Question

Arkansas Corporation manufactures liquid chemicals A and B from joint process. it allocates joint costs on the basis of sales value at split-off. processing 5,000 gallons of product A and 1,000 gallons of product B to the split off point costs $5,600. The sales value at split-off is $2 per gallon for product A and $30 for product B. Product B requires an additional separable process beyond split off at a cost of $2.50 per gallon before it can be sold.

What is the company's cost to produce 1,000 gallons of product B?

Answer 1

The company's cost to produce 1,000 gallons of product B is $6,700, including allocated joint costs and additional separable processing costs.

Step-by-step explanation:

The cost to produce 1,000 gallons of product B is $32,500.

To calculate the cost of product B, we need to consider two different costs: the joint costs allocated to product B based on its sales value at split-off and the separable processing costs that occur after the split-off point. The allocation of joint costs is based on the sales value at split-off, which is $30 per gallon for product B. As there are 1,000 gallons of product B, the sales value at split-off for product B is $30,000. The total joint process cost is $5,600. The sales value ratio for product B compared to the total sales value ($30,000 for B plus $10,000 for A, since product A is $2/gallon × 5,000 gallons) is 75% for product B and 25% for product A.

Thus, the joint cost allocated to product B is 75% of $5,600, which is $4,200. Additionally, product B requires further processing at a cost of $2.50 per gallon, so the separable processing cost for 1,000 gallons is $2.50/gallon × 1,000 gallons = $2,500. Finally, to find the total production cost for 1,000 gallons of product B, we add the allocated joint cost and the separable processing cost: $4,200 + $2,500 = $6,700.