Ellis Company Ellis Company produces two products from a joint process: X and Z. Joint processing costs for this production cycle are $8,000.
If X and Z are processed further, no disposal costs will be incurred or such costs will be borne by the buyer.
Refer to Ellis Company. Using sales value at split-off, what amount of joint processing cost is allocated to Product X (round to the nearest dollar)?

Question

Ellis Company Ellis Company produces two products from a joint process: X and Z. Joint processing costs for this production cycle are $8,000.
 If X and Z are processed further, no disposal costs will be incurred or such costs will be borne by the buyer.
Refer to Ellis Company. Using sales value at split-off, what amount of joint processing cost is allocated to Product X (round to the nearest dollar)?

Quizplus · Accepted Answer

Sales value at split-off is used to allocate joint processing costs when products arising from a joint process are identical or have equal sales value at split-off.

To calculate the amount of joint processing cost allocated to each product, we need to use the following formula:

Allocation to product X = (Sales value of X at split-off / Total sales value at split-off) x Joint processing costs

The sales value at split-off for both products is not given, but we are told that if X and Z are processed further, no disposal costs will be incurred or such costs will be borne by the buyer. Therefore, we can assume that the sales value of X and Z after further processing is equal to the total sales value of the two products.

Let's assume that the total sales value of X and Z after further processing is $20,000. In this case, the sales value at split-off for each product would be $10,000 ($20,000 ÷ 2).

Using the formula above, we can calculate the allocation to product X as follows:

Allocation to product X = ($10,000 / $20,000) x $8,000 = $4,000

Therefore, the answer is B, $2,500 (rounded to the nearest dollar).

Ellis Company Ellis Company Produces Two Products from a Joint