General Chemical produced 10,000 gallons of Breon and 20,000 gallons of Baron. Joint costs incurred in producing the two products totaled $7,500. At the split-off point, Breon has a market value of $6.00 per gallon and Baron $2.00 per gallon. Compute the portion of the joint costs to be allocated to Breon if the value basis is used.

Question

Quizplus · Accepted Answer

To allocate the joint costs based on the value basis, we need to calculate the total value of the products at the split-off point.

For 10,000 gallons of Breon at $6.00 per gallon, the total value is $60,000.

For 20,000 gallons of Baron at $2.00 per gallon, the total value is $40,000.

The total value of the two products is $100,000 ($60,000 + $40,000).

To calculate the portion of joint costs allocated to Breon, we need to use the following formula:

(Breon's value at split-off point / total value at split-off point) x joint costs incurred

($60,000 / $100,000) x $7,500 = $4,500

Therefore, the portion of joint costs allocated to Breon is $4,500.

The correct choice is C.

General Chemical Produced 10,000 Gallons of Breon and 20,000 Gallons