Landmark Coal operates a mine. During July, the company obtained 500 tons of ore, which yielded...

Landmark Coal operates a mine. During July, the company obtained 500 tons of ore, which yielded 250 pounds of gold and 62,800 pounds of copper. The joint cost related to the operation was $500,000. Gold sells for $325 per ounce and copper sells for $0.89 per pound. Allocate the joint costs using the relative sales values. With these costs, what is the profit or loss associated with Copper?

Solutions

Expert Solution

	*Allocation of joint cost:*
	Joint cost = $500,000

	Yield of gold = 250 pounds i.e. 4000 ounce (250*16)
	Selling price of gold = $325 per ounce
	Total selling price of gold => 4000*325	1,300,000.00
	Yield of copper = 62,800 pounds
	Selling price of copper = $0.89 per pound
	Total selling price of copper =>0.89*62800	55,892.00

	Allocation of joint cost to gold => 500000*(1300000/(100000+55892))	479,389.21
	Allocation of joint cost to copper => 500000*(55892/(100000+55892))	20,610.79

	*Part B:*
a	Total selling price of copper =>0.89*62800	55,892.00
b	Joint cost allocated to copper (as above)	20,610.79
c	Total profit on sale of copper (a-b)	35,281.21

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