This answer results from allocating only the processing cost of $3,000. The total cost, including the purchase cost and the processing cost, should be allocated.
This answer results from using the physical unit method to allocate the total cost instead of the sales value at splitoff method.
This answer results from dividing the cost to be allocated to Big by the total number of gallons produced of both Big and Mini to calculate the cost per gallon. The cost to be allocated to Big should be divided by the number of gallons of Big produced only to calculate the cost of Big per gallon.
The joint cost to be allocated is $2,000 to purchase the direct materials and $3,000 to process it, for a total of $5,000. Using the sales values at splitoff, the sales values are: Big: $9 × 800 gal. = $7,200 Mini: $4 × 200 gal. = $800 Total sales value: $7,200 + $800 = $8,000 Big’s proportionate share of the cost is $7,200 ÷ $8,000, or 90% Mini’s proportionate share of the cost is $800 ÷ $8,000, or 10% Total costs allocated to Big: $5,000 total cost × .90 = $4,500 for 800 gallons. The cost per gallon for Big is $4,500 ÷ 800 gallons, which is $5.625 per gallon, or $5.63 rounded to the nearest cent.
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