Question

Khaleel Compagny produces three products A, B and C. During the year the joint costs of processing the coffee were SAR270,000. Production and sales value information were as follows:

                                             Sales Value

Product               Units         at Split-Off        Separable Costs        Selling Price

A                       300,000      SAR9 per unit      SAR5.00 per unit       SAR32 per unit

B                       200,000      SAR8 per unit      SAR3.00 per unit       SAR30 per unit

C                       400,000      SAR7 per unit      SAR2.00 per unit        SAR20 per unit

           Chose one method to allocate joint costs and allocate the joint costs.          (1 mark)

Answer 1

The joint cost can be allocated based on the market value or sales value of the products at the split off point

Joint cost is SAR270,000

Product	Units	Sales value at Split Off	Sales value in SAR	Allocated Joint cost
A	300,000	SAR 9 Per unit	2,700,000	102,681
B	200,000	SAR 8 Per unit	1,600,000	60,845
C	400,000	SAR 7 Per unit	2,800,000	106,479
Total	900,000		7,100,000	270,000

Allocated cost for A = 2,700,000/7,100,000*270,000 = 102,681

Allocated cost for B = 1,600,000/7,100,000*270,000 = 60,845

Allocated cost for C = 2,800,000/7,100,000*270,000 = 106,479