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 Nuts would be:
A) $32,000.
B) $40,000.
C) $48,000.
D) $60,000.
E) $80,000.

Question

Quizplus · Accepted Answer

The relative sales value method allocates joint costs based on the proportion of sales value at split-off. Nuts have a sales value of 5,000 pounds * $20 = $100,000. Bolts have a sales value of 10,000 pounds * $15 = $150,000. Total sales value = $100,000 + $150,000 = $250,000. The proportion for Nuts is $100,000 / $250,000 = 0.4. Therefore, the joint cost allocated to Nuts is 0.4 * $80,000 = $32,000.

Laredo Manufactures Nuts and Bolts from a Joint Process (Cost