Northwest Building Projects manufactures two lumber products from a joint millin

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

Calculation of Net Realizable Value:

Allocation of Joint Cost using NRV ratio :

For CBL

$ 350000*88/219 = $ 140639.27

After round off = $ 140640

For RBL

$ 350000*131/219 = $ 209360.73

After round off = 209360

Statement of Profit of CBL and RBL

Particulars CBL RBL Selling price per unit at final point $ 10 $ 13 Units (Total units-lost units) 110000 units 120000 units Total Sales Value $ 1100000 $ 1560000 Less: Separate production cost $ 220000 $ 250000 Net Realizable Value $ 880000 $ 1310000

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