Hernandez Chemical Company’s production process for two of its solvents can be diagrammed using a process map as shown in Exhibit 12-25.
The cost of the joint input, including processing costs before the split-off point, is $400,000. Solvent A can be sold at the split-off point for $20 per gallon and solvent B for $60 per gallon.
| Indirect materials (Pounds) | 55,000 |
| Base materials (gallons) | 220,000 |
| Processing machine (machine hours) | 80,000 |
| Labor (labor hours) | 45,000 |
| Total Costs | $400,000 |
at split-off point:
| Yield | Selling Price | |
| Solvent A | 20,000 | $20 |
| Solvent B | 10,000 | $60 |
| Total | 30,000 |
1. Allocate the $400,000 joint cost to solvents A and B by the physical-units method.
2. Allocate the $400,000 joint cost to solvents A and B by the relative-sales-value method.
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