A Company Produces Two Joint Products (Called 101 and 202)

question 168

Essay

A company produces two joint products (called 101 and 202) in a single operation that uses one raw material called Casko. Four hundred gallons of Casko were purchased at a cost of $800 and were used to produce 150 gallons of Product 101, selling for $5 per gallon, and 75 gallons of Product 202, selling for $15 per gallon. How much of the $800 cost should be allocated to each product, assuming that the company allocates cost based on sales revenue?

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Definitions:

Conversion Costs

Costs required to transform raw materials into finished products, combining direct labor and manufacturing overhead.

FIFO Method

"First in, first out," an inventory valuation method that assumes goods are sold in the order they were acquired or produced.

Beginning Work

Refers to the initial stages or processes of starting a project, task, or job in a business or manufacturing setting.

Conversion Costs

The combination of labor costs and overhead expenses associated with the conversion of raw materials into finished products.