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    Joint Costs

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    Here, two or more units of the software are sold as a single package. Managers at Software For You are keenly interested in individual product-profitability figures. Information pertaining to its three bundled products and the stand-alone selling prices of its individual products is as follows:

    Selling Price Cost Package Packaged Price
    Word Processing(WP) $125 $18 WP & SS $220
    Spreadsheet (SS) $150 $20 WP & AS $280
    Accounting Software (AS) $225 $25 All three $380

    a. Using the stand-alone revenue-allocation method, allocate the $380 packaged price of "All Three" to the three software products
    1. with selling prices as the weights.
    2. with individual product costs as the weights.
    3. based on physical units.

    b. Allocate the $380 packaged price of "All Three" to the three software products using the incremental revenue-allocation method. Assume Word Processing is the primary product, followed by Spreadsheet, and then Accounting Software.

    #2 Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned tomatoes. During the summer of 20x3, the joint costs of processing the tomatoes were $420,000. There was no beginning or ending inventories for the summer. Production and sales value information for the summer were as follows:

    Product Cases Sales Value at Splitoff Point Separable Costs Selling Price
    Catsup 100,000 $6 per case $3.00 per case $28 per case
    Juice 150,000 $8 per case $5.00 per case $25 per case
    Canned 200,000 $5 per case $2.50 per case $10 per case


    Determine the amount allocated to each product if the estimated net realizable value method is used, and compute the cost per case for each product.

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    Solution Summary

    The solution explains how to allocate joint costs under - stand-alone revenue-allocation method, incremental revenue-allocation method and net realizable value method.