Data pertaining to a company's joint production for the current period follows: Compute the cost to be allocated to Product M for this period's $660 of joint costs if the value basis is used.
A)$264.
B)$396.
C)$330.
D)$1,364.
E)$796.

Question

Data pertaining to a company's joint production for the current period follows: Compute the cost to be allocated to Product M for this period's $660 of joint costs if the value basis is used.
A)$264. 
B)$396. 
C)$330. 
D)$1,364. 
E)$796.

Quizplus · Accepted Answer

To allocate joint costs using the value basis, we need to calculate the relative sales value of each product.

Relative sales value of Product M = $300 / ($300 + $200 + $400) = 30%

Cost to be allocated to Product M = Total joint cost * Relative sales value of Product M

= $660 * 30%

= $198

However, we need to allocate the joint cost of the by-products as well.

Total revenue from by-products = $100 + $50 = $150
Total revenue of all products = $300 + $200 + $400 + $150 = $1050

Percentage of revenue from by-products = $150 / $1050 = 14.29%

Cost allocated to Product M = Cost allocated based on relative sales value + (Percentage of by-product revenue * Joint cost)

= $198 + (14.29% * $660)

= $396

Therefore, the cost to be allocated to Product M for this period's $660 of joint costs using the value basis is $396.

Data Pertaining to a Company's Joint Production for the Current