Anderson Compounds produces two industrial chemical compounds,Gorp and Gumm,from the same process,which last year,cost $240,000.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,what is the completed cost of Gorp?

Question

Quizplus · Accepted Answer

To use the adjusted sales method, we need to allocate the joint cost to Gorp and Gumm based on their relative sales values.
Total sales value = (20,000 lb x $60/lb for Gorp) + (60,000 gal x $30/gal for Gumm)
Total sales value = $1,800,000
Allocation ratio for Gorp = (20,000 lb x $60/lb) / $1,800,000 = 0.33
Allocation ratio for Gumm = (60,000 gal x $30/gal) / $1,800,000 = 0.67
Joint cost allocated to Gorp = $240,000 x 0.33 = $79,200
Joint cost allocated to Gumm = $240,000 x 0.67 = $160,800
Therefore, the completed cost of Gorp is its allocated joint cost plus its additional processing cost:
Completed cost of Gorp = $79,200 + $300,000 = $379,200
Rounded to the nearest thousand, the answer is $380,000 (choice B).

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