Problem-4: Three methods of allocating joint costs

The Sun Inc. produces four joint products – product A, product B, product C and product D. The joint production cost at split-off point is $70,000. The data for the month of April is given below:

Required: Allocate joint production cost using:

  1. The market value method
  2. The average unit cost method
  3. The weighted average method

Solution

1. The market value method:

*The joint cost is 50% of the hypothetical market value.

2. Average unit cost method:

*Joint cost/Total number of units produced
= $70,000/50,000
= $1.40 per unit

3. Weighted average method:

*Joint cost/Total number of weighted units
= $70,000/140,000
= $.50 per weighted unit

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