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Rooney Chemical Company makes three products, B7, K6, and X9, which are joint products from the same materials. In a standard batch of 374,000 pounds of raw materials, the company generates 78,000 pounds of B7, 156,000 pounds of K6, and 140,000 pounds of X9. A standard batch costs $2,992,000 to produce. The sales prices per pound are $4, $8, and $14 for B7, K6, and X9, respectively.

Required:

1. Allocate the joint product cost among the three final products using weight as the allocation base.

2. Allocate the joint product cost among the three final products using market value as the allocation base.

Answer :

Final answer:

To allocate the joint product costs for Rooney Chemical Company's B7, K6, and X9, you can use weight and market value as bases. The cost allocated using weight is $624,000 for B7, $1,248,000 for K6, and $1,120,000 for X9. When using market value, the costs are $265,259.20 for B7, $1,061,544 for K6, and $1,665,196.80 for X9.

Explanation:

Allocation of Joint Product Costs

To allocate the joint product costs of Rooney Chemical Company’s products B7, K6, and X9, we need to use two different bases: weight and market value. The total joint production cost for a batch is $2,992,000.


Allocation Based on Weight

The total weight of the products is 374,000 pounds, broken down as:

  • B7: 78,000 pounds
  • K6: 156,000 pounds
  • X9: 140,000 pounds

To find the cost per pound, divide the total batch cost by the total weight:

$2,992,000 / 374,000 pounds = $8 per pound

Then, multiply the cost per pound by each product's weight to allocate the costs:

  • B7: 78,000 pounds x $8 = $624,000
  • K6: 156,000 pounds x $8 = $1,248,000
  • X9: 140,000 pounds x $8 = $1,120,000

Allocation Based on Market Value

First, calculate the total market value of the batch by multiplying each product's weight by its sales price per pound:

  • B7: 78,000 pounds x $4 = $312,000
  • K6: 156,000 pounds x $8 = $1,248,000
  • X9: 140,000 pounds x $14 = $1,960,000

Total market value

= $312,000 + $1,248,000 + $1,960,000 = $3,520,000

To determine the cost allocation according to market value, calculate each product's percentage of the total market value and apply it to the total batch cost:

  • B7: $312,000 / $3,520,000 = 8.86%
  • K6: $1,248,000 / $3,520,000 = 35.45%
  • X9: $1,960,000 / $3,520,000 = 55.68%

Apply these percentages to the total cost:

  • B7: 8.86% x $2,992,000 = $265,259.20
  • K6: 35.45% x $2,992,000 = $1,061,544
  • X9: 55.68% x $2,992,000 = $1,665,196.80

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