Question: Oregon Forests uses a joint process to manufacture two grades of wood: A and B. During October 2013, the company incurred $15,419,690 of joint production

Oregon Forests uses a joint process to manufacture two grades of wood: A and B. During October 2013, the company incurred $15,419,690 of joint production cost in producing 28,231,000 board feet of Grade A and 9,378,000 board feet of Grade B lumber. The company allocates joint cost on the basis of board feet of lumber produced. The company can sell Grade A lumber at the split-off point for $0.74 per board foot. Alternatively, Grade A lumber can be further processed at a cost of $0.73 per board foot and then sold for $1.54 per board foot. No opportunity exists for processing Grade B lumber after split-off.

a. How much joint cost should be allocated to Grade A and to Grade B lumber?

b. If Grade A lumber is processed further and then sold, what is the incremental effect on Oregon Forest net income?

Should the additional processing be performed?

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