Cardinal Company processes copper ore into two products, C and U.The ore costs $5 per pound and conversion costs are $15 per pound.Robin Company plans to produce 40,000 pounds of C and 20,000 pounds of U from 60,000 pounds of ore.C sells for $30 per pound and U sells for $40 per pound.Suppose that C cannot be sold at the split-off point.Instead, it must be processed further at a cost of $100,000, after which it can be sold for $45 per pound.The amount of joint cost allocated to product C would be _____.
A)$800,000
B)$720,000
C)$816,000
D)$384,000

Question

Quizplus · Accepted Answer

First, we need to determine the total joint cost for processing the 60,000 pounds of ore.

Joint cost = $5/pound x 60,000 pounds + $15/pound x 60,000 pounds 
Joint cost = $300,000 + $900,000 
Joint cost = $1,200,000

Next, we need to calculate the split-off point, which is where the ore is first separated into the two products, C and U.

Total revenue from U = $40/pound x 20,000 pounds = $800,000 
Total revenue from C at split-off point = $30/pound x 40,000 pounds = $1,200,000 
Total revenue at split-off point = $2,000,000

To calculate the amount of joint cost allocated to product C, we need to subtract the revenue from selling C at the split-off point from the total joint cost:

Joint cost allocated to C = ($1,200,000 - $2,000,000) x (40,000 pounds/60,000 pounds) 
Joint cost allocated to C = (-$800,000) x (2/3) 
Joint cost allocated to C = -$533,333

However, we cannot allocate a negative joint cost to product C. Therefore, we need to ignore the revenue from selling C at the split-off point and consider the costs of processing C further.

The cost of processing C further is $100,000, and the revenue from selling the additional C is $45/pound x 40,000 pounds = $1,800,000

Total revenue from C = $1,800,000 - $100,000 = $1,700,000

Total revenue at split-off point = $2,000,000

Joint cost allocated to C = ($1,200,000 - $2,000,000) x (40,000 pounds/60,000 pounds) 
Joint cost allocated to C = (-$800,000) x (2/3) 
Joint cost allocated to C = -$533,333

Allocating the processing costs back to C:

Joint cost allocated to C = $100,000 + $533,333 
Joint cost allocated to C = $633,333

Therefore, the amount of joint cost allocated to product C is $633,333 or answer choice C.

Cardinal Company Processes Copper Ore into Two Products, C and U.The