Iowa Soy Products ISP buys soy beans and processes them
Iowa Soy Products (ISP) buys soy beans and processes them into other soy products. Each tonne of soy beans that ISP purchases for $300 can be converted for an additional $200 into 500 lbs of soy meal and 100 gallons of soy oil. A pound of soy meal can be sold at splitoff for $1 and soy oil can be sold in bulk for $4 per gallon.
ISP can process the 500 lbs of soy meal into 600 lbs of soy cookies at an additional cost of $300. Each pound of soy cookies can be sold for $2 per pound. The 100 gallons of soy oil can be packaged at a cost of $200 and made into 400 quarts of Soyola. Each quart of Soyola can be sold for $1.25.
1. Allocate the joint cost to the cookies and the Soyola using:
a. Sales value at splitoff method.
b. NRV method.
2. Should ISP have processed each of the products further? What effect does the allocation method have on this decision?
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