Cost Allocation Using Relative Sales Value Method at Barrett Chemicals
How does Barrett Chemicals allocate joint costs to individual chemicals?
Barrett Chemicals manufactures four chemicals, Chem-1, Chem-2, Chem-3, and Chem-4, from a joint process. In May, the total joint costs were $564,000. How are these costs allocated to each chemical?
Allocation of Joint Costs Using Relative Sales Value Method
Barrett Chemicals uses the relative sales value method to allocate joint costs to individual chemicals. This method assigns the joint costs based on the proportionate sales value of each chemical.
Let's assume that the sales values for Chem-1, Chem-2, Chem-3, and Chem-4 are $100,000, $150,000, $200,000, and $250,000, respectively.
To calculate the allocated joint costs for each chemical, we divide the sales value of each chemical by the total sales value of all chemicals and multiply it by the total joint costs. The allocated joint costs for Chem-1 would be $80,571.43.
Similarly, the allocated joint costs for Chem-2, Chem-3, and Chem-4 would be $120,857.14, $161,142.86, and $201,428.57, respectively.
Therefore, using the relative sales value method, Barrett Chemicals allocates joint costs of $564,000 to Chem-1, Chem-2, Chem-3, and Chem-4 as $80,571.43, $120,857.14, $161,142.86, and $201,428.57, respectively.