Ferrier Chemical Company makes three products, B7, K6, and X9, which are joint products from the same materials. In a standard batch of 150,000 pounds of raw materials, the company generates 35,000 pounds of B7, 75,000 pounds of K6, and 40,000 pounds of X9. A standard batch costs $600,000 to produce. The sales prices per pound are $6, $10, and $16 for B7, K6, and X9, respectively. Required Allocate the joint product cost among the three final products using weight as the allocation base. Allocate the joint product cost among the three final products using market value as the allocation bas

Ferrier Chemical Company

Allocation of the joint cost, using weight as the allocation base:

For B7 = $140,000 ($600,000*35,000/150,000)

For K6 = $300,000 ($600,000*75,000/150,000)

ForX9 = $160,000 ($600,000*40,000/150,000)

Allocation of the join cost, using market value:

For B7 =     $78,750 ($600,000*$210,000/$1,600,000)

For K6 =  $281,250 ($600,000*$750,000/$1,600,000)

For X9 = $240,000 ($600,000*$640,000/$1,600,000)

Explanation:

a) Data and Calculations:

Joint cost of a standard batch = $600,000

                                     B7             K6          X9          Total

Pounds generated  35,000     75,000     40,000   150,000

Sales price per pound $6           $10          $16

Market value         $210,000  $750,000 $640,000 $1,600,000    

Allocation of the joint cost, using weight as the allocation base:

For B7 = $140,000 ($600,000*35,000/150,000)

For K6 = $300,000 ($600,000*75,000/150,000)

ForX9 = $160,000 ($600,000*40,000/150,000)

Allocation of the join cost, using market value:

For B7 =     $78,750 ($600,000*$210,000/$1,600,000)

For K6 =  $281,250 ($600,000*$750,000/$1,600,000)

For X9 = $240,000 ($600,000*$640,000/$1,600,000)

b) The market value for each product class is a function of the quantity produced multiplied by the sales price per unit.

the correct answer is economics is a game without winners or losers.

unlike sports or games economic is a game without losers or winner rather it is a game where everyone wins. parties of business doing businesses exchange money with each other and hence exchange is done on the basis of goods. one party takes the goods and other sales it so there is winner on both sides. each party values more highly the good it gets than the good it gives up. both sides exchange only because both intend to increase their value. so there is no concept of lose or win.