Grassy Fertilizer manufactures two lines of garden grade fertilizeras part of a joint production process: GF10 and
Question:
Grassy Fertilizer manufactures two lines of garden grade fertilizeras part of a joint production process: GF10 and GF20. Joint costsup to Grassy’s split-off point total $85,000 per batch. These joint costs are allocated to GF10 and GF20 in proportion to their relative sales values at the split-off point of $40,000 and$60,000, respectively.
Both lines of garden grade fertilizer can be further processed into commercial grade fertilizer. The following table summarizes thecosts and revenue associated with additional processing of GF10 andGF20:Adaditional | Final Selling Price | |
Processing | Batch of commercial | |
Cost | Grade fertilizer | |
GF10 | $18,000 | $67,000 |
GF20 | 38,000 | 97,000 |
(a) The $85,000 in joint costs should be allocated to each productas follows:
GF10 $____________, GF20 $____________
(b) Which product (GF10 or GF20) would result in a net decrease inoperating income if processed into a commercial grade fertilizer?____________
(c) Which product (GF10 or GF20) would result in a net increase inoperating income if processed into a commercial grade fertilizer?____________
Cost Accounting Foundations and Evolutions
ISBN: 978-1111626822
8th Edition
Authors: Michael R. Kinney, Cecily A. Raiborn