A Company Produces Two Products,X and Y,from a Single Raw

question 51

Essay

A company produces two products,X and Y,from a single raw material called ZZ.ZZ is purchased in 55-gallon drums,and the contents of one drum are sufficient to produce 30 gallons of X and 15 gallons of Y.X sells for $10.00 per gallon and Y sells for $30.00 per gallon.During the current period,the company used 400 drums of ZZ to produce X and Y.The cost of ZZ was $90 per drum.
Required:
(1)If the cost of ZZ is allocated to the X and Y products on the basis of the number of gallons produced,how much of the total cost of the 400 drums should be charged to each product?
(2)If the cost of ZZ is allocated to the X and Y products in proportion to their market values,how much of the total cost of the 400 drums should be charged to each product?
(3)Which basis of allocating the cost is most likely to be used by the company?
The relative number of gallons of each product produced or the relative market values of each product at the point of separation.

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Definitions:

Quantitative Data

Quantitative data consists of numerical measurements and statistics that can be analyzed mathematically to identify patterns and trends.

Primary Data

Data collected directly by the researcher for a specific research purpose or project, not previously gathered or used.

Marketing Mix

A set of actionable marketing tools—Product, Price, Place, and Promotion—that a company uses to pursue its marketing objectives in the target market.

Target Audience

A specific group of consumers identified as the recipients of a particular marketing message or campaign, based on demographics, interests, or other characteristics.