10 PROBLEM 4. points) Monsters Ini meauacreproducts Mike and Sully Although Mons

Question

10 PROBLEM 4. points) Monsters Ini meauacreproducts Mike and Sully Although Monsters Inc. can sell the intermediate products at split-of om a joint ly processes each product further and sell the final product after individua, the com s at split-off point, c) Refe net r each one. Production, sales, and cost data for a recent month follow below process hy of th Units produced Joint cost allocation 4.000Su 3,000 7,000 Mil $40,000 $30,000 $100,000 Sales value at split-off Additional costs if processed further $70,000 10,000 $5,000 $15,000 Sales value if processed further$77,000 a) Why would a company allocate joint costs to individual products?

Explanation / Answer

(a) Joint costs are the costs that benefits more than one product in the production process. They are allocated to individual products in order to:

1. determine the individual product cost i.e. to calculate the cost of goods sold and onventory value of each product

2. calculate the profitability of the individual products separately say for comparison purposes.

3. financial reporting and income tax calculations

4. Insurance settlement for damaged products due to fire, etc.

5. product pricing

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