Allocating common costs to joint products by three methods—physical units, relative sales value, and net realizable sales value.

Santana Chemical Company uses a manufacturing process that produces two major products, Fluinol and Volumol. In the first department, the raw materials are mixed and treated. In the second department, some additional raw materials are added, the mix is further processed, and the two products are then separated. Cost and production data for the second department for the month of October 19X8 are given.

There was no beginning or ending work in process inventory. Fluinol has a sales price of $7 per barrel, and Volumol has a sales price of $6 per barrel. It is estimated that selling and administrative expenses are $2.40 per barrel for Fluinol and $.80 per barrel for Volumol.
Instructions 1. Prepare schedules showing the allocation of each element of manufacturing cost to each barrel of Fluinol and each barrel of Volumol, using the assumptions listed below. (Round off the unit costs to four decimal places.)

a. Costs are allocated on a per-barrel basis to the joint products.

b. Costs are allocated to the two products on the basis of relative sales value.

c. Costs are allocated to each product on the basis of net realizable sales value (the sales price less applicable selling and administrative expenses).
2. Prepare condensed income statements showing the profit that would be reported on each product under each of the three allocation methods.

Transcribed Image Text:

Materials Transferred In From Prior Department Quantity 120,000 bbl Cost $360,000 Materials Added in This Department 30,000 bbl 45,000 Labor Added in This Department 12,000 Manufacturing Overhead Added in This Department 18,000 Finished Products Transferred Out Fluinol Volumol 80,000 bbl 50,000 bbl Units Lost in Production (evaporation) 20,000 bbl