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Allocation of joint costs/cost of goods sold

1. Zimmerman Laboratories processes and refines fertilizer. From this fertilizer they have contemplated producing two additonal products as a result of further processing. One product is a high power fuel that can be used in peformance aircraft and/or single-stage rockets. The second potential product is a highly explosive compound that could replace current dynamite used in construction blasting.

The cost to produce the fertilizer up to the split off point for a standard batch is $8,400. From the standard batch Zimmerman can obtain 6500 gallons of fuel and 1500 gallons of explosives with the net sales price of the fuel being $6 per gallon and the net sale price of the explosives being $14 per gallon.

If Zimmerman uses the value basis of allocating the joint costs among the two potential products how much will be allocated to each?

a. $4,200 for Fuel; $4,200 for Explosives
b. $5,460 for Fuel; $2,940 for Explosives
c. $8,400 for Fuel; $8,400 for Explosives
d. None of the other answers

2. Using the physical basis of allocating joint costs what percentage of the joint costs would be attributed to each of the two possible products?

a. 81.25% for Explosives; 18.75% for Fuel
b. 50% for Explosives; 50% for Fuel
c. 81.25% for Fuel; 18.75% for Explosives
d. None of the other answers

3. In September of this year Outdoor magazine ordered a large number of thermal undergarments with their corporate logo to give away as a promotional item from Langely (mentioned in question 4.) How much would this "job" cost Langley if the direct materials involved were $19,200 and 1,700 direct labor hours were used to complete the order?

a. $41,300
b. $19,200
c. $53,200
d. $75,300
e. None of the other answers

4. If the sale price of the specialty undergarments to Outdoor magazine was $85,000, what amount would be recorded in the journal entry adjusting the Finished Goods Inventory to Cost of Goods Sold?

a. $9,700
b. $75,300
c. $85,000
d. None of the other answers

Solution Preview

1. The value of fuel = 6,500 X 6 = 39,000 and Value of explosives = 1,500 X 14 = 21,000
Total amount = 60,000
Joint cost allocated to fuel 39,000/60,000 X 8,400 = ...

Solution Summary

The solution explains the calculation of cost of goods sold and how to allocate joint costs