HGT Corporation produces four products from a common production process. Selected data from HGT's accounting system for the four products appears below: Joint costs for the accounting period totalled $5,000. Each product line has a different product manager who is evaluated based on product line profitability. Therefore each manager is motivated to reduce his / her total product line costs as much as possible. The managers have been given information about potential joint cost allocations using the following three methods: physical output, sales at split-off point, and net realizable value. The managers are comparing the joint cost allocations under each method so that they can give the accountant input about their preferred method(s).
Assume HGT allocates joint costs using the physical output method. Which of the following correctly orders the four product lines from greatest allocation to least allocation?

Question

HGT Corporation produces four products from a common production process. Selected data from HGT's accounting system for the four products appears below:  Joint costs for the accounting period totalled $5,000. Each product line has a different product manager who is evaluated based on product line profitability. Therefore each manager is motivated to reduce his / her total product line costs as much as possible. The managers have been given information about potential joint cost allocations using the following three methods: physical output, sales at split-off point, and net realizable value. The managers are comparing the joint cost allocations under each method so that they can give the accountant input about their preferred method(s).
Assume HGT allocates joint costs using the physical output method. Which of the following correctly orders the four product lines from greatest allocation to least allocation?

Quizplus · Accepted Answer

The physical output method allocates joint costs based on the relative proportion of each product's physical output. Using this method and the data provided, the allocation for each product line would be as follows: 
- Full-body pillows: $3,000 x (200/500) = $1,200 
- Standard pillows: $3,000 x (150/500) = $900 
- Sofa cushions: $3,000 x (100/500) = $600 
- Floor cushions: $3,000 x (50/500) = $300

Therefore, the correct order from greatest to least allocation is: Full-body pillows, standard pillows, sofa cushions, floor cushions. Choice C is the only option that matches this order.

HGT Corporation Produces Four Products from a Common Production Process