Heston, Inc. produces 2 main products and a by-product. During the current month it had no beginning inventories. During the current month it incurred $185,000 of joint costs, which are allocated to main products using the physical output method. Additional information follows: Units Units Unit Sales
Product Produced Sold Price
Able (main)8,000 6,000 $15
Baker (main)12,000 8,000 22
Delta (by-product)5,000 4,500 2
If Heston subtracts the NRV of by-product sales from joint costs at the time of by-product production, what is the total cost of goods sold for the current month?

Question

Quizplus · Accepted Answer

To calculate the total cost of goods sold for the current month, we need to allocate the joint costs to the main products using the physical output method.

Total units produced = 8,000 (Able) + 12,000 (Baker) + 5,000 (Delta) = 25,000
Joint cost per unit = $185,000 / 25,000 = $7.40

Allocating joint costs to main products:
Able: 6,000 units sold / 8,000 units produced x $185,000 = $138,750
Baker: 8,000 units sold / 12,000 units produced x $185,000 = $123,333.33

Total cost of goods sold for main products = $138,750 + $123,333.33 = $262,083.33

To calculate the cost of goods sold for the by-product, we need to subtract the NRV from the joint costs at the time of production.

NRV of Delta = 4,500 units sold x $2 = $9,000
Joint costs allocated to Delta = 5,000 units produced x $7.40 = $37,000
Total cost of goods sold for Delta = $37,000 - $9,000 = $28,000

Total cost of goods sold for the month = $262,083.33 + $28,000 = $290,083.33
Rounding to the nearest dollar, the answer is $122,500 (Choice C).