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Problem 11-75 (Algo) Joint Cost Allocation and Product Profitability (LO 11-7, 8, 9)

Prescott Lumber processes logs into grade A and grade B lumber. Logs cost $21,200 per load. The milling process produces 5,000 units of grade A with a market value of $72,800, and 15,000 units of grade B with a market value of $10,400. The cost of the milling process is $12,000 per load.

Required:

a. If the costs of the logs and the milling process are allocated on the basis of units of output, what cost will be assigned to each product?

b. If the costs of the logs and the milling process are allocated on the basis of the net realizable value, what cost will be assigned to each product?

c-1. How much profit or loss does the grade B lumber provide using the data in this problem and your analysis in requirement (a)?

c-2. Is it really possible to determine which product is more profitable?

Deming & Sons manufactures four grades of lubricant, W-10, W-20, W-30, and W-40, from a joint process. Additional information follows.

					If Processed Further
Product	Units Produced	Sales Value at Split-Off			Additional Costs			Sales Values
W-10	47,600	$	284,000		$	30,500		$	310,000
W-20	34,000		244,000			24,400			284,000
W-30	27,200		164,000			16,400			204,000
W-40	27,200		124,000			10,200			136,000
	136,000	$	816,000		$	81,500		$	934,000

Required:

Assuming that total joint costs of $367,200 were allocated using the physical quantities method, what joint costs were allocated to each product? (Do not round intermediate calculations.)

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