General Chemical produced 12,000 gallons of Breon and 24,000 gallons of Baron. J

Question

General Chemical produced 12,000 gallons of Breon and 24,000 gallons of Baron. Joint costs incurred in producing the two products totaled $9,000. At the split-off point, Breon has a market value of $6.00 per gallon and Baron $2.00 per gallon. Compute the portion of the joint costs to be allocated to Breon if the value basis is used.

$5,400.

$1,800.

$3,600.

$6,725.

$3,000.

General Chemical produced 12,000 gallons of Breon and 24,000 gallons of Baron. Joint costs incurred in producing the two products totaled $9,000. At the split-off point, Breon has a market value of $6.00 per gallon and Baron $2.00 per gallon. Compute the portion of the joint costs to be allocated to Breon if the value basis is used.

Explanation / Answer

12000 * 6 = $ 72000

Ratios of market value for Breon and Baron respectively = 72000 : 48000

= 3 : 2   (Divide 72000 and 48000 by 24 to get 3 : 2)

Portion of joint cost to be allocated to Breon = 9000 * 3/ 5

   = $ 5400.

Conclusion:- The portion of the joint costs to be allocated to Breon if the value basis is used = $ 5400

12000 * 6 = $ 72000

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