Question

Ferrier Chemical Company makes three products, B7, K6, and X9, which are joint products from the same materials. In a standard batch of 150,000 pounds of raw materials, the company generates 35,000 pounds of B7, 75,000 pounds of K6, and 40,000 pounds of X9. A standard batch costs $600,000 to produce. The sales prices per pound are $6, $10, and $16 for B7, K6, and X9, respectively. Required Allocate the joint product cost among the three final products using weight as the allocation base. Allocate the joint product cost among the three final products using market value as the allocation bas

Answer 1

Ferrier Chemical Company

Allocation of the joint cost, using weight as the allocation base:

For B7 = $140,000 ($600,000*35,000/150,000)

For K6 = $300,000 ($600,000*75,000/150,000)

ForX9 = $160,000 ($600,000*40,000/150,000)

Allocation of the join cost, using market value:

For B7 = $78,750 ($600,000*$210,000/$1,600,000)

For K6 = $281,250 ($600,000*$750,000/$1,600,000)

For X9 = $240,000 ($600,000*$640,000/$1,600,000)

Step-by-step explanation:

a) Data and Calculations:

Joint cost of a standard batch = $600,000

B7 K6 X9 Total

Pounds generated 35,000 75,000 40,000 150,000

Sales price per pound $6 $10 $16

Market value $210,000 $750,000 $640,000 $1,600,000

Allocation of the joint cost, using weight as the allocation base:

For B7 = $140,000 ($600,000*35,000/150,000)

For K6 = $300,000 ($600,000*75,000/150,000)

ForX9 = $160,000 ($600,000*40,000/150,000)

Allocation of the join cost, using market value:

For B7 = $78,750 ($600,000*$210,000/$1,600,000)

For K6 = $281,250 ($600,000*$750,000/$1,600,000)

For X9 = $240,000 ($600,000*$640,000/$1,600,000)

b) The market value for each product class is a function of the quantity produced multiplied by the sales price per unit.