Question

Pam Inc. produces joint products O, P, and Q from a joint process. Information concerning a batch produced in May at a joint cost of $90,000 was as follows

		After Split - Off
Product	Units Produced	Additonal Costs	Market Values
O	1,400	$22,000	$70,000
P	3,200	16,000	60,000
Q	6,400	4,000	8,000

                                                            

Required:

            (1) Allocate the joint costs to the joint products using the physical measures method.

            (2) Allocate the joint costs to the joint products using the net realizable method.

Answer 1

1. Allocation of joint costs using physical measures method

Cost allocated to product

= Quantity of product/ Quantity of total production * Total Joint costs

                Product O            = 1400/(1400+3200+6400)   * 90,000

                                                = 1400/11000 * 90,000 = $ 11454.54

                Product P             = 3200/11000 * 90000 = $26181.82

                Product Q            = 6400/11000 * 90,000 = $ 52363.64

2. Allocation of joint costs using net realizable method

Cost allocated to product

                                =NRV of the product/NRV of total product    * Total Joint costs

	Market value (A)	Additional costs after split off (B)	NRV (A) – (B)
O	70,000	22000	48000
P	60000	16000	44000
Q	8000	4000	4000
Total			$ 96000

Now as per formula, allocation as:

Product O = 48000/96000 * 90,000 = $45000

Product P = 44000/96000 * 90,000 = $41,250

Product Q = 4000/96000 * 90,000 = $3750

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