Question

Arkansas Corporation manufactures liquid chemicals A and B from a joint process. It allocates joint costs on the basis of sales value at split-off. Processing 5,900 gallons of product A and 1,400 gallons of product B to the split-off point costs $6,800. The sales value at split-off is $3.00 per gallon for product A and $29.50 per gallon for product B. Product B requires additional separable processing beyond the split-off point at a cost of $2.80 per gallon before it can be sold at a price of $34 per gallon. Required: What is the company’s cost to produce 1,400 gallons of product B?

Answer 1

Calculation of company cost to produce 1,400 gallons of Product-B:

Product	units produced	sales price per unit	sales value	percentage sales value	Allocation of cost -$6,800
Product - A	5,900	$3	$17,700 (5,900×$3)	30% $17,700/$59,000)	$2,040 ($6,800×30%)
Product - B	1,400	$29.50	$41,300 (1,400×$29.50)	70% ($41,300/$59,000)	$4,760 ($6,800×70%)
Total			$59,000	100%	$68,00

Product-B;

Allocated joint cost = $4,760

Add: additional processing cost = $3,920

(1,400 × $2.8)

Total cost = $8,680

($,3920 + $4,760)