Problem 4-2: Joint Costs

Payette Canning Company buys sweet corn from local farmers. They process the corn, can it, and sell it to food distributors. The company produces three types of corn: whole kernel, cream style and pimento flavored. Common measure is gallons.

Pimento Cream Whole

Gallons at split off 10,000 40,000 50,000

Gallons at retail 8,000 36,000 46,000

Price at split off $10 $12 $8

Price at retail $20 $25 $15

Separate costs $50,000 $130,000 $80,000

Joint costs equal $400,000

Required:

Allocate the costs based on the physical units method. Compute the total costs for each product under this approach.

Allocate the costs based on the NRV method. Compute the total costs for each product using this approach.

What is the third acceptable method?

Which method most equitably allocates the costs to the various products?