The Jacobson Company manufactures two products, A and B from a single raw materi

Question

The Jacobson Company manufactures two products, A and B from a single raw material call Gizmo. Gizmo is purchased in 100 pound blocks, and the contents of one block are sufficient to produce 50 units of A and 30 units of B. A sells for $45 per unit and B sells for $35 per unit. During the current period, the company used 800 blocks of Gizmo to manufacture A and B. The cost of Gizmo was $350 per block.

1. If the cost of Gizmo is allocated to the A and B products on the basis of the number of units produced, how much of the total cost of the 800 blocks should be charged to each product?

2. If the cost of Gizmo is allocated to the A and B products in proportion to their market values, how much of the total cost of the 800 blocks should be charged to each product?

3. Which basis of allocating the cost is most likely to be used by the company? Why?

Explanation / Answer

total blocks in 1 block 50 units of A In 1 block 30 Units of B A B total units produced 800 50 30 40000 24000 64000 cost of gizmo 800 350 280000 Answer to A allocation of cost of gizmo on the basis of units produced 175000 105000 Answer to B A B selling price of Product 45 35 1800000 840000 2640000 allocation of cost on the basis of market value 280000 190909.1 89090.91 answer to c generally companies uses allocation of cost on the basis of units produced because cost is apportioned on the basis of expenses incurred to produce a product so that pricing can be done accordingly

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