Question

Joint Cost Allocation—Market Value at Split-off Method

Man O’Fort Inc. produces two different styles of door handles, standard and curved. The door handles go through a joint production molding process costing $29,000 per batch and producing 2,000 standard door handles and 1,000 curved door handles at the split-off point. Both door handles undergo additional production processes after the split-off point, but could be sold at that point: the standard style for $4 per door handle and the curved style for $2 per door handle.

Determine the amount of joint production costs allocated to each style of door handle using the market value at split-off method.

Answer 1

Joint production cost = $29000

market value of standard style = 2000 x $4 = $8000

market value of curved style = 1000 x $2 = $2000

therefore,

joint cost allocated to standard style = $29000 x {($8000/($8000 + $2000)}

= $23200

joint cost allocated to curved style = $29000 x {($2000/($8000 + $2000)}

= $5800