Cream 424,000 at $130 per gallon Liquid skim 344,500 at $115 per gallon The cost of purchasing 820,000 gallons of direct materials and processing it up to the split-off point to yield a total of 797,500 gallons of good product was $2,350,000. When using a physical-volume measure, what is the approximate amount of joint costs that will be allocated to cream and liquid skim

Question Completion:

Production:

Cream = 443,000 gallons

Liquid skim = 354,500 gallons

Total production = 797,500 gallons

The approximate amount of joint costs that will be allocated to cream and liquid skim =

Cream = $1,305,392

Liquid skim = $1,044,608

Explanation:

a) Data and Calculations:

Direct materials purchased = 820,000 gallons

Total yield at split-off = 797,500

Joint costs = $2,350,000

                                        Cream       Liquid Skim  

Sales units at split-off   424,000     344,500 gallons

Selling price per unit          $130            $115

Production Cream       443,000     354,500 gallons

Allocation of joint costs, using a physical volume measure:

Cream = $2,350,000 * 443,000/797,500 = $1,305,392

Liquid Skim = $2,350,000 * 354,500/797,500 = $1,044,608