Reference no: EM132824825

Thomas Company, a new firm, manufactures two products, Q and R, in a common process. The joint costs amount to $42,000 per batch of finished goods. Each batch results in 10,000 litres of output, of which 70% are Q and 30% are R. The unit selling price for Q is $4 and for R is $8 at the split-off point.

• However, the two products are processed beyond the split-off point, with Thomas incurring the following separable costs: Q, $0.50 per litre; R, $1.00 per litre. After the additional processing, the selling price of Q is $6.50 per litre, and the selling price of R is $12.00 per litre.

Problem 1: Determine the proper allocation of joint costs if the company uses the sales value method.

Problem 2: Assume that Thomas sold all of its production of Q and R during the current accounting period. Compute Thomas's final net profit (loss) assuming again that the company uses the physical method for the allocation of joint costs.

Problem 3: Assume that Thomas sold all of its production of Q and R during the current accounting period. Compute Thomas's incremental net profit.