A Company Manufactures Two Products, X and Y, from a Single

question 100

Essay

A company manufactures 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 manufacture 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?
Check one and briefly explain.
_______ The relative number of gallons of each product produced.
_______ The relative market values of each product at the point of separation.

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Definitions:

Genes

Genes are the basic physical and functional units of heredity, made up of DNA, which code for the synthesis of proteins and determine inherited characteristics.

Nature and Nurture

The debate and study of the relative contributions of genetic inheritance (nature) and environmental factors (nurture) to human development and behavior.

Heritability

A measure of how much of the variation in a trait within a population can be attributed to genetic differences between individuals in that population.

Genetically Influenced Traits

Characteristics and attributes that are affected by the genetic makeup of an individual, including physical attributes and susceptibility to certain diseases.