Question

Bismite Corporation purchases trees from Cheney lumber and processes them up to the split-off point where two products (paper and pencil casings) are obtained. The products are then sold to an independent company that markets and distributes them to retail outlets. The following information was collected for the month of October:

Trees processed: 310 trees
Production: paper 180,000 sheets
pencil casings 180,000
Sales: paper 170,000 at $0.20 per page
pencil casings 177,500 at $0.24 per casing

The cost of purchasing 310 trees and processing them up to the split-off point to yield 180,000 sheets of paper and 180,000 pencil casings is $12,500. Bismite's accounting department reported no beginning inventory.

What are the paper's and the pencil's approximate weighted cost proportions using the sales value at split-off method, respectively?

Answer 1

Answer:

Paper = 0.45 and Pencil = 0.55

Explanation:

For computing the weighatge cost proportions, first we have to determine the sales value at split off point which is shown below:

For paper, it would be

= 180,000 × $0.20

= $36,000

For pencil, it would be

= 180,000 × $0.24

= $43,200

Now the total sales would be

= $36,000 + $43,200

= $79,200

Now the weightage would be

For paper = Paper sales ÷ Total sales

                = $36,000 ÷ $79,200

                = 0.45

For pencil  = Paper sales ÷ Total sales

                  = $43,200 ÷ $79,200

                   = 0.55