Joint-cost allocation with a byproduct. The Seattle Recycling Company (SRC) purchases old water and soda bottles and recycles them to produce plastic covers for outdoor furniture. The company processes the bottles in a special piece of equipment that first melts, then reforms the plastic into large sheets that are cut to size. The edges from the cut pieces are sold for use as package filler. The filler is considered a byproduct.
SRC can produce 25 table covers, 75 chair covers, and 5 pounds of package filler from 100 pounds of bottles.
In June, SRC had no beginning inventory. It purchased and processed 120,000 pounds of bottles at a cost of $600,000. SRC sold 25,000 table covers for $12 each, 80,000 chair covers for $8 each, and 5,000 pounds of package filler at $1 per pound.
- 1. Assume that SRC allocates the joint costs to table and chair covers using the sales value at splitoff method and accounts for the byproduct using the production method. What is the ending inventory cost for each product and gross margin for SRC?
Required
- 2. Assume that SRC allocates the joint costs to table and chair covers using the sales value at splitoff method and accounts for the byproduct using the sales method. What is the ending inventory cost for each product and gross margin for SRC?
- 3. Discuss the difference between the two methods of accounting for byproducts, focusing on what conditions are necessary to use each method.
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COST ACCOUNTING
- The Seattle Recycling Company (SRC) purchases old water and soda bottles and recycles them to produce plastic covers for outdoor furniture. The company processes the bottles in a special piece of equipment that first melts, then reforms the plastic into large sheets that are cut to size. The edges from the cut pieces are sold for use as package filler. The filler is considered a byproduct. SRC can produce 25 table covers, 75 chair covers, and 5 pounds of package filler from 100 pounds of bottles. In June, SRC had no beginning inventory. It purchased and processed 120,000 pounds of bottles at a cost of $600,000. SRC sold 25,000 table covers for $12 each, 80,000 chair covers for $8 each, and 5,000 pounds of package filler at $1 per pound. The accountant for SRC needs to record the information about the joint and byproducts in the general journal, but is not sure what the entries should be. The company has hired you as a consultant to help its accountant. QShow journal entries at the…arrow_forwardJoint 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 oflogs produces 20,304 cubicyards of wood chips, 14,100 cubicyardsof mulch,and 9,024 cubic yards of wood pulp.Thejoint production process costs a total of $32,000 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 thewood pulp and mulch at the split-off point is estimated to be $22 and $24 per cubicyard, respectively. The additional production process of thewood 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 $32 per cubic yard. Allocate the jo int costs of production to each product using the net realizable value method.arrow_forwardNature’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 Wood chips…arrow_forward
- Make or Buy Filtration, Inc. manufactures filters for use in secondary water irrigation systems. The costs per unit, for 20,000 filters, are as follows. Direct materials $6.00 Direct labor 7.00 Variable overhead 1.00 Fixed overhead 2.00 Total costs $16.00 Irrigation Products has offered to sell 20,000 filters to Filtration for $16 per filter. If Filtration accepts Irrigation Products’ offer, the facilities used to manufacture filters could be used to produce refrigerator filtration units. Revenues from the sale of refrigerator filtration units are estimated at $54,000, with variable costs amounting to 50% of sales. In addition, $1 per unit of the fixed overhead associated with the manufacture of secondary water irrigation filters could be eliminated. Compute the following: Cost to make filters Answer Cost to buy filters Answer Should Filtration, Inc. accept Irrigation Product’s offer? Yes, the cost to purchase the filters is less than the cost to…arrow_forwardFiltration, Inc. manufactures filters for use in secondary water irrigation systems. The costs per unit, for 20,000 filters, are as follows. Direct materials $8.00 Direct labor 9.00 Variable overhead 1.00 Fixed overhead 2.00 Total costs $20.00 Irrigation Products has offered to sell 20,000 filters to Filtration for $20 per filter. If Filtration accepts Irrigation Products’ offer, the facilities used to manufacture filters could be used to produce refrigerator filtration units. Revenues from the sale of refrigerator filtration units are estimated at $57,000, with variable costs amounting to 50% of sales. In addition, $1 per unit of the fixed overhead associated with the manufacture of secondary water irrigation filters could be eliminated. Compute the following: Cost to make filters Answer Cost to buy filters Answer Should Filtration, Inc. accept Irrigation Product’s offer? Yes, the cost to purchase the filters is less than the cost to make them.…arrow_forwardNature'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 20,304 cubic yards of wood chips, 14,100 cubic yards of mulch, and 9,024 cubic yards of wood pulp. The joint production process costs a total of $32,000 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 $24 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 $32 per cubic yard. Allocate the joint costs of production to each product using the net realizable value method.arrow_forward
