Question

Rooney Chemical Company makes three products, B7, K6, and X9, which are joint products from the same materials. In a standard batch of 374,000 pounds of raw materials, the company generates 78,000 pounds of B7, 156,000 pounds of K6, and 140,000 pounds of X9. A standard batch costs $2,992,000 to produce. The sales prices per pound are $4, $8, and $14 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

a)Allocation of Joint product cost among the three final Products using weight as t he allocation Base
Product	Allocation Rate	Weight of Final Products	Allocated Cost ($)
	A	B	C=A*B
B7	$8	78,000	6,24,000
K6	$8	1,56,000	12,48,000
X9	$8	1,40,000	11,20,000
Total Allocated Cost		3,74,000	29,92,000
Calculatio n of Allocatio n Rate
Allocation Rate = Standa rd batch Cost to Produce / Standa rd batch of Raw Materials
Allocation Rate = $29,92,000/374,000 = $8.00
b) Allocation of Joint product cost among the three final Products using Market Value as the allocation Base
Product	Allocation Rate	Weight of Final Products	Allocated Cost($)
	A	B	C=A*B
B7	0.85	3,12,000	2,65,200
K6	0.85	12,48,000	10,60,800
X9	0.85	19,60,000	16,66,000
Total Allocated Cost		35,20,000	29,92,000
Calculation of Allocation Rate & Market Value of three final products
Allocation Rate = Standard batch Cost to Produce / Total Market Value of final Products
Product	Pounds generated	Sales price($)	Market value($)
	A	B	C=A*B
B7	78,000	4	3,12,000
K6	1,56,000	8	12,48,000
X9	1,40,000	14	19,60,000
Total Allocated Cost	3,74,000		35,20,000
Allocation Rate = $29,92,000/$ 35,20,000
Allocation Rate = $0.85