Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 26

Joint Products Nebraska Corporation manufactures liquid chemicals A and B from a joint process. It allocates joint costs on the basis of sales value at split-off. Processing 500 gallons of product A and 1,000 gallons of product B to the split-off point costs $4,560. The sales value at split-off is $10 per gallon for product A and $14 for product B. Product B requires an additional process beyond split-off at a cost of $2.50 per gallon before it can be sold.

Required What is Nebraska’s cost to produce 1,000 gallons of product B?

Step 1 of 4

Joint Costs

Often companies produce more than one product in one single process and thus the costs of the processes are known as joint costs. Joint costs include all the costs including direct material, direct labour and overheads of the company. Joint costs are allocated among the joint products and not the by-products as they are only incidental to the process.