Question

Differential Chemical produced 10,000 gallons of Preon and 20,000 gallons of Paron. Joint costs incurred in producing the two products totaled $7,500. At the split-off point, Preon has a market value of $6.00 per gallon and Paron $2.00 per gallon. Compute the portion of the joint costs to be allocated to Preon if the value basis is used. A. $2,500. B. $3,000. C. $4,500. D. $5,625. E. $1,500.

Answer 1

Answer:

C. $4,500

Explanation:

The portion of the joint cost for Preon allocation is shown below:

= Total joint cost for two products × (Preon cost ÷ Total cost)

where,

Total joint cost = $7,500

Preon cost = 10,000 gallons × $6 per gallon = $60,000

And, the total cost is

= 10,000 gallons × $6 per gallon + 20,000 gallons × $2 per gallon

= $60,000 + $40,000

= $100,000

So, the allocated cost equal to

= $7,500 × ($60,000 ÷ $100,000)

= $4,500