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.
What are the paper's and the pencils' approximate weighted cost proportions using the sales value at splitoff method,respectively?
A)50.00% and 50.00%
B)33.33% and 66.67%
C)31.82% and 68.18%
D)54.00% and 46.00%
E)53.00% and 47.00%

Question

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.
What are the paper's and the pencils' approximate weighted cost proportions using the sales value at splitoff method,respectively?
A)50.00% and 50.00% 
B)33.33% and 66.67% 
C)31.82% and 68.18% 
D)54.00% and 46.00% 
E)53.00% and 47.00%

Quizplus · Accepted Answer

To use the sales value at splitoff method, we need to determine the sales value of each product at the splitoff point. In this case, Yip Manufacturing sells the paper and pencil casings to an independent company, so we can use the sales prices charged by the independent company to determine the sales value at splitoff.
Assuming that the independent company pays $0.03 per sheet of paper and $0.05 per pencil casing, the sales value at splitoff for the 70,000 sheets of paper and 60,000 pencil casings would be:
70,000 × $0.03 = $2,100 for paper
60,000 × $0.05 = $3,000 for pencil casings
Total sales value at splitoff = $2,100 + $3,000 = $5,100

Next, we need to allocate the joint cost of $3,000 to the two products using their relative sales values at splitoff:
Paper's cost proportion = $2,100 ÷ $5,100 ≈ 0.409 or 40.9%
Pencils' cost proportion = $3,000 ÷ $5,100 ≈ 0.591 or 59.1%
Therefore, the approximate weighted cost proportions using the sales value at splitoff method are 40.9% for paper and 59.1% for pencil casings. The best choice is C.

Yip Manufacturing Purchases Trees from Cheney Lumber and Processes Them