Question

The Silver Center (TSC) produces cups and platters. TSC purchases silver and other metals that are processed into silver alloy that is used to make platters and cups. TSC incurred $40,000 of materials cost and $44,000 of labor cost to produce the silver alloy. Platters are made first and the residual alloy is remixed into a lower grade silver plated material that is used to make the cups. Remixing cost amount to $2,000. The recent batch contained 4,000 platters and 1,000 cups. TSC sold the platters for $100,000 and the cups for $12,000. If relative market value is used to allocate the joint cost, what is the income earned for cups?

Answer 1

The income earned for cups is $9,202.

Step-by-step explanation:

To calculate the income earned for cups, we need to allocate the joint costs to the cups using relative market value. The total joint cost incurred is the sum of materials cost, labor cost, and remixing cost, which is $40,000 + $44,000 + $2,000 = $86,000.

The relative market value of platters is $100,000 and the relative market value of cups is $12,000. The allocation ratio for cups can be calculated as:

($12,000 / ($12,000 + $100,000)) = 0.107.

The income earned for cups is the allocated joint cost multiplied by the allocation ratio:

$86,000 * 0.107 = $9,202.

Answer 2

Answer: Income earned for cups = $1,000

Step-by-step explanation:

Given:

Materials cost = $40,000

Labor cost = $44,000

Remixing cost amount to $2,000

TSC sold the platters for $100,000 and the cups for $12,000

There will be a decrease in net income due to non-selling of cups

= $12,000 - $2,000

= $10,000.

Thus, the Company's total income will decrease by $10,000 if it stops making and selling cups.

Joint cost allocated to cups

= (40,000 + 44,000)×12,000 ÷ (100,000 + 12,000)

= $9,000

∴

Income earned for cups

= $12,000 - $2,000 - $9,000

= $1,000