The portion of the joint costs to be allocated to Preon if the value basis is used $4500
Joint costs are expenses spent when two products are purchased or produced at the same time. Joint costs have the same cost object in terms of cost accounting.
The portion of the joint cost for Preon allocation is shown below:
where,
Total joint cost = $7,500
Preon cost = 10,000 gallons × $6 per gallon = $60,000
And, the total cost is
= 10,000 gallons × $6 per gallon + 20,000 gallons × $2 per gallon
= $60,000 + $40,000
= $100,000
So, the allocated cost equal to
= $7,500 × ($60,000 ÷ $100,000)
= $4,500
Therefore the portion of the joint costs to be allocated to Preon if the value basis is used $4500
The complete question is : Differential Chemical produced 10,000 gallons of Preon and 20,000 gallons of Paron. Joint costs incurred in producing the two products totaled $7,500. At the split-off point, Preon has a market value of $6.00 per gallon and Paron $2.00 per gallon. Compute the portion of the joint costs to be allocated to Preon if the value basis is used. A. $2,500. B. $3,000. C. $4,500. D. $5,625. E. $1,500.
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