Problem 7-34 Physical Units Method, Relative Sales-Value-at-Split-off Method,

Net Realizable Value Method, Decision Making

1 Joint processing cost

a. Relative sales-value-at-split-off-method
Total Joint Cost 1,000,000

Fully
Monthly Sales Value % of total Allocated
Product Processed
output at Split-Off market value Joint Cost
Sales Price
Studs 75,000 8 600,000 46% 461,538
Decorative 5,000 60 300,000 23% 230,769
Posts 20,000 20 400,000 31% 307,692
Total 100,000 1,300,000 100% 1,000,000

b. Physical units method

Total Joint Cost 1,000,000

Monthly Allocated
Product % of Unit
output Joint Cost

Studs 75,000 75% 750,000

Decorative 5,000 5% 50,000
Posts 20,000 20% 200,000
Total 100,000 1,000,000

c. Estimated NRV Method

Total Joint Cost 1,000,000

Further processing only for Decorative

Output loss 10% 4,500
Add. Cost 100,000
Add. Cost / unit 22.22

% of
Fully Hypo. Hypo. hypo.
Processed Market Market market Allocated Joint
Product Sales Price Add. Cost Price Units Value value Cost
Studs 8 - 8 75,000 600,000 44% 444,444.44
Decorative 100 22.22 77.78 4,500 350,000 26% 259,259.26
Posts 20 - 20 20,000 400,000 30% 296,296.30
Total 99,500 1,350,000 100% 1,000,000.00
Compare processing the decorative pieces
2 further as it presently does,
with selling the rough-cut product immediately at split-off.

Selling at Split-Off Selling at Further Process

Units 5,000 Units 4,500
Price 60 Price 100
Sales 300,000 Sales before Add. Cost 450,000
Add. Cost (100,000)
Sales at Further Process 350,000

Sales after additional processes are higher than sales without additional processes amounted to 50.000.
Hence, the company can consider carrying out additional processes.