Lipex Pty Ltd produces two products (A and B) from a particular joint process. Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Joint production costs for the year were $60 000. Sales values and costs are as follows.
Allocate the joint production costs based on the physical units method. What are the joint costs assigned to product A?

Question

Lipex Pty Ltd produces two products (A and B) from a particular joint process. Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Joint production costs for the year were $60 000. Sales values and costs are as follows. 
Allocate the joint production costs based on the physical units method. What are the joint costs assigned to product A?

Quizplus · Accepted Answer

To allocate joint production costs using the physical units method, we need to first calculate the total number of physical units produced.

Total physical units = Production of product A + Production of product B
Total physical units = 8000 + 12000
Total physical units = 20000

Next, we calculate the cost per physical unit by dividing the joint production costs by the total physical units.

Cost per physical unit = Joint production costs / Total physical units 
Cost per physical unit = $60,000 / 20,000 
Cost per physical unit = $3

Finally, we allocate the joint production costs to each product by multiplying the cost per physical unit by the number of physical units produced for each product.

Joint costs allocated to product A = Cost per physical unit x Production of product A 
Joint costs allocated to product A = $3 x 8000 
Joint costs allocated to product A = $24,000

Therefore, the joint costs assigned to product A are $34,286 (allocated to both products) - $24,000 (allocated to product A) = $10,286.

Hence, the best choice is C.

Lipex Pty Ltd Produces Two Products (A and B) from a Particular