Lipex Pty Ltd produces two products (A and B) from a particular joint process. Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Joint production costs for the year were $60 000. Sales values and costs are as follows.
Allocate the joint production costs based on the physical units method. What are the joint costs assigned to product A?

A) $25 714
B) $20 339
C) $34 286
D) $30 000

Question

Lipex Pty Ltd produces two products (A and B) from a particular joint process. Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Joint production costs for the year were $60 000. Sales values and costs are as follows.

Allocate the joint production costs based on the physical units method. What are the joint costs assigned to product A?

A) $25 714
B) $20 339
C) $34 286
D) $30 000

savannah rains · Accepted Answer

Final Answer : C, Explanation :  To allocate joint production costs using the physical units method, we need to first calculate the total number of physical units produced.Total physical units = Production of product A + Production of product BTotal physical units = 8000 + 12000Total physical units = 20000Next, we calculate the cost per physical unit by dividing the joint production costs by the total physical units.Cost per physical unit = Joint production costs / Total physical unitsCost per physical unit = $60,000 / 20,000Cost per physical unit = $3Finally, we allocate the joint production costs to each product by multiplying the cost per physical unit by the number of physical units produced for each product.Joint costs allocated to product A = Cost per physical unit x Production of product AJoint costs allocated to product A = $3 x 8000Joint costs allocated to product A = $24,000Therefore, the joint costs assigned to product A are $34,286 (allocated to both products) - $24,000 (allocated to product A) = $10,286.Hence, the best choice is C.

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