Question

ABC Company produces three products in a joint production process. At the split-off point, all three products are produced further and then sold. Information about these products for 2019, the most recent year, appears below: Product A Product B Product C Units produced ............... 15,000 25,000 10,000 Selling price ................ $50 per unit $40 per unit $75 per unit Additional processing costs .. $15 per unit $16 per unit $37.50 per unit Joint costs for 2019 totaled $150,000. During 2019, ABC Company sold 12,000 units of Product A; 11,000 units of Product B were sold; and 9,000 units of Product C were sold. Assume there were no beginning inventories of any type in 2019. ABC Company employs the physical units method to allocate joint costs to products. Calculate the amount of cost of goods sold that ABC Company would report for 2019.

Answer 1

Joint cost = $150,000

Total units produced = 15,000 + 25,000 + 10,000 = 50,000

Allocation of joint cost using physical units method :

Joint cost per unit = Joint cost / Total units produced = $150,000 / 50,000 units = $3 per unit

Calculation of total cost of goods sold :

	Product A	Product B	Product C	Total
Joint cost per unit	$3	$3	$3
(+) Additional processing cost per unit	$15	$16	$37.5
Total cost per unit	$18	$19	$40.5
(x) Units sold	12,000	11,000	9,000
Cost of goods sold	$216,000	$209,000	$364,500	$789,500

For year 2019 ABC Company would report $789,500 as the amount of cost of goods sold.