Question

Spartan Chemicals manufactures G-1, G-2, and G-3 from a joint process. Each gas can be liquified and sold for a higher price. Data on the process are as follows:

Required:

Determine the value of the missed item. (Do not round intermediate calculations.)

	Product G-1 G-2 G-3 Total Units produced 32,200 16,500 8,600 57,300 Joint costs $62,000 $124,000 Sales value at split-off $90,600 604,000 Additional costs to liquify 42,700 $34,500 18,000 95,200 Sales value if liquified 421,000 183,000 120,000 724,000

The joint costs of $62,000 for G-1 is the portion of the total joint cost of $124,000 that had been allocated to G-1.

Answer 1

Products	Sales value at split-off	% of Sales value at split-off	Allocation of joint costs
G1	302,000	302,000/604,000 = 50%	124,000 x 50% = 62,000
G2	211,400	211,400/604,000 = 35%	124,000 x 35% = 43,400
G3	90,600	90,600/602,000 = 15%	124,000 x 15% = 18,600
	$604,000		$124,000

From the facts of the question, it is clear that joints costs have been allocated on the basis of Sales value at split-off. Out of $124,000 of the joint costs, joint costs allocated to product G1 is $62,000, which represents 50% of the joint costs. On this basis, Sales value at split-off of product G1 must be $302,000 i.e. 50% of total sales value at split-off.

Sales value at split off of product G2 = Total Sales value at split-off - Sales value at split off of product G1 - Sales value at split off of product G3

= 604,000 - 302,000 - 90,600

= $211,400

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