Question

Soy Products ​(Upper K​SP) buys soybeans and processes them into other soy products. Each ton of soybeans that Upper KSP purchases for $ 380 can be converted for an additional $ 170 into 525 lbs of soy meal and 120 gallons of soy oil. A pound of soy meal can be sold at splitoff for $ 1.36 and soy oil can be sold in bulk for $ 4.25 per gallon. Upper KSP can process the 525 pounds of soy meal into 575 pounds of soy cookies at an additional cost of $ 380. Each pound of soy cookies can be sold for $ 2.36 per pound. The 120 gallons of soy oil can be packaged at a cost of $ 260 and made into 480 quarts of Soyola. Each quart of Soyola can be sold for $ 1.55. Read the requirementsAllocate the joint cost to the cookies and the Soyola using the following:a. Sales value at splitoff methodb. NRV methodc. Should ISP have processed each of the products further? What effect does the allocation method have on this decision?

Answer 1

See attachment for 1 and 2

Explanation:

Number 2 (continuation)

ISP should process the soy meal into soy cookies because that increases profit by $263. However, ISP should sell the soy oil as is, without processing it into the form of Soyola, because profit will be $56 higher if they do. Since the total joint cost is the same under both allocation methods, it is not a relevant cost to the decision to sell at splitoff or process further.