Purple Paper Company processes wood pulp into two products. During July the joint costs of processing were $50,000. Production and sales value information for the month were as follows:

Paper sells for $2.71 a kilogram and cardboard sells for $3.10 a kilogram.
There were no beginning or ending inventories for July.
Required:
1. Determine the amounts to be allocated to each product using the:
a. constant gross margin percentage of NRV method
b. physical measure method
2. Should management process these products beyond the splitoff point? Justify your answer. Also comment on how this decision would be affected by the results of the expected profits using the constant gross margin percentage of NRV and physical measure methods.

Question

Purple Paper Company processes wood pulp into two products. During July the joint costs of processing were $50,000. Production and sales value information for the month were as follows:
  
Paper sells for $2.71 a kilogram and cardboard sells for $3.10 a kilogram.
There were no beginning or ending inventories for July.
Required:
1. Determine the amounts to be allocated to each product using the:
a. constant gross margin percentage of NRV method
b. physical measure method
2. Should management process these products beyond the splitoff point? Justify your answer. Also comment on how this decision would be affected by the results of the expected profits using the constant gross margin percentage of NRV and physical measure methods.

Quizplus · Accepted Answer

The Answer of Purple Paper Company processes wood pulp into two products. During July the joint costs of processing were $50,000. Production and sales value information for the month were as follows:
  
Paper sells for $2.71 a kilogram and cardboard sells for $3.10 a kilogram.
There were no beginning or ending inventories for July.
Required:
1. Determine the amounts to be allocated to each product using the:
a. constant gross margin percentage of NRV method
b. physical measure method
2. Should management process these products beyond the splitoff point? Justify your answer. Also comment on how this decision would be affected by the results of the expected profits using the constant gross margin percentage of NRV and physical measure methods.

Purple Paper Company Processes Wood Pulp into Two Products