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McBride's Dairy has 200 gallons of heavy cream and 600 gallons of skimmed milk and has incurred $1,000 of joint costs at the split-off point. It can sell each product at the split-off point or process it further in relatively similar processes, so management has decided that the most appropriate method for allocating joint costs is the market value at split-off point. One gallon of cream sells for $15, while one gallon of milk sells for $4. How much of the joint cost is allocated to cream

Sagot :

abiolataiwo2015

Answer:

$560

Explanation:

Calculation to determine How much of the joint cost is allocated to cream

Units Selling price Sales value Percentage of sales value Allocated cost

Cream (200*15=3,000) (3,000/5,400 = 56%)

(1,000 x 56% = $560)

Skimmed milk (600*4=2,400) (2,400/5,400 = 44%) (1,000 x 44% = $440)

Total $5,400 100% $1,000

($3,000+$2,400=$5,400)

(56%+44%=100%)

($560+$440=$1,00)

Therefore the joint cost allocated to CREAM is $560

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