Problem 16-16: Joint-cost allocation, insurance settlement. Given:
Quality Chicken grows and processes chickens. Each chicken is disassembled into five main parts. Information pertaining to production in July 2009 is: Parts Pounds of Product Final Wholesale SP/Pound
Breasts 100 $0.55
Wings 20 0.20
Thighs 40 0.35
Bones 80 0.10
Feathers 10 0.05
1. Compute the cost of the special shipment destroyed using a. Sales value at the splitoff method
Product Pounds of SP per Sales Value Joint Cost Joint Cost Produced Product Pound at Splitoff Pt. Allocated Per Pound
Breasts 100 $0.55 $55.00 $33.74 $0.3374 Wings 20 0.20 $4.00 $2.45 $0.1227 Thighs 40 0.35 $14.00 $8.59 $0.2147 Bones 80 0.10 $8.00 $4.91 $0.0613 Feathers 10 0.05 $0.50 $0.31 $0.0307 Total 250 $81.50 $50.00
Cost of destroyed Product
Product Joint Cost Pounds Insurance
Produced Per Pound Lost Claim
Breasts: $0.3374 40 $13.50
Wings $0.1227 15 $1.84
Total $15.34
b. Physical measures method
Product Pounds of Joint Cost Joint Cost Produced Product Allocated Per #
Breasts 100 $20.00 $0.2000 Wings 20 $4.00 $0.2000 Thighs 40 $8.00 $0.2000 Bones 80 $16.00 $0.2000 Feathers 10 $2.00 $0.2000 Total 250 $50.00 $0.20
Cost of destroyed Product
Product Joint Cost Pounds Insurance
Produced Per Pound Lost Claim
Breasts: $0.2000 40 $8.00
Total $11.00 2. What is joint-cost allocation would you recommend?
Sales value at the splitoff method generates the highest insurance recovery value.
Problem 16-17 Given:
Quality Chicken grows and processes chickens. Each chicken is disassembled into five main parts. Information pertaining to production in July 2009 is: Parts Pounds of Product Final Wholesale SP/Pound
Breasts 100 $0.55
Wings 20 0.20
Thighs 40 0.35
Bones 80 0.10
Feathers 10 0.05
Joint cost of production in July 2009 was $50.
Quality Chicken is computing thhe EI values for its July 31, 2009, balance sheet. EI amounts on July 31 are:
Parts Pounds of Product
Breasts 15
Wings 4
Thighs 6
Bones 5
Feathers 2
1. Compute the cost of the ending inventory if all products are accounted for as joint products. The sales values at the split-off point is used to assign joint manufacturing costs.
Product Pounds of SP per Sales Value Joint Cost Joint Cost EI in EI in
Produced Product Pound