Allocating common costs to joint products by two methods—physical units and relative sales value, and computing the profit or loss per pound. Two products result from production activities in the Straining Department of the Hanson Company. Each pound of raw material put into production in the department results in 4 pound of Mela and # pound of Bano. Mela is sold for $.60 per pound, and Bano is sold for $1.25 per pound. Data for April 19X3 are given below. There was no beginning or ending work in process inventory.

Instructions 1. Compute the cost allocated to each pound of Mela and to each pound of Bano if common costs are allocated on the basis of physical units (pounds).
2. Compute the cost allocated to each pound of Mela and each pound of Bano if common costs are allocated on the basis of relative sales value.
3. Compute the gross profit or loss on Mela and on Bano based on the computations in Instructions | and 2.
4. Which of the cost allocation methods used above is preferable? Explain.

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Total raw materials placed in production in the department 104,000 pounds Manufacturing costs incurred in the department Raw materials Labor and overhead $83,200 10,400