Question
NW Flour Company buys 1 input of standard flour and refines it using a special sifting process to 3 cups of baking flour and 9
NW Flour Company buys 1 input of standard flour and refines it using a special sifting process to 3 cups of baking flour and 9 cups of bread flour. In May 2017, NW bought 11,200 inputs of flour for $88,500. NW spent another 47,700 on the special sifting process. The baking flour can be sold for $3.65 per cup and the bread flour for $4.95 per cup. NW puts the baking flour through a second process so it is super fine. This costs an additional $1 per cup of baking flour and the process yields 12 cup of super-fine baking flour for every one cup of baking flour used. The super-fine baking flour sells for $9.90 per cup.
1.
Allocate the $136,200 joint cost to the super-fine baking flour and the bread flour using the following:
a. Physical-measure method (using cups) of joint-cost allocation
b. Sales value at splitoff method of joint-cost allocation
c. NRV method of joint-cost allocation
d. Constant gross-margin percentage NRV method of joint-cost allocation
2.
Each of these measures has advantages and disadvantages; what are they?
3.
Some claim that the sales value at splitoff method is the best method to use. Discuss the logic behind this claim.
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