Chapter 24, Problem 21E

To determine

Introduction:

Joint costs are the costs that benefit more than one product or process in the manufacturing process. The joint cost can be allocated either on physical basis or on value basis.

To Calculate:

Allocation of joint cost of land and improvement on value basis and average cost per lot

Answer to Problem 21E

Solution:

Allocation of Joint Cost

  $\begin{array}{l}CanyonSection=60\%of7500000=\$4,500,000\hfill \\ \hfill \\ HilltopSection=40\%of7500000=\$3,000,000\hfill \end{array}$

Average Cost per lot

  $\begin{array}{l}CanyonSection=\frac{\$4,500,000}{450}=\$10,000\hfill \\ \hfill \\ HilltopSection=\frac{\$3,000,000}{150}=\$20,000\hfill \end{array}$

Explanation of Solution

Total or Joint Cost

  $\begin{array}{l}TotalCost =CostofLand+ImprovementCost\hfill \\ =4000000+3500000\hfill \\ =\$7,500,000\hfill \end{array}$

Market Value

  $\begin{array}{l}MarketValueofCanyonSection=\$55000x450=\$24,750,000\hfill \\ \hfill \\ MarketValueofHilltopSection=\$110000x150=\$16,500,000\hfill \\ \hfill \\ TotalMarketValue=24750000+16500000=\$41,250,000\hfill \end{array}$

Percentage of Market Value per Section

  $\begin{array}{l}CanyonSection=\frac{24750000}{41250000}=60\%\hfill \\ \hfill \\ HilltopSection=\frac{16500000}{41250000}=40\%\hfill \end{array}$

Allocation of Joint Cost

  $\begin{array}{l}CanyonSection=60\%of7500000=\$4,500,000\hfill \\ \hfill \\ HilltopSection=40\%of7500000=\$3,000,000\hfill \end{array}$

Average Cost per lot

  $\begin{array}{l}CanyonSection=\frac{\$4,500,000}{450}=\$10,000\hfill \\ \hfill \\ HilltopSection=\frac{\$3,000,000}{150}=\$20,000\hfill \end{array}$