Question

Joint Cost The Sun-Kissed Company manufactures two skin-care lotions, Soft Skin and Silken Skin, out of a joint process. The joint (common) costs incurred are $430,000 for a standard production run that generates 195,000 gallons of Soft Skin and 120,000 gallons of Silken Skin. Additional processing costs beyond the split-off point are $1.40 per gallon for Soft Skin and $0.90 per gallon for Silken Skin. Soft Skin sells for $2.40 per gallon while Silken Skin sells for $3.9 per gallon.

Answer 1

Soft Skin unit cost: 2.50

Silken Skin unit cost: 2.19

Step-by-step explanation:

We have to allocate the common cost incurred of 430,000 dollars to Soft Skin and Silken Skin

For that we can consider the revenue generate for each product:

Soft: 195,000 x 2.40 = 468,000

Silken: 120,000 x 3.9 = 468,000

As both product generate the same revenue we allocate 50/50

Soft allocated common cost:

430,000 x 50% = 215,000

Unit cost: 215,000 / 195,000 = 1.1025641

+ further processing cost: 1.40

total unit cost: 2.50

Silken allocated common cost:

430,000 x 50% = 215,000

Unit cost: 215,000 / 120,000 = 1.7916667

+ further processing cost: 0.40

total unit cost: 2. 19