Bismite Corporation purchases trees from Cheney lumber and processes them up to the split-off point where two products (paper and pencil casings) emerge from the process. 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 October:

The cost of purchasing 330 trees and processing them up to the split-off point to yield 190,000 sheets of paper and 190,000 pencil casings is $15,500.
Bismite's accounting department reported no beginning inventory.
If the sales value at split-off method is used, what is the approximate production cost for each pencil
Casing? (Round intermediary percentages to the nearest hundredth.)
A) $0.035
B) $0.049
C) $0.034
D) $0.048

Question

Bismite Corporation purchases trees from Cheney lumber and processes them up to the split-off point where two products (paper and pencil casings) emerge from the process. 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 October:

The cost of purchasing 330 trees and processing them up to the split-off point to yield 190,000 sheets of paper and 190,000 pencil casings is $15,500.
Bismite's accounting department reported no beginning inventory.
If the sales value at split-off method is used, what is the approximate production cost for each pencil
Casing? (Round intermediary percentages to the nearest hundredth.)
A) $0.035 
B) $0.049 
C) $0.034 
D) $0.048

Quizplus · Accepted Answer

Paper: 190,000 sheets × $0.10 = $19,000
Pencils: 190,000 casings × $0.14 = $26,600
Production cost for each pencil casing = [($26,600 / ($19,000 + $26,600) × $15,500)] / 190,000 = $0.048

Bismite Corporation Purchases Trees from Cheney Lumber and Processes Them