Question

Landmark Coal operates a mine. During July, the company obtained 500 tons of ore, which yielded 250 pounds of gold and 63,400 pounds of copper. The joint cost related to the operation was $500,000. Gold sells for $325 per ounce and copper sells for $0.91 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

Here we use relative sales value method to allocate joint costs, therefore first we have to find the sales value of both products-

Sales value of gold= Number of pounds* Selling price per unit

ie., 250*325 = 81250

Sales value of copper = 63400*0 .91= 57694

Total sales value of both products= 81250+57694

=138944//

Joint cost is 500000 (given in the question).

Equation to calculate joint cost allocated to gold is-

Joint cost/Total sales value of all product * Sales value of gold.

ie., 500000/138944 * 81250

= 292383.98//

Therefore joint cost allocated to gold is 292383.98.

Now we have to calculate the joint cost allocated to copper-

Joint cost/ Total value of all product * Sales value of copper

ie., 500000/138944 * 57694

= 207616.01//

Therefore joint cost allocated to copper is 207616.01.

Now we can find the profit or loss associated with copper-

It is calculated by substracting the joint cost allocated to copper from the sales value of copper-

ie., 57694 - 207616.01

= (149922.01) Answer is a negative amount which means it is a loss.

Therefore the loss associated with copper is 149922.01.