Problem 4-2: Joint Costs Payette Canning Company buys sweet corn from local farm
ID: 2461781 • Letter: P
Question
Problem 4-2: Joint Costs
Payette Canning Company buys sweet corn from local farmers. They process the corn, can it, and sell it to food distributors. The company produces three types of corn: whole kernel, cream style and pimento flavored. Common measure is gallons.
Pimento Cream Whole
Gallons at split off 10,000 40,000 50,000
Gallons at retail 8,000 36,000 46,000
Price at split off $10 $12 $8
Price at retail $20 $25 $15
Separate costs $50,000 $130,000 $80,000
Joint costs equal $400,000
Required:
Allocate the costs based on the physical unit’s method. Compute the total costs for each product under this approach.
Allocate the costs based on the NRV method. Compute the total costs for each product using this approach.
What is the third acceptable method?
Which method most equitably allocates the costs to the various products?
Explanation / Answer
costs based on the physical unit’s method-
Quantity of the Product
Cost Allocated to a Joint Product =---------------------------------------* Total Joint Costs
Quantity of total production
costs based on the NRV method-
NRV= (Gallons at split off * unit price at retail)- seprable cost
The third acceptable method is relative sales value method
Cost allocation to joint product= (sales value of the product/ sales value of the total production) * total joint cost
Since in the given question seperate cost is also given, hence NRV method would be the most suitable method.
Pimento Cream Whole Total Gallons at split off 10000 40000 50000 100000 Total joint costs 400000 40000 160000 200000 Separate cost 50000 130000 80000 Total cost $90000 $290000 $280000Related Questions
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