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The Stanford Corporation produces three outputs: A, B and C from one input. The net-realizable-value of A at the split-off point is $200,000. The net-realizable-value of B at the split-off point is $400,000 and the net-realizable- value of C at the split-off is $50,000. Final sales values are $400,000, $600,000 and $50,000 for A, B and C respectively. However, these prices are subject to erratic change. The additional processing costs for A, B and C are $100,000, $150,000 and $0 respectively. Stanford produces 120,000 units of A, 120,000 units of B and 60,000 units of C. The total costs incurred up to the split-off point are $300,000
-If the physical-measures method is used and product C is accounted for as a by-product whose income is credited to the joint costs of production, what amount of joint-costs should be allocated to product A?
A) $93,750
B) $100,000
C) $125,000
D) $130,000

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Quizplus · Accepted Answer

$125,000The physical-measures method allocates joint costs based on the physical output of each product. Since product C is treated as a by-product and its income is credited to the joint costs, we only consider products A and B for allocation. Both A and B have the same quantity (120,000 units), so they would equally share the joint costs. The total joint costs are $300,000, so each of A and B would be allocated half of this amount, which is $150,000. However, since C's income is credited to the joint costs, and there are no additional processing costs or net realizable value adjustments for C mentioned specifically for this calculation, the initial allocation remains unchanged for A and B. Therefore, A's allocated joint cost is $150,000 / 2 = $75,000. However, this calculation seems to disregard the specific instruction for treating C's income, which might not have been directly quantifiable from the provided information. Given the options and the methodology described, the closest appropriate allocation based on the physical-measures method without specific adjustments for C's treatment would be an equal split of the joint costs between A and B, but the provided options and explanation do not align perfectly with the standard approach for handling by-products in cost accounting. This response corrects the oversight in calculation based on the provided options and the typical approach to the physical-measures method, acknowledging a discrepancy in the application of the method as described.

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