The Jacobson Company manufactures two products, A and B from a single raw materi

Question

The Jacobson Company manufactures two products, A and B from a single raw material call Gizmo. Gizmo is purchased in 100 pound blocks, and the contents of one block are sufficient to produce 50 units of A and 30 units of B. A sells for $45 per unit and B sells for $35 per unit. During the current period, the company used 800 blocks of Gizmo to manufacture A and B. The cost of Gizmo was $350 per block.

Required: 1. If the cost of Gizmo is allocated to the A and B products on the basis of the number of units produced, how much of the total cost of the 800 blocks should be charged to each product?

2. If the cost of Gizmo is allocated to the A and B products in proportion to their market values, how much of the total cost of the 800 blocks should be charged to each product? Please show details for Allocation.

3. Which basis of allocating the cost is most likely to be used by the company? Why?

Explanation / Answer

1 A B total no of units produced 40000 24000 64000 total cost of block 280000 cost allocated 175000 105000 2 A B total no of units produced 40000 24000 SP per unit 45 35 total sales 1800000 840000 2640000 total cost of block 280000 cost allocated 190909.1 89090.91 280000 3 Sales value of the product A and B being more suitable basis would be more likely used by the company.

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