Joint Cost Allocation-Physical Units Method for Blake's Blacksmith Co.
How can we determine the amount of joint production costs allocated to each type of shotgun using the physical units method?
12-gauge shotgun
20-gauge shotgun
The additional production process of the 20-gauge shotgun costs $28 per gun and is sold for $144 per gun. To determine the joint production costs allocated to each type of shotgun using the physical units method, we first calculate the total number of physical units. In this case, there are 40 total units produced by the joint process (20 12-gauge shotguns + 20 20-gauge shotguns). The total cost of the joint process was $4,200, which is then divided by the total physical units produced (40) to get the joint cost allocation per unit: $4,200 ÷ 40 = $105 per unit. Each type of shotgun is then allocated with the total joint cost per unit: - $105/unit × 20 units = $2,100 for 12-gauge shotguns - $105/unit × 20 units = $2,100 for 20-gauge shotguns Therefore, the joint cost allocation using the physical units method is $2,100 for both 12-gauge and 20-gauge shotguns respectively. Total Cost and Profit Calculation: To determine the total cost and the profit, we can use the following table:| 12-gauge shotgun | 20-gauge shotgun | Total | |
|---|---|---|---|
| Joint cost | $2,100 | $2,100 | $4,200 |
| Additional costs | $20/unit × 20 units = $400 | $28/unit × 20 units = $560 | $960 |
| Sales price | $174/unit × 20 units = $3,480 | $144/unit × 20 units = $2,880 | $6,360 |
| Total Cost | $2,500 | $2,660 | $5,160 |
| Total Sales Price | $3,480 | $2,880 | $6,360 |
| Profit | $980 | $220 | $1,200 |