Orange Paper Company Processes Wood Pulp into Two Products

Essay

Orange Paper Company processes wood pulp into two products. During April the joint costs of processing were $132,000. Production and sales value information for the month were as follows:

Paper sells for $2.65 a kilogram and cardboard sells for $3.40 a kilogram.
There were no beginning or ending inventories for April.
Required:
1. Determine the amounts to be allocated to each product using the:
a. estimated net realizable value method
b. sales value at splitoff method
2. If the cardboard is sold at the splitoff point then the post splitoff factory capacity can be renovated and leased for the year. The cost of the renovation is budgeted at $125,000 and the annual lease revenue will be $165,000. Determine if it is more profitable for the cardboard to be sold at the splitoff point or at the end of production.