Northwest Building Projects manufactures two lumber products from a joint millin
ID: 2336385 • Letter: N
Question
Northwest Building Projects manufactures two lumber products from a joint milling process: residential building lumber and commerical building lumber. A standard production run incurs joint costs of $350,000 and results in 120,000 units of residential building lumber and 120,000 units of commercial building lumber. Each residential building lumber sells for $12 per unit and each commerical building lumber sells for $8 per unit.
1) Assume that the CBL is not marketable at split-off but must be planed and sized at a cost of $220,000 per production run. During this process, 10,000 units are unavoidably lost and have no value. The remaining units of CBL are salable at $10 per unit. The RBL, although salable immediately at the split-off point, is coated with a tarlike preservative that costs $250,000 per production run. The RBL is then sold for $13 each. Using the net realizable value basis, how much of the completion costs should be assigned to each unit of CBL?
Explanation / Answer
1.Computation of Net Realizable Value of RBL and CBL
Net Realizable Value of RBL = Total Sales Value - Separate Production Cost
Net Realizable Value of RBL = 13 * 120000 - 250000
Net Realizable Value of RBL = $1310000
Net Realizable Value of CBL = Total Sales Value - Separate Production Cost
Net Realizable Value of CBL = 10 * 110000 - 220000
Net Realizable Value of CBL = $880000
2. Allocation of Joint cost incurred till split off point
CBL Allocated Costs = Total Cost till split off * NRV from CBL / Total NRV
CBL Allocated Costs = 350000 * 880000 / 2190000
CBL Allocated Costs = $140640
Total Completion Cost of CBL = $140640 + $880000 = $1020640
Total Completion Cost per Unit of CBL = Total Completion Cost / Total units produced = $1020640 / 110000
Total Completion Cost per Unit of CBL = $9.28 per unit
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