MC Qu. 74 Differential Chemical produced... Differential Chemical produced 12,000 gallons of Preon and 16,000 gallons of Preon. Joint costs incurred in producing the two products totaled $8,500. At the split-off point, Preon has a market value of $6.00 per gallon and Preon $3.00 per gallon. Compute the portion of the joint costs to be allocated to Preon if the value basis is used.

$5,100

Explanation:

The calculation of the portion of the joint cost for Preon allocation is shown below:

= Total joint cost for two products × (Preon cost ÷ Total cost)

Here,

Total joint cost = $8,500

Preon cost = 12,000 gallons × $6 per gallon = $72,000

And, the total cost is

= 12,000 gallons × $6 per gallon + 16,000 gallons × $3 per gallon

= $72,000 + $48,000

= $120,000

So, the allocated cost should be  

= $8,500 × ($72,000 ÷ $120,000)

= $5,100

= $4,500