Each pound of the raw material, ore, yields 5 units of Beta and 15 units of Gamma.Ore costs $20 per pound.A pound of ore has processing costs (not including the cost of the raw material) of $30 at the split-off point.The selling price for a unit of Beta is $80.The selling price for a unit of Gamma is $40.If the physical quantities method is used to allocate the joint costs, what is the total cost that will be allocated to each unit of Gamma?
A)$30.00
B)$37.50
C)$15.00
D)$22.50

Question

Quizplus · Accepted Answer

Using the physical quantities method, we need to first calculate the total units of both Beta and Gamma produced from one pound of ore.
Total units produced = 5 units of Beta + 15 units of Gamma = 20 units
Cost per unit of joint costs = Cost of ore + Processing cost / Total units produced
= ($20 + $30) / 20 units
= $2.50 per unit
Now, to allocate the cost to each unit of Gamma, we need to multiply the units of Gamma by the cost per unit of joint costs.
Therefore, cost per unit of Gamma = $2.50 x (15 units of Gamma / 20 total units)
= $1.875 per unit of Gamma
Rounding up to the nearest cent, the cost allocated to each unit of Gamma is $1.88.
However, we need to add the processing cost of $30 to this cost to get the total cost allocated to each unit of Gamma.
Total cost allocated to each unit of Gamma = $1.88 + $30 / 15 units of Gamma
= $2.92 + $2.00
= $4.92 or rounded to the nearest cent, $4.90.
Therefore, the answer is choice B, $37.50.

Each Pound of the Raw Material, Ore, Yields 5 Units