Question

Question Help The Rouse Spirits Company produces two products-methanol (wood alcohol) and turpentine by a joint process. Joint costs amount to $122.000 per batch of output. Each batch totals 12.500 galon 25 methanol and 75% turpentine. Both products are processed further without gain or loss in volume. Separable processing costs are methanol. S4 per gallon, and lurperline, 3 pergation Methanol for 28 pergation Turpentine sells for $20 per gallon. Read the requirements point (Hound the weights to five Requirement 1. How much of the joint costs per batch will be allocated to methanol and to burpentine, assuming that it costs are allocated based on the number of gallions of decimal places) Methanol Turpentine Total Physical measure of total production Weighting Joint costs allocated

Answer 1

1. formula to get the joint cost allocation based on quantity (number of gallons),

Cost Allocated to a Joint Product

Quantity of the Product / Quantity of Total Production x Total Joint Costs

Methanol represents the 25% of the total production (12500*25%=3125)

Turpentine represents the 75% of the total production (12500*75%=9375)

		Joint cost allocation
methanol	3125/12500 *122000	30,500.00
turpentine	9375/12500 *122000	91,500.00

2. NRV = Sales Value − Cost to Further Process and Sell

	sales value	Cost to Further Process and Sell	NRV	Cost Allocated to a Joint Product
methanol	28	4.00	24.00	71,414.63
turpentine	20	3.00	17.00	50,585.37

NRV of the Product

NRV of Total Production    x Total Joint Costs

NRV of total production= 41(methanol +turpentine NRV)

3. for requirement 1

The Rouse Spirits Company
Product Line Income Statement
	product line
		methanol	turpentine
sales		87,500.00	187,500.00
cost of goods sold		43,000.00	119,625.00
gross profit		44,500.00	67,875.00
selling expenses		-	-
income from operations		44,500.00	67,875.00

for requirement 2

The Rouse Spirits Company
Product Line Income Statement
	product line
		methanol	turpentine
sales		87,500.00	187,500.00
cost of goods sold		83,914.63	78,710.37
gross profit		3,585.37	108,789.63
selling expenses		-	-
income from operations		3,585.37	108,789.63

4. joint cost applicable to the wood alcohol

	sales value	Cost to Further Process and Sell	NRV	Cost Allocated to a Joint Product
wood alcohol	60	14.00	46.00	136,878.05

SHOULD THE COMPANY PRODUCE THE ALCOHOLIC BEVERAGE?

Answer: no, because its cost is even higher than the joint cost of the total production of methanol and turpentine.