Payette Canning Company buys sweet corn from local farmers. They process the cor

Question

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: 1. Allocate the costs based on the physical units method. Compute the total costs for each product under this approach. 2. Allocate the costs based on the NRV method. Compute the total costs for each product using this approach. 3. What is the third acceptable method? 4. Which method most equitably allocates the costs to the various products?

Explanation / Answer

Data can be summarised as

1) physical unit method: we will distribute cost on basis of production at splitoff point

We determine ratio between 3 products as 10000:40000:50000

or 1 : 4 : 5

Whole Kernel Cream style pimento Gallons at split off 10000 40000 50000 Allocation of Joint cost ( 1 : 4 : 5) 40000 160000 200000 Joint cost = 400000 Seperate costs 50000 130000 80000 Total cost 90000 290000 280000

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