Reference no: EM133047483

Question - Coyote Company processes a chemical that yields two joint products - Clean and Wash. Each batch costs $1,500 and produces 33 gallons of Clean and 56 gallons of Wash. Both products need additional processing after the initial split-off.

Clean is processed further at a cost of $2.50 per gallon. Wash is processed further at a cost of $2.25 per gallon. Clean and Wash can be sold for $22 and $19 per gallon, respectively.

Management at Coyote Company does not like the joint cost allocation results of the net realized value method. They want you to undertake a cost allocation so that the gross margin percent (revenue minus gross margin divided by revenue) is the same. Senior management feels that this will result in a better distribution of the joint cost.

Allocate the $1,500 joint cost using the net realizable value method.