.00
	B)	$428.55
	C)	$50.00
	D)	$750.00
	E)	$14.29

Answer 1

Solution:

We have, 30,000 sheets of paper and $0.04 cost per paper sheet.

The we calculate,

Joint costs assigned to ending inventory for paper using the sales value at split off method :

= 30,000 * $0.04

= $1,200