Question

Stuart Chemical Company makes three products, B7, K6, and X9, which are joint products from the same materials. In a standard batch of 348,000 pounds of raw materials, the company generates 78,000 pounds of B7, 160,000 pounds of K6, and 110,000 pounds of X9. A standard batch costs $4,176,000 to produce. The sales prices per pound are $10, $14, and $20 for B7, K6, and X9, respectively.

Required

1. Allocate the joint product cost among the three final products using weight as the allocation base.

2. Allocate the joint product cost among the three final products using market value as the allocation base.

Answer 1

Allocation of joint product cost among the three final products using weight as the allocation base:

Joint product cost = $4,176,000

Weight of B7 = 78,000 pounds

Weight of K6 = 160,000 pounds

Weight of X9 = 110,000 pounds

Total weight of all three products = 78,000 + 160,000 + 110,000 = 348,000 pounds

Allocation of joint product cost to B7 = $4,176,000 x (78,000 / 348,000) = $936,000

Allocation of joint product cost to K6 = $4,176,000 x (160,000 / 348,000) = $1,920,000

Allocation of joint product cost to X9 = $4,176,000 x (110,000 / 348,000) = $1,320,000

Allocation of joint product cost among the three final products using market value as the allocation base:

Joint product cost = $4,176,000

Market value of B7 = 78,000 x $10 = $780,000

Market value of K6 = 160,000 x $14 = $2,240,000

Market value of X9 = 110,000 x $20 = $2,200,000

Total market value of all three products = $780,000 + $2,240,000 + $2,200,000 = $5,220,000

Allocation of joint product cost to B7 = $4,176,000 x (780,000 / 5,220,000) = $624,000

Allocation of joint product cost to K6 = $4,176,000 x (2,240,000 / 5,220,000) = $1,792,000

Allocation of joint product cost to X9 = $4,176,000 x (2,200,000 / 5,220,000) = $1,760,000