Question

Choi Company manufactures two skin care lotions, Smooth Skin and Silken Skin, from a joint process. The joint costs incurred are $490,000 for a standard production run that generates 190,000 pints of Smooth Skin and 250,000 pints of Silken Skin. Smooth Skin sells for $2.60 per pint, while Silken Skin sells for $3.60 per pint. (Do not round intermediate calculations. Round final answers to nearest whole dollar amounts.) Required: 1. Assuming that both products are sold at the split-off point, how much of the joint cost of each production run is allocated to Smooth Skin using the relative sales value method? 2. If no separable costs are incurred after the split-off point, how much of the joint cost of each production run is allocated to Silken Skin using the physical measure method? 3. If separable processing costs beyond the split-off point are $1.30 per pint for Smooth Skin and $1.30 per pint for Silken Skin, how much of the joint cost of each production run is allocated to Silken Skin using a net realizable value method? 4. If separable processing costs beyond the split-off point are $1.30 per pint for Smooth Skin and $1.30 per pint for Silken Skin, how much of the joint cost of each production run is allocated to Smooth Skin using a physical measure method? Allocated joint cost Smooth Silken 1. Relative sales value method 2. Physical measure method 3. Net realizable value method 4. Physical measure method

Answer 1

The allocation of joint costs to Smooth Skin and Silken Skin can be calculated using different methods: relative sales value, physical measure, and net realizable value. The specific allocation to each product varies based on the method used and the relevant sales, production quantities, and separable costs.

Step-by-step explanation:

To determine the allocation of joint costs to each product using different methods, we use the following steps:

1. Relative sales value method:

For Smooth Skin, calculate total sales value (190,000 pints × $2.60/pint), then find the proportion of Smooth Skin sales to total sales (Smooth Skin sales + Silken Skin sales). The joint cost allocated is this proportion multiplied by total joint costs ($490,000).

2. Physical measure method:

For Silken Skin, find the proportion of Silken Skin quantity (250,000 pints) to total quantity (Smooth Skin quantity + Silken Skin quantity). Multiply this proportion by total joint costs to allocate to Silken Skin.

3. Net realizable value method:

For Silken Skin, subtract separable costs ($1.30/pint) from the selling price ($3.60/pint), multiply by the quantity (250,000 pints), and divide by the total net realizable value (Smooth Skin + Silken Skin) to get the proportion of joint costs to allocate to Silken Skin.

4. The physical measure method for Smooth Skin would follow the same process as step 2, using Smooth Skin's quantity.