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Problem - Guybrush Enterprises produces two types of particle board: high and low density. Both types of wood go through a joint production process where wood chips are milled and mixed with resin, wax, water, and glue. The joint process costs a total of $150 per batch. After the split-off point, high density wood goes through an additional compression process, whereas low-density wood is immediately sold for $2 per square foot. One batch produces 200 square feet of low-density wood and 120 square feet of high-density wood. The additional processing of the high-density wood costs $135 per batch, and the high-density wood is then sold for $3 per square foot.
Required -
a. Determine the joint production cost to be allocated to the low- and high-density wood using the physical units method.
b. Determine the joint production cost to be allocated to the low- and high-density wood using the net realizable value method.
c. Which method provides more accurate costing of the low- and high-density wood?
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