Question

Hill company processes copper ore into two​ products, c and u. the ore costs​ $5 per pound and conversion costs are​ $15 per pound. Hill company plans to produce​ 40,000 pounds of product c and​ 20,000 pounds of product u from​ 60,000 pounds of ore. product c sells for​ $30 per pound and product u sells for​ $40 per pound. assume the company uses the physical-units method of allocating joint costs. what amount of joint costs is allocated to product​ c?

Answer 1

Physical Unit Method under Joint Costing: It is also known as quantitative unit method. In this method, the joint cost is allocated among joint products on the basis of measurement like tons, gallons, pounds or feet etc.

	Quantity (In Pounds)	Rate ($)	Total Cost ($)
Purchase cost of ore	60,000	$             5	$            300,000
Conversion cost of ore	60,000	$          15	$            900,000
Total	60,000	$          20	$        1,200,000

Per Unit Cost= Total Joint Production Cost / Total number of Weight units

                      = 1200000/60000

                      = 20

Allocation of Joint Cost among product c and u in proportion to physical units method.

Products	Quantity (In Pounds)	% of Production	Joint production cost allocated	Remarks
c	40000	66.67%	$            800,000	Total Cost /100 * % of Production
u	20000	33.33%	$            400,000	Total Cost /100 * % of Production
Total	60000	100.00%	$        1,200,000

As per the above derived from the physical unit method $800,000 is allocated to product c.