Question:
(By-product/joint product journal entries) Missouri Grain Agriculture is a 5,000- acre wheat farm. The growing process yields two principal products: wheat and straw. Wheat is sold for $3.50 per bushel (assumes a bushel of wheat weighs 60 pounds). Without further processing, the straw sells for $30 per ton (a ton equals 2,000 pounds). If the straw is processed further, it is baled and then sells for $45 per ton. In 2001, total joint cost to the split-off point (harvest) was $175 per acre. The farm produced 70 bushels of wheat per acre and 1 ton of straw per acre. If all of the straw were processed further, processing costs (baling) for the straw would amount to $50,000. Prepare the 2001 journal entries for straw, if straw is:
a. transferred to storage at sales value as a by-product without further processing, with a corresponding reduction of wheat's production costs.
b. further processed as a by-product and transferred to storage at net realizable value, with a corresponding reduction of the manufacturing costs of wheat.
c. further processed and transferred to finished goods, with joint cost being allocated between wheat and straw based on relative sales value at the split-off point. (CPA adapted)