Question

Anderson Compounds produces two industrial chemical compounds, Gorp and Gumm, from the same process, which last year, cost $480,000. Anderson produced 20,000 pounds of Gorp, which sells for $60 per gallon and 60,000 gallons of Gumm, which sells for $30 per gallon. After the split-off point, Gorp required additional processing costing $300,000 to make it salable. Using the adjusted sales method, how much of the joint cost should be allocated to Gorp?

a. $120,000

b. $320,000

c. $160,000

d. $192,000

Answer 1

Solution:-

How much of the joint cost should be allocated to Gorp?

Particulars	Grop	Gumm	Total
Total sales	= 20,000 * $60 = $1,200,000	= 60,000 * $30 = $1,800,000	= $1,200,000 + $1,800,000 = $3,000,000
% of total sales	= $1,200,000 / $3,000,000 = 0.4 = 40%	= $1,800,000 / $3,000,000 = 0.6 = 60%
Cost of $480,000 allocated	= 480,000 * 40% = $192,000	= 480,000 * 60 = $288,000	= 192,000 + 288,000 = $480,000

So, Option D is correct .

Cost allocated by Gorp = $192,000 .