17-36. JOINT-COST ALLOCATION. SW Flour Company buys whole wheat flour and mills it into Bread...
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17-36. JOINT-COST ALLOCATION. SW Flour Company buys whole wheat flour and mills it into Bread Flour and All-Purpose White Flour (APWF). In 2020, SW bought 300,000 pounds of whole wheat flour for $70,000. SW spent an additional $50,000 to process the whole wheat flour into Bread Flour and All-Purpose White Flour, so total joint costs equal $120,000 SW Flour Company reported the following production and sales information for 2020: Bread Flour APWF 60,000 240,000 Production and sales (in pounds) Selling price per pound $0.85 $0.50 SW can also put the All-Purpose White Flour through a second process and convert it into Cake Flour. This process costs an additional $50,000 but 20,000 pounds of flour are lost and thus yields only 220,000 pounds of Cake Flour. The Cake Flour sells for $1 per pound. Required 1. Allocate the $120,000 joint cost to the All-Purpose White Flour and the Bread Flour using the following: a. Physical-measure method (using pounds) b. Sales value at splitoff method C. NRV method d. Constant gross-margin percentage NRV method 2. Each of these measures has advantages and disadvantages; what are they? 3. Some managers claim that the sales value at splitoff method is the best method to use. Discuss the logic behind this claim
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