Question

Answer for the circle below only

Joint Products - Cost Allocation: Some manufacturing processes start with incurring costs when the cost objects may not yet be identifiable. For example, during the refining process that transforms crude oil into different grades of gasoline, certain costs (joint costs) are incurred early in the process. Once the process reaches a point where each individual cost object is identifiable (split-off point), we must allocate the joint costs to these newly identifiable cost objects (joint products). EXERCISE 2: Axiom Petroleum operates an oil refining facility that produces three different grades of fuel. Following are the production and sales information for the month of August. Product Gallons Produced Low grade Regular grade Premium grade TOTAL 336,000 480,000 384,000 1,200,000 Sales Value at Split-off Point $175,000 460,000 405,000 $1,040,000 The Joint Costs of processing for August were $624,000. Determine the amount of joint costs allocated based on the gallons produced: Step 1: Compute an allocation rate (Round to two digits beyond the decimal point). Total Joint Costs Cost Driver(Allocation Base) Allocation Rate Total Gallons produced $ = $ per gallon

Answer 1

Total Joint Cost a $ 624,000 Allocation Rate Cost Driver (b) Allocation rate Total gallons produced a/b 120000 $ 5.20 per gallon Allocation Costs based on gallons produced Allocation Rate (a) Gallons (b) Allocated (a*b) Low Grade $ 5.20 336000 $ 1,747,200 Medium Grade $ 5.20 480000 $ 2,496,000 Premium Grade $ 5.20 384000 $ 1,996,800 Total $ 5.20 1200000 $ 6,240,000 Allocation Rate Total Joint Cost Cost Driver (b) Allocation rate Sales Value at Split Off a/b $ 624,000 $ 1,040,000 $ 0.60 per $ of sale value a Allocation Costs based on sale value at split off point Allocation Rate (a) Gallons (b) Allocated (a*b) Low Grade $ 0.60 $ 175,000 $ 105,000 Medium Grade $ 0.60 $ 460,000 $ 276,000 Premium Grade $ 0.60 $ 405,000 $ 243,000 Total $ 0.60 $ 1,040,000 $ 624,000 Answers for the circle are in colour. Note: Please Comment down for any further clarifications.