California Soy buys soy beans and processes them into soy meal and soy oil. One
ID: 2455485 • Letter: C
Question
California Soy buys soy beans and processes them into soy meal and soy oil. One ton of soy beans can be processed into 60 gallons of soy meal and 90 gallons of soy oil at a cost of $500. A gallon of soy meal can be sold for $2.00. A gallon of soy oil can be sold (in bulk) for $4.00.
California Soy then processes the 60 gallons of soy meal into 500 pounds of soy cookies at an additional cost of $300.00. Soy cookies are sold for $2.00 per pound. The 90 gallons of soy oil is ultimately packaged (at a cost of $200.00) into 400 quarts of Soyola. Each quart of Soyola is sold for $1.25.
Assuming every pound of cookies and all quarts of Soyola produced made from a ton of soy beans are sold,
a.) What would gross profit be for Soy Cookies under the physical unit method?
b.) What would gross profit be for Soy Cookies under the sales value at split-off method?
c.) What would gross profit be for Soyola under the Net Realizable Value method?
d.) What is the incremental profit (or loss) for California Soy when soy meal is further processed into soy cookies?
e.) What is the incremental profit (or loss) for California Soy when soy oil is further processed into Soyola?
Explanation / Answer
a) Joint cost allocated to soy meal = 500 * 60 /(60+90)
= 30000 / 150
= $ 200
Gross profit = (selling price of soy cookies *quantity) -further processing cost - joint cost
= (2 *500 ) - 300 -200
= 1000 -500
= $ 500
b) Sale value of soy meal at splitoff = 60*2= 120
sale value of soy oil at split off = 90 *4 =$ 360
Total sale value = 120+360 = 480
Joint cost allocated to soy meal = 500 * 120 /480
= $ 125
Gross profit = (500 *2) - 300 -125
= 1000 -300 -125
= $ 575
c) NRV = estimated sale value -estimated further processing cost
SOy cookies = (500 *2)-300
= 1000 - 300 = 700
soyola = (400 *1.25) - 200
= 500-200 = $300
Total NRV = 700 +300 =$1000
Joint cost allocated to soyla = 500 * 300 /1000
= $ 150
Gross profit = NRV of soyla -joint cost
= 300 -150
= $ 150
d)Incremental profit/(loss) = NRV of soy cookies - Sale value at split off
= 700- (60 *2)
= 700 - 120
= $ 580
e) Incremental profit /(loss) = NRV -Splitoff sale value
= 300 - (90*4)
= 300 - 360
= -60 (loss)
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