- 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 20,304 cubic yards of wood chips, 14,100 cubic yards of mulch, and 9,024 cubic yards of wood pulp. The joint production process costs a total of $32,000 per batch. After the split-off point, wood chips are immediately sold for $ 25.00 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 $22.00 and $24.00 yard, after which it is sold for $ 30.00 per cubic yard. The additional production process of the mulch costs $ 4.00 per cubic yard, after which it is sold for $ 32.00 per cubic yard. Requirement: Allocate the joint costs of production to each product using the net realizable value method. Please use the Excel template provided to assist you in solving this problem.arrow_forwardAn industrial recycling center uses two scrap aluminum metals, A and B, to produce a special alloy. Scrap A contains 6% aluminum, 3% silicon and 4% carbon. Scrap B has 3% aluminum, 6% silicon and 3% carbon. The costs per ton for scraps A and B are $100 and $80, respectively. The specifications of the special alloy require that (1) the aluminum content must be at least 3% and at most 6%, (2) the silicon content must lie between 3% and 5%, and (3) the carbon content must lie between 3% and 7%. Determine the optimum mix of the scraps that should be used in producing 1000 tons of the alloys.arrow_forwardRadom Manufacturing produces various products. The company operates a landfill, which it uses to dispose of nonhazardous trash. The trash is hauled from the two nearby manufacturing facilities in trucks that can carry up to five tons of trash in a load. The landfill operation requires certain preparation activities regardless of the amount of trash in a truck (i.e., for each load). The budget for the landfill for next year follows: Volume of trash 2,450 tons (490 loads) Preparation costs (varies by loads) $ 166,600 Other variable costs (varies by tons) 166,600 Fixed costs 245,000 Total budgeted costs $ 578,200 Radom plans to make the landfill a profit center and charge the manufacturing plants for disposal of the trash. The landfill has sufficient capacity to operate for at least the next 20 years. Other landfills are available in the area (both private and municipal), and both Radom manufacturing plants would be free to decide which landfill to use. Required: Compute…arrow_forward
- The Pittsburgh division of Vermont Machinery, Inc., manufactures drill bits.One of the production processes for a drill bit requires tipping, whereby carbide tips are inserted into the bit to make it stronger and more durable. This tipping process usually requires four or five operators, depending on the weekly workload. The same operators are also assigned to the stamping operation, where the size of the drill bit and the company's logo is imprinted on the bit. Vermont is considering acquiring three automatic tipping machines to replace the manual tipping and stamping operations. If the tipping process is automated, the division's engineers will have to redesign the shapes of the carbide tips to be used in the machine. The new design requires less carbide, resulting in savings on materials. The following financial data have been compiled: Project life: six years. Expected annual savings: reduced labor, $56,000; reduced material, $75,000; other benefits (reduced carpal tunnel syndrome…arrow_forwardNizam Company produces speaker cabinets. Recently, Nizam switched from a traditional departmental assembly line system to a manufacturing cell in order to produce the cabinets. Suppose that the cabinet manufacturing cell is the cost object. Assume that all or a portion of the following costs must be assigned to the cell: a. Depreciation on electric saws, sanders, and drills used to produce the cabinets b. Power to heat and cool the plant in which the cell is located c. Salary of cell supervisor d. Wood used to produce the cabinet housings e. Maintenance for the cells equipment (provided by the maintenance department) f. Labor used to cut the wood and to assemble the cabinets g. Replacement sanding belts h. Cost of janitorial services for the plant i. Ordering costs for materials used in production j. The salary of the industrial engineer (she spends about 20 percent of her time on work for the cell) k. Cost of maintaining plant and grounds l. Cost of plants personnel office m. Depreciation on the plant n. Plant receptionists salary and benefits Required: Identify which cost assignment method would likely be used to assign the costs of each of the preceding activities to the cabinet manufacturing cell: direct tracing, driver tracing, or allocation. When driver tracing is selected, identify a potential activity driver that could be used for the tracing.arrow_forwardJoint cost allocation net realizable value method Natures 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 logsproduces 20,304 cubic yards of wood chips, 14,100 cubic yards of mulch, and 9,024 cubic yards ofwood pulp. The joint production process costs a total of 32,000 per batch. After the split-off point,wood chips are immediately sold for 25 per cubic yard while wood pulp and mulch are processedfurther. The market value of the wood pulp and mulch at the split-off point is estimated to be 22and 24 per cubic yard, respectively. The additional production process of the wood pulp costs 5per cubic yard, after which it is sold for 30 per cubic yard. The additional production process ofthe mulch costs 4 per cubic yard, after which it is sold for 32 per cubic yard. Allocate the jointcosts of production to each product using the net realizable value method.arrow_forward
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