Differential Chemical produced 10,000 gallons of Preon and 20,000 gallons of Paron.Joint costs incurred in producing the two products totaled $7,500.At the split-off point,Preon has a market value of $6.00 per gallon and Paron $2.00 per gallon.Compute the portion of the joint costs to be allocated to Preon if the value basis is used.
A)$2,500.
B)$3,000.
C)$4,500.
D)$5,625.
E)$1,500.

Question

Quizplus · Accepted Answer

The total market value at the split-off point is $6.00 x 10,000 gallons for Preon, which is $60,000 and $2.00 x 20,000 gallons of Paron, which is $40,000. Thus, the total market value of the two products is $100,000. 
To allocate the joint costs, we need to determine the proportion of the total market value that is attributed to each product. 
For Preon: 
$60,000/$100,000 = 0.6 or 60% 
For Paron: 
$40,000/$100,000 = 0.4 or 40% 
The portion of joint costs to be allocated to Preon is therefore: 
0.6 x $7,500 = $4,500. 
Therefore, the correct answer is option C.

Differential Chemical Produced 10,000 Gallons of Preon and 20,000 Gallons