(Joint cost allocation; by-product; income determination) St. Cloud Bank & Trust has two main service lines, commercial checking and credit cards. The firm also generates some revenue from selling antitheft and embezzlement insurance as a by-product of its two main services. Joint costs for producing the two main services include expenses for facilities, legal support, equip¬ ment, record keeping, and administration. The joint service cost incurred during June 2006 was $400,000 and is to be allocated on the basis of total revenues generated from each main service.

The following table presents the results of operations and revenues for June:

Management accounts for the theft insurance on a realized value basis. When commissions on theft insurance are received, management presents the proceeds as a reduction to the Cost of Services Rendered for the main services.
Separate costs for the two main services, checking accounts and credit cards, for June were $125,000 and $90,000, respectively.

a. Allocate the joint cost.

b. Determine the income for each main service and the company’s overall gross margin for June 2006. LO1.

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Service Commercial checking Credit cards Theft insurance Number of Accounts 6,000 14,000 13,000 Total Revenues $948,750 701,250 32,500