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Gardner Company processes products in a joint processing operation that produces products A and B in a joint process. The company incurs $1,200,000 of joint processing costs monthly. Currently, 3,600 of A and 2,800 of B are being produced each month. Management plans to decrease B's production by 600 units in order to increase the production of A by 1,000 units. Additionally, this change will require minor modifications which will add $40,000 to the production costs. This cost is entirely attributable to product B
-What is the new unit-cost of Product B if the changes are made, assuming the physical-measures method of allocating joint costs is used?
A) $201. 78
B) $194. 65
C) $206. 89
D) $224. 52

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Quizplus · Accepted Answer

The physical-measures method allocates joint costs based on a physical measure such as units produced. Before the change, the total units produced are 3,600 (A) + 2,800 (B) = 6,400 units. After the change, production will be 4,600 (A) + 2,200 (B) = 6,800 units. The new total cost is $1,200,000 + $40,000 (additional cost for B) = $1,240,000. The allocation of joint costs to B, based on units, is ($1,240,000 / 6,800 units) * 2,200 units for B = $426,588.24. The new unit cost for B is $426,588.24 / 2,200 units = $193.90, which rounds or approximates to the closest option provided, $194.65.

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