The output of one of Montero Chemical Company’s production processes is two solvents, Rexon and Texon. The two products cannot be separated until $500,000 of processing costs have been incurred.
At that point there are 15,000 gallons of Rexon that can be sold for $25 per gallon and 5,000 gallons of Texon that can be sold for $50 per gallon.
1. Allocate the $500,000 joint cost to Rexon and Texon by the physical-units method.
2. Allocate the $500,000 joint cost to Rexon and Texon by the relative-sales-value method.