(Physical measure allocation) Swoopes Timber Company uses a joint process to manufacture two grades of wood: A and B. During October 2006, the company incurred $24,000,000 of joint production cost in producing 36,000,000 board feet of grade A and 12,000,000 board feet of grade B wood. The company allocates joint cost on the basis of board feet of wood produced. Swoopes can sell grade A at the split-off point for $0.50 per board foot or can further process the wood at a cost of $0.75 per board foot and then sell it for $1.60 per board foot. The company has no opportunity to further process grade B wood.

a. What amount of joint cost is allocated to grade A wood and to grade B wood?

b. If grade A wood is processed further and then sold, what is the incre¬ mental effect on Swoopes’ net income? Should the additional processing be performed?

 LO1.