Exhibit 7-9
Doughnuts Company uses flour to produce two joint products,Premium and Deluxe.When processed,each pound of flour yields 8 units of Premium and 12 units of Deluxe.Premium doughnuts sell for $1.00 per unit and Deluxe sell for $2.00 per unit.The total cost to process a 10-pound batch of flour is $12.00.
-Refer to Exhibit 7-9.If the sales value method is used to allocate the $12 in joint costs,how much will be allocated to Premium doughnuts?

Question

Quizplus · Accepted Answer

The sales value method allocates joint costs based on the relative sales value of each product. Premium doughnuts have a sales value of 8 units x $1.00 = $8. Deluxe doughnuts have a sales value of 12 units x $2.00 = $24. The total sales value is $8 + $24 = $32. The proportion of sales value for Premium is $8/$32 = 0.25. Therefore, 25% of the $12 joint cost is allocated to Premium, which is $12 x 0.25 = $3.

Exhibit 7-9 Doughnuts Company Uses Flour to Produce Two Joint Products,Premium and Products,Premium