Question

Chapter 6 Costing By-Products and Joint Products 141 7. Joint product cost allocation--market value method. Arlington Company manufactures three different products from a single raw material. A summary of production costs shows: Product Total Output in Kilograms....... 80 000 200 000 160 000 440 000 Sales price per kilogram... $.75 $1.00 $1.50 Separable Costs Total SKY Cost Production costs: Materials.... - - $ 90.000 Direct aboum . $ 3,000 $20,000 $30.000 80.000 Variable factory overhead............. 2,000 10,000 16,000 45.000 Fixed factory overhead................... 15,000 34.000 30.000 115,000 All separable costs have been assigned to products but the joint cost has not been allocated. All of the year's output was sold. Required: Compute the gross profit for each product, allocating the joint cost by the market value method. (CGAAC adapted) 8. Joint product cost allocation-market value method. Cagle Company spent $158,400 on raw materials, then processed this material at a cost of $171,600, resulting in three products: 6,000 units of B. 4,000 units of R, and 3,000 units of Y. To make these products salable, an additional $50,000 is spent on B. $30,000 on R, and $40,000 on Y. Unit sales prices are: B. $40; R. $50; and Y. $60. Required:

Question 7,8,9.

Answer 1

Answer-7:

Gross VFOH FFOH Total cost $ $ $ No. of unit Market value Total market Allocation of Joint product produced per unit value value material cost 80,000 0.75 $ 60,000 $ 7,200 к | 200,000 1.00 200,000 24,000 160,000 1.50 240,000 28,800 Total 500,000 60,000 Direct labour $ 3,000 20,000 30,000 53,000 2,000 10,000 16,000 28,000 15,000 34,000 30,000 79,000 27,200 88,000 104,800 220,000 profit $ 32,800 112,000 135,200 280,000

*Total joint cost is 12% of the total market value of all joint products
($60,000/$500,000) × 100 = 12%

The allocation of joint cost on the basis of market value at split-off point has been made as follows:

• Product A: $60,000 × 0.12 = $7,200
• Product B: $200,000 × 0.12 = $24,000
• Product C: $240,000 × 0.12 = $28,000

Answer-8(1):

Ultimate Ultimate No. of unit Market value Total market produced per unit value Joint product Processing Hypothetical cost after market value split-off at split-off Allocation of joint cost Total production cost Unit production cost $ $ $ $ $ 6,000 $ 4,000 3,000 Total 40.00 $ 50.00 60.00 240,000 200,000 180,000 620,000 50,000 30,000 40,000 120,000 190,000 170,000 140,000 500,000 125,400 112,200 92,400 330,000 175,400 142,200 132,400 450,000 29 36 44 Y

Total joint cost = $158,400 + $171,600 = $330,000

*Total joint cost is 66% of the total hypothetical market value of all joint products:
($330,000/$500,000) × 100 = 66%

The allocation of total joint cost on the basis of hypothetical market value at split-off point has been made as follows:

• Product B: $190,000 × 0.66 = $125,400
• Product R: $170,000 × 0.66 = $112,200
• Product Y: $140,000 × 0.66 = $92,400

**Total production cost:

• Product B: $125,400 + $50,000 = $175,400
• Product R: $112,200 + $30,000 = $142,200
• Product Y: $92,400 + $40,000 = $132,400

Answer-8(2):

$ No. of units produced Market value per unit at split-off point Total market value at split-off point Less: Allocated joint cost Gross profit before further processing 6,000 34 204,000 125,400 78,600 $ $ Ultimate market value (40 x 6,000) Less: Allocated joint cost Less: further processing cost Gross profit after further processing 240,000 125,400 50,000 64,600 $

As there is a reduction of $14,000 in gross profit if further processing is done, management should sell product B at split-off point only.

Answer 2

Question 9:

Part B;

Products	Quantity	Ultimate Market Value	Process cost After Split-off	Hypothetical value	Allocation of Joint cost	Total Production Cost
A	3000	60,000	20,000	40,000	25,000	45,000
B	4000	110,000	30,000	80,000	50,000	80,000
C	3000	90,000	50,000	40,000	25,000	75,000
Total				160,000	100,000	200,000

Working:

Joint cost= 100,000/160,000

                 = 0.625

For Hypothetical:

Product A;    

               =60,000-20,000

                =40,000

Product B;  

               =110,000-30,000

              =80,000

Product C;

             =90,000-50,000

             =40,000

For Allocation of Joint cost:

Product A: 40,000*.625

                   = 25,000

Product B: 80,000*.625

                  = 50,000

Product C: 40,000*.625

                 =25,000