Laredo manufactures Nuts and Bolts from a joint process (cost = $80,000). Five thousand pounds of Nuts can be sold at split-off for $20 per pound; ten thousand pounds of Bolts can be sold at split-off for $15 per pound. For product costing purposes Laredo allocates joint costs using the relative sales value method.
The amount of joint cost allocated to Bolts would be:
A) $32,000.
B) $40,000.
C) $48,000.
D) $60,000.
E) $80,000.

Question

Quizplus · Accepted Answer

To allocate joint costs using the relative sales value method, we need to determine the sales value at split-off for each product as a percentage of the total sales value at split-off.

For Nuts: 
Sales value at split-off = 5000 pounds x $20 per pound = $100,000 
Total sales value at split-off = $100,000 + 10,000 pounds x $15 per pound = $250,000

Percentage of total sales value at split-off for Nuts = $100,000 / $250,000 = 0.4

For Bolts: 
Sales value at split-off = 10,000 pounds x $15 per pound = $150,000 
Total sales value at split-off = $100,000 + $150,000 = $250,000

Percentage of total sales value at split-off for Bolts = $150,000 / $250,000 = 0.6

To allocate joint costs to Bolts, we multiply the total joint costs by the percentage of total sales value at split-off for Bolts:

Joint costs allocated to Bolts = $80,000 x 0.6 = $48,000

Therefore, the answer is C: $48,000.

Laredo Manufactures Nuts and Bolts from a Joint Process (Cost