Homework handout problem 4-2 joint costs payette canning company

Homework Handout 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:

1. Allocate the costs based on the physical units method. Compute the total costs for each product under this approach.
2. Allocate the costs based on the NRV method. Compute the total costs for each product using this approach.
3. What is the third acceptable method?
4. Which method most equitably allocates the costs to the various products?