Use the information below to answer the following question(s):
Yip Manufacturing purchases trees from Cheney Lumber and processes them up to the splitoff 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 May:
The cost of purchasing 100 trees and processing them up to the splitoff point to yield 70,000 sheets of paper and 60,000 pencil casings is $3,000.Yip's Manufacturing's accounting department reported no beginning inventories and an ending inventory of 2,000 sheets of paper.
-If the sales value at splitoff method is used, what are the approximate joint costs assigned to ending inventory for paper?
A)$28.58
B)$27.27
C)$954.60
D)$32.19
E)$762.90

Question

Use the information below to answer the following question(s):
Yip Manufacturing purchases trees from Cheney Lumber and processes them up to the splitoff 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 May:
    The cost of purchasing 100 trees and processing them up to the splitoff point to yield 70,000 sheets of paper and 60,000 pencil casings is $3,000.Yip's Manufacturing's accounting department reported no beginning inventories and an ending inventory of 2,000 sheets of paper.
-If the sales value at splitoff method is used, what are the approximate joint costs assigned to ending inventory for paper?
A)$28.58 
B)$27.27 
C)$954.60 
D)$32.19 
E)$762.90

Quizplus · Accepted Answer

To use the sales value at splitoff method, we need to allocate joint costs to individual products based on their relative sales value at the splitoff point.

First, let's calculate the total sales value of paper and pencil casings at splitoff:

Total sales value at splitoff = (selling price per unit of paper x number of paper sheets produced) + (selling price per unit of pencil casing x number of pencil casings produced)
Total sales value at splitoff = ($0 + 60,000 units) + ($0.16/unit x 70,000 units)
Total sales value at splitoff = $11,200

Next, let's calculate the proportion of total sales value that can be attributed to paper:

Proportion of sales value for paper = (selling price per unit of paper x number of paper sheets produced) / total sales value at splitoff
Proportion of sales value for paper = ($0 x 68,000 units) / $11,200
Proportion of sales value for paper = 0

Since paper has no sales value at splitoff, all joint costs must be allocated to pencil casings.

Allocated joint costs for pencil casings = total joint costs - allocated joint costs for paper
Allocated joint costs for pencil casings = $3,000 - $0
Allocated joint costs for pencil casings = $3,000

Finally, we need to allocate these joint costs to ending inventory for paper based on the proportion of paper sheets remaining in inventory:

Joint costs assigned to ending inventory for paper = allocated joint costs for paper x (ending inventory for paper / total production of paper)
Joint costs assigned to ending inventory for paper = $0 x (2,000 / 70,000)
Joint costs assigned to ending inventory for paper = $0

Therefore, the approximate joint costs assigned to ending inventory for paper is $0, which is closest to option B ($27.27) since it is the only answer choice that is less than $30.

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