Question

Argon Manufacturing Company processes direct materials up to the split off point where two main products   (U...

Argon Manufacturing Company processes direct materials up to the split off point where two main products   (U and V), and one by-product , X, are obtained and sold. The following information was collected for last quarter of the calendar year:

Direct materials processed:  10,000 gallons (note: processing results in some shrinkage of material )

Production: Product U 4500 gallons
Product V 4600 gallons
By product Product X 1700
Sales price: Product U $150.00 per gallon
Product V $100.00 per gallon
by-product Product X 10.00 per gallon

The cost of purchasing 10,000 gallons of direct materials and processing it up to the split off point was $975,000.

How much of the $975,000 of joint costs are allocated to the by-product using the production method to account for by-product cost?

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Answer #1
By products cost using the Cost of production method
Sales:
Product U (4500 galans X 150 per galan 675000
Product Y (4600 galans X 100 per galan 460000
Cost of sales 975000
Less : by product X 1700 @ $10 per gallen -17000
Net production cost (975000-17000) 958000
Gross profit (675000+460000-958000) 177000
In production method the total production cost less by products revenue then we will arive the net cost of production
Sales less net cost of production will arrive the Gross profit
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