Question

Terrace Labs produces a drug used for the treatment of arthritis. The drug is produced in batches.

In March​, Terrace​,which had no opening​ inventory, processed one batch of chemicals. It sold 2,100 gallons of product for human use and 500 gallons of the veterinarian product. Terrace uses the net realizable value method for allocating joint production costs.

Chemicals costing $54,000 are mixed and​ heated, then a unique separation process then extracts the drug from the mixture. A batch yields a total of 2,800 gallons of the chemicals. The first 2,200 gallons are sold for human use while the last 600 ​gallons, which contain​ impurities, are sold to veterinarians. The costs of​ mixing, heating, and extracting the drug amount to $153,000 per batch. The output sold for human use is pasteurized at a total cost of $123,200 and is sold for $640 per gallon. The product sold to veterinarians is irradiated at a cost of $15 per gallon and is sold for $480 per gallon.

Requirement 1. How much in joint costs does Terrace allocate to each​ product? ​(Do not round intermediary calculations. Only round the amount you input in the cell to the nearest​ dollar.)

Joint costs allocated to human product
Joint costs allocated to veterinarian product

Answer 1

Joint Cost Allocation :

Joint cost for Human Product	170,068.81	('207000/(1284800+279000)*1284800)
Joint cost for Veternity Product	36,931.19	('207000/(1284800+279000)*279000)

Workign Notes :

A. Calulation of Total Cost

Chemical Cost	54,000.00
Mixingm Heating etc	153,000.00
Total Cost	207,000.00

B. Net Realisable Value calculation

Particulars	Quantity	Rate per unit	Total
	Human Consumpiton	2,200.00	640.00	1,408,000.00
Less :	Specifc cost of pasteurized			123,200.00
	Net Realisation			1,284,800.00
	Veternity Consumption	600.00	480.00	288,000.00
	Specific cost if irradication	600.00	15.00	9,000.00
				279,000.00