Grassy Fertilizer manufactures two lines of garden grade fertilizeras part of a
ID: 2433599 • Letter: G
Question
Grassy Fertilizer manufactures two lines of garden grade fertilizeras part of a joint production process: GF10 and GF20. Joint costsup to Grassy’s split-off point total $85,000 per batch. Thesejoint costs are allocated to GF10 and GF20 in proportion to theirrelative sales values at the split-off point of $40,000 and$60,000, respectively.
Adaditional
Final Selling Price
Processing
Batch of commercial
Cost
Grade fertilizer
GF10
$18,000
$67,000
GF20
38,000
97,000
(a) The $85,000 in joint costs should be allocated to each productas follows:
GF10 $____________, GF20 $____________
(b) Which product (GF10 or GF20) would result in a net decrease inoperating income if processed into a commercial grade fertilizer?____________
(c) Which product (GF10 or GF20) would result in a net increase inoperating income if processed into a commercial grade fertilizer?____________
Adaditional
Final Selling Price
Processing
Batch of commercial
Cost
Grade fertilizer
GF10
$18,000
$67,000
GF20
38,000
97,000
Explanation / Answer
(a) The$85,000 in joint costs should be allocated to each product asfollows:GF10 $34,000, GF20 $51,000
GF10 $85,000 x $40,000 /$100,000 = $34,000 GF20 $85,000 x $60,000 /$100,000 = $51,000 GF20 $85,000 x $60,000 /$100,000 = $51,000 (b) Whichproduct (GF10 or GF20) would result in a net decrease in operatingincome if processed into a commercial gradefertilizer? GF20
GF10 GF20 AtSplit Off FurtherProcessed At Splitoff FurtherProcessed AtSplit Off FurtherProcessed At Splitoff FurtherProcessed Sellingprice $40,000 $67,000 $60,000 $97,000 Allocatedjointcost -$34,000 -$34,000 -$51,000 -$51,000 Additionalprocessingcost 0 -$18,000 0 -$38,000 OperatingIncome $6,000 $15,000 $9,000 $8,000 (c) Whichproduct (GF10 or GF20) would result in a net increase in operatingincome if processed into a commercial gradefertilizer? GF10
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