McBride's Dairy has 200 gallons of cream and 600 gallons of skimmed milk and has incurred $1,000 of joint costs at the split-off point. The amount of this cost that will be allocated to cream using the physical units method is

Question

Quizplus · Accepted Answer

The physical units method allocates joint costs based on the proportion of physical units. Here, cream represents 200 gallons out of a total of 800 gallons (200 gallons of cream + 600 gallons of skimmed milk), so it gets 25% (200/800) of the $1,000 joint costs, which is $250.

McBride's Dairy Has 200 Gallons of Cream and 600 Gallons