Figure 6-5
Eden Company manufactures two products, Brights and Dulls, from a joint process. A production run costs £50,000 and results in 250 units of Brights and 1,000 units of Dulls. Both products must be processed past the split-off point, incurring separable costs for Brights of £60 per unit and £40 per unit for Dulls. The market price is £250 for Brights and £200 for Dulls.
-Refer to Figure 6-5. What is the gross profit for Brights assuming the physical units method is used?

Question

Quizplus · Accepted Answer

The physical units method allocates joint costs based on the physical output. Here, Brights represent 250 units out of a total of 1,250 units (250 Brights + 1,000 Dulls), so they absorb 20% (250/1,250) of the joint costs (£50,000), which equals £10,000. The separable costs for Brights are £60 per unit for 250 units, totaling £15,000. Thus, the total cost for Brights is £25,000 (£10,000 joint costs + £15,000 separable costs). The sales value of Brights is £250 per unit for 250 units, totaling £62,500. The gross profit for Brights is the sales value minus the total cost: £62,500 - £25,000 = £37,500.

Figure 6-5 Eden Company Manufactures Two Products, Brights and Dulls, from a from a Joint