Cream 424,000 at $130 per gallon Liquid skim 344,500 at $115 per gallon The cost of purchasing 820,000 gallons of direct materials and processing it up to the split-off point to yield a total of 797,500 gallons of good product was $2,350,000. When using a physical-volume measure, what is the approximate amount of joint costs that will be allocated to cream and liquid skim

Question Completion:

Production:

Cream = 443,000 gallons

Liquid skim = 354,500 gallons

Total production = 797,500 gallons

The approximate amount of joint costs that will be allocated to cream and liquid skim =

Cream = $1,305,392

Liquid skim = $1,044,608

Explanation:

a) Data and Calculations:

Direct materials purchased = 820,000 gallons

Total yield at split-off = 797,500

Joint costs = $2,350,000

                                        Cream       Liquid Skim  

Sales units at split-off   424,000     344,500 gallons

Selling price per unit          $130            $115

Production Cream       443,000     354,500 gallons

Allocation of joint costs, using a physical volume measure:

Cream = $2,350,000 * 443,000/797,500 = $1,305,392

Liquid Skim = $2,350,000 * 354,500/797,500 = $1,044,608

rational decision making is a multi-step process for making choices between alternatives. the process of rational decision making favors logic, objectivity, and analysis over subjectivity and insight. the word “rational” in this context does not mean sane or clear-headed as it does in the colloquial sense.

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