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.
REQUIRED
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?