Question

Landmark Coal operates a mine. During July, the company obtained 500 tons of ore, which yielded 250 pounds of gold and 63,700 pounds of copper. The joint cost related to the operation was $500,000. Gold sells for $325 per ounce and copper sells for $0.85 per pound. Allocate the joint costs using the relative sales values. With these costs, what is the profit or loss associated with Copper?

Round to two decimal places.

Answer 1

Cost allocated to a joint product

= (Sales value of the product/ Sales value of the total production) x Total joint cost

Cost for extraction of gold = ($ 325 x 16 x 250)/ [($ 325 x 16 x 250) + ($ 0.85 x 63,700)] x $ 500,000

                                            = [$ 1,300,000/ ($ 1,300,000 + $ 54,145)] x $ 500,000

                                            = ($ 1,300,000/ $ 1,354,145) x $ 500,000

                                            = 0.960015360245764 x $ 500,000

                                            = $ 480,007.6801229 or $ 480,007.68

Cost for extraction of copper = ($ 0.85 x 63,700)/ [($ 325 x 16 x 250) + ($ 0.85 x 63,700)] x $ 500,000

                                            = [$ 54,145/ ($ 1,300,000 + $ 54,145)] x $ 500,000

                                            = ($ 54,145/ $ 1,354,145) x $ 500,000

                                            = 0.0399846397542361 x $ 500,000

                                            = $ 19,992.319877118 or $ 19,992.32

Profit from copper = Sales revenue – Cost of extraction = $ 54,145 - $ 19,992.32 = $ 34,152.68