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Differential Chemical produced 13,500 gallons of Preon and 27,000 gallons of Paron. Joint costs incurred in...

Differential Chemical produced 13,500 gallons of Preon and 27,000 gallons of Paron. Joint costs incurred in producing the two products totaled $7,800. 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.

  • $1,560.

  • $4,680.

  • $3,120.

  • $2,600.

  • $5,845.

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Answer #1

Differential Chemical produced 13,500 gallons of Preon and 27,000 gallons of Paron.

At the split-off point, Preon has a market value of $6.00 per gallon and Paron $2.00 per gallon

Product Quantity Market price per gallon Total market value Percentage of market value
Preon 13,500 gallons $6 81,000 81,000/135,000 = 60%
Paron 27,000 gallons $2 54,000 54,000/135,000 = 40%
Total $135,000 100%

Joint costs incurred in producing the two products = $7,800.

Joint costs to be allocated to Preon = Joint costs incurred in producing the two products x Percentage of market value of Preon

= 7,800 x 60%

= $4,680

Second option is correct.

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