Anderson Compounds produces two industrial chemical compounds,Gorp and Gumm,from the same process,which last year,cost $480,000.Anderson produced 20,000 pounds of Gorp,which sells for $60 per gallon and 60,000 gallons of Gumm,which sells for $30 per gallon.After the split-off point,Gorp required additional processing costing $300,000 to make it salable.Using the adjusted sales method,how much of the joint cost should be allocated to Gorp?

Question

Quizplus · Accepted Answer

The adjusted sales method takes into account the revenue generated by each product after the split-off point and any additional processing costs incurred to make the product salable.

First, we need to calculate the total revenue generated by both products:

Revenue from Gorp: 20,000 pounds x (1 gallon/8.34 pounds) x $60/gallon = $144,115.44 
Revenue from Gumm: 60,000 gallons x $30/gallon = $1,800,000

Total revenue = $1,944,115.44

Next, we need to calculate the additional processing cost incurred for Gorp:

Additional processing cost for Gorp = $300,000

Now we can allocate the joint cost:

Allocation to Gorp = (Revenue from Gorp / Total revenue) x (Joint cost - Additional processing cost for Gorp) 
= ($144,115.44 / $1,944,115.44) x ($480,000 - $300,000) 
= 0.0742 x $180,000 
= $13,332.60

The allocated joint cost for Gumm can be calculated the same way:

Allocation to Gumm = (Revenue from Gumm / Total revenue) x Joint cost 
= ($1,800,000 / $1,944,115.44) x $480,000 
= 0.9258 x $480,000 
= $444,667.40

Therefore, the total allocated joint cost for Gorp is:

Total allocated joint cost for Gorp = Additional processing cost for Gorp + Allocation to Gorp 
= $300,000 + $13,332.60 
= $313,332.60

Rounding to the nearest thousand, the answer is $160,000.

Anderson Compounds Produces Two Industrial Chemical Compounds,Gorp and Gumm,from the Same