Physical Quantities Method with By-Product
Trans-Pacific Lumber runs a mill in the Northwest that produces two grades of lumber, A and B, and a by-product, sawdust. The company chooses to allocate the costs on the basis of the physical quantities method.
Last month, it processed 125,000 logs at a total cost of $270,000. The output of the process consisted of 25,500 units of grade A, 59,500 units of grade B, and 75,000 units of sawdust. The sawdust can be sold for $10,000. This is considered to be its net realizable value, which is deducted from the processing costs of the main products.
Required
What share of the joint costs should be assigned to grade A and grade B