ren Pork Company uses the value basis of allocating joint costs in its production of pork products. Relevant information for the current period follows: Product Pounds Price/lb. Loin chops 3,000 $ 5.00 Ground 10,000 2.00 Ribs 4,000 4.75 Bacon 6,000 3.50 The total joint cost for the current period was $43,000. How much of this cost should Wren Pork allocate to Loin chops
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To allocate joint costs using the value basis, you'll need to determine the proportion of the total value represented by each product.
First, find the total value of all the products:
Loin chops: 3,000 pounds * $5.00 per pound = $15,000
Ground: 10,000 pounds * $2.00 per pound = $20,000
Ribs: 4,000 pounds * $4.75 per pound = $19,000
Bacon: 6,000 pounds * $3.50 per pound = $21,000
Total value = $15,000 + $20,000 + $19,000 + $21,000 = $75,000
Next, calculate the proportion of the total value that Loin chops represent:
Proportion of Loin chops = Value of Loin chops / Total value
Proportion of Loin chops = $15,000 / $75,000 = 0.2
Finally, apply this proportion to the total joint cost to allocate the cost to Loin chops:
Cost allocated to Loin chops = Proportion of Loin chops * Total joint cost
Cost allocated to Loin chops = 0.2 * $43,000 = $8,600
Therefore, Wren Pork should allocate $8,600 of the joint cost to Loin chops using the value basis.