The silver center (tsc) produces cups and platters. tsc purchases silver and other metals that are processed into silver alloy that is used to make platters and cups. tsc incurred $40,000 of materials cost and $44,000 of labor cost to produce the silver alloy. platters are made first and the residual alloy is remixed into a lower grade silver plated material that is used to make the cups. remixing cost amount to $2,000. the recent batch contained 4,000 platters and 1,000 cups. tsc sold the platters for $100,000 and the cups for $12,000. if relative market value is used to allocate the joint cost, what is the income earned for cups?

Income earned for cups = $1,000

Explanation:

Given:

Materials cost = $40,000

Labor cost = $44,000

Remixing cost amount to $2,000

TSC sold the platters for $100,000 and the cups for $12,000

There will be a decrease in net income due to non-selling of cups

= $12,000 - $2,000

= $10,000.

Thus, the Company's total income will decrease by $10,000 if it stops making and selling cups.

Joint cost allocated to cups

= (40,000 + 44,000)×12,000 ÷ (100,000 + 12,000)

= $9,000

∴

Income earned for cups

= $12,000 - $2,000 - $9,000

= $1,000

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