Question:
By-Product Costing. The Taft Corporation, manufacturer of paper from wood pulp, sells its products to converters for processing into bags, boxes, etc. Logs are hauled up from the wood yard and are barked in large drums. The bark saved is dried and used as fuel for the steam boilers. The company estimates that 20% of the steam produced comes from bark. Even though this fuel seems to cost nothing, the cost accountant credits that proportion of the total cost of steam distributed in the period to the cost of paper. In the process of cooking or digesting the chipped wood, in addition to the pulp, a fatty soap is produced which is siphoned off and refined into a by-product known as tall oil which is sold and used in the making of solvents, paint, soap, etc. For every 20 tons of paper, one ton of tall oil is produced.
Actual data:
(a) 2,000,000 MBTU's of steam were distributed from the boiler during the period at a cost of $0,250 per MBTU.
(b) 60,000 tons of paper were sold at a selling price of $75 per ton. Costs for the period were
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Materials
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$2,700,000
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|
Labor
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264,000
|
|
Factory overhead
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876,000
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(c) The selling price for tall oil was $40 per ton. Costs after separation were:
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Additional materials
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$12,000
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|
Labor
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7,000
|
|
Factory overhead
|
6,500
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Required: An income statement for the month for paper using the market value (reversal cost) method for costing the paper and tall oil.
Include a credit to the cost of paper for steam.