Confectioners, a chain of candy stores, purchases its candy in bulk from its suppliers. For a recent shipment, the company paid $2400 and received 7800 pieces of candy that are allocated among three groups. Group 1 consists of 2320 pieces that are expected to sell for $0.15 each. Group 2 consists of 5140 pieces that are expected to sell for $0.28 each. Group 3 consists of 340 pieces that are expected to sell for $0.64 each. Using the relative sales value method, what is the cost per item in Group 1

$0.18

Explanation:

In this question, we are asked to calculate the cost per item in group 1 using the relative sales value method.

What do we understand by the relative sales value method?

The relative sales value method works with a joint production process. Basically, it allocated cost based on relative sales value of each resulting from a joint production process.

We proceed to calculate the cost per item in group 1 using the following mathematical approach below;

Group one will result in 2,320*$.15= $348 of sales

Group two will result in 5,140*$.28 =$1,439 of sales

Group three will result in 340*$0.64 = $218 of sales

Total sales should be the sum of these three groups = $218 + $1,439 + $348 = $2005

Group one is $348/$2,005 or 17.4percent of the sales, so we use 17.4 percent of the purchase price.

$2,400 *.174 = $417.6 for all of group one.

Divide by the number of pieces to find cost per item

$417.6/2320 = $0.18

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