ACCT 254
Joint Cost Allocation Example
Old Virginia Meat Processing Plant processes hogs to produce three joint products: bacon, sausage,
and pork chops. The company incurs common processing costs of $100,000 per batch. Each batch
yields 15,000 pounds of bacon, 18,000 pounds of sausage, and 7,000 pounds of pork chops. Pork
chops can be sold for $3.00 per pound. The bacon and sausage products are sold at the split–off
point for $3.25 per pound and $3.50 per pound, respectively.
Required:
1) Allocate Old Virginia’s joint costs using pounds produced as the allocation base.
2) Allocate Old Virginia’s joint costs using the relative sales value at split-off method.
3) Assume that the pork chops are processed further after the split-off point at an additional cost of
$4,000 and that joint costs are allocated based on pounds produced. What would be the total cost
assigned to pork chops?
Feedback: 1) Allocation of joint costs using pounds produced:
Bacon: 15,000/40,000 = .375; 37.5% of $100,000 = $37,500
Sausage: 18,000/40,000 = .45; 45% of $100,000 = $45,000
Pork chops: 7,000/40,000 = .175; 17.5% of $100,000 = $17,500
2) Allocation of joint costs using the relative sales value method: (15,000 * $3.25) + (18,000 * $3.50)
+ (7,000 * $3.00) = $132,750