Question

Joint costing

Jill makes two products out of a joint process—products Beta & Gamma. The joint (common) costs

incurred are $800,000 for a standard production run that generates 70,000 pounds of Gamma and

30,000 pounds of Beta. Gamma sells for $9.00 per pound whereas Beta sells for $7.00 per pound.

7) If there are no additional processing costs incurred after the splitoff point, the amount of joint cost of

each production run allocated to Beta on a sales value at splitoff basis is:

8) Assume the same joint costs and final selling price of Beta and Gamma as before. But now assume

that there additional processing costs beyond the splitoff point for each. They are $1.00 per pound for

Gamma and $2.20 per pound for Beta. What amount of joint costs of each production run would be

allocated to Beta on an estimated net-realizable value basis? (round off answer to the nearest dollar)

9) Tom makes products Alpha and Delta from a joint process. Alpha has been allocated $7,500 of total

joint costs of $30,000 for the 1,500 units produced. Alpha can be sold at the splitoff point for $4 per unit,

or it can be processed further with additional costs of $2,000 and sold for $7 per unit. If Alpha is

processed further and sold, instead of being sold at the split-off point, how would operating income be

affected? In other words, which yields a higher operating income—selling at split-off or processing

further? By how much?

Answer 1

7. Joint cost = $800000

Sales value Gamma = 70000*$9 = $630000

Sales value beta = 30000*$7 = $210000

Joint cost allocation to beta

= $800000*$210000/($630000+$210000)

= $2000000

8. NRV

Gamma = 70000*($9-$1) = $560000

Beta = 30000*($7-$2.20) = $144000

Cost allocation to beta

= $800000*$144000/($560000+$144000)

= $163636

9. Additional income if sold after processing

= 1500 units ($7-$4) = $4500

Additional cost = $2000

So increase in income because of further processing

= $4500 - $2000 = $2500

It should be further processed for extra $2500 earnings.

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