Question

Each day, Wilson Waxes distills several thousand gallons of petroleum byproducts into liquid paraffin. The company must then choose whether to bottle and sell the paraffin as is or process it into candles. Based on this description, which of the costs listed below would NOT be considered a joint cost?

a. The direct labor costs associated with bottling the liquid paraffin
b. The maintenance costs associated with the distillation equipment
c. The administrative costs associated with tracking and receiving incoming shipments of petroleum by products
d. The direct labor costs associated with distilling the petroleum by products

Answer 1

The direct labor costs associated with bottling the liquid paraffin would not be considered a joint cost because it occurs after the split-off point, making it a separable cost specific to the final product form. The correct answer is option a.

Step-by-step explanation:

Based on the scenario where Wilson Waxes distills petroleum byproducts into liquid paraffin and then decides whether to bottle and sell the paraffin or process it into candles, we need to identify which costs would not be considered joint costs. Joint costs are the costs incurred up to the split-off point, where multiple products that derive from a common input and processing method can be separately identified. In this case, the cost that would NOT be considered a joint cost is: The direct labor costs associated with bottling the liquid paraffin

This is because bottling the paraffin occurs after the split-off point, hence it would be a separable cost related to the final form of the product, rather than a joint cost incurred during the initial production process. On the other hand, the maintenance costs of the distillation equipment, the administrative costs associated with tracking and receiving incoming shipments of petroleum byproducts, and the direct labor costs associated with distilling the petroleum byproducts are all incurred before the split-off point, making them joint costs.