(Joint cost allocation; by-product; income determination) East Lansing Financial Ser¬ vices has two main service lines: commercial loans and residential mortgages. As a by-product of these two main services, the firm also generates some revenue from selling credit life insurance. Joint cost for producing the two main services includes expenses for facilities, legal support, equipment, record keeping, and administration. The joint service cost incurred during May 1997 was $145,000.
These costs are to be allocated on the basis of total revenues generated from each main service.
The following table presents the results of-operations and revenues for May:

Management accounts for the credit life insurance on a realized value basis. When commissions on credit life insurance are received, management has elected to present the proceeds as a reduction in the Cost of Services Rendered for the main services.
Separate costs for the two main services for May were $25,000 and $18,000, respectively, for commercial loans and residential mortgages.

a. Allocate the joint costs.

b. Determine the income for each main service and the company’s overall gross margins for May 1997.LO1

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SERVICE Commercial loans Residential mortgages Credit life insurance NUMBER OF LOANS 30 70 966 65 TOTAL REVENUES $189,750 140,250 6,500