Joint Cost Allocation$-$Net Realizable Value Method

Nature's Garden Inc. produces wood chips, wood pulp, and mulch. These products are produced through harvesting trees and sending the logs through a wood chipper machine. One batch of logs produces $20,400$ cubic yards of wood chips, $10,400$ cubic yards of mulch, and $9,200$ cubic yards of wood pulp. The joint production process costs a total of $$34,000$ per batch. After the split$-$off point, wood chips are immediately sold for $$25$ per cubic yard while wood pulp and mulch are processed further. The market value of the wood pulp and mulch at the split$-$off point is estimated to be $$22$ and $$25$ per cubic yard, respectively. The additional production process of the wood pulp costs $$5$ per cubic yard, after which it is sold for $$30$ per cubic yard. The additional production process of the mulch costs $$4$ per cubic yard, after which it is sold for $$27$ per cubic yard.

Allocate the joint costs of production to each product using the net realizable value method.

Joint Product

Allocation

Joint Cost Allocation$-$Net Realizable Value Method

Nature's Garden Inc. produces wood chips, wood pulp, and mulch. These products are produced through harvesting trees and sending the logs through a wood chipper machine. One batch of logs produces $20,400$ cubic yards of wood chips, $10,400$ cubic yards of mulch, and $9,200$ cubic yards of wood pulp. The joint production process costs a total of $$34,000$ per batch. After the split$-$off point, wood chips are immediately sold for $$25$ per cubic yard while wood pulp and mulch are processed further. The market value of the wood pulp and mulch at the split$-$off point is estimated to be $$22$ and $$25$ per cubic yard, respectively. The additional production process of the wood pulp costs $$5$ per cubic yard, after which it is sold for $$30$ per cubic yard. The additional production process of the mulch costs $$4$ per cubic yard, after which it is sold for $$27$ per cubic yard.

Allocate the joint costs of production to each product using the net realizable value method.

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