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Problem 2 Cotton Elle Inc. produces three varieties of cotton, Grade 1, Grade 2, & Grade 3 from a joint processing of the raw
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Answer #1

1. Joint cost allocation

(a) using physical volume method-

Grade 1 = 400000*80000/(80000+50000+120000) = 128000

Grade 2 = 400000*50000/(80000+50000+120000) = 80000

Grade 3 = 400000*120000/(80000+50000+120000) = 192000

(b) using relative sales value method-

Relative sales values- Grade 1 = 80000*5 = 400000; Grade 2 = 50000*7 = 350000; Grade 3 = 120000*8 = 960000

Grade 1 = 400000*400000/(400000+350000+960000) = 93567.25

Grade 2 = 400000*350000/(400000+350000+960000) = 81871.35

Grade 3 = 400000*960000/(400000+350000+960000) = 224561.40

(c) Using net realizable value method-

Net Realizable value of Grade 1= 400000-30000= 370000; Grade 2= 350000-50000= 300000; Grade 3= 960000-90000= 870000

Grade 1= 400000*370000/(370000+300000+870000) = 96103.90

Grade 2= 400000*300000/(370000+300000+870000) = 77922.08

Grade 3= 400000*870000/(370000+300000+870000) = 225974.02

2. unit cost of each product-

Grade 1= (96103.90+30000)/80000 = 1.58

Grade 2= (77922.08+50000)/50000 = 2.56

Grade 3= (225974.02+90000)/120000 = 2.63

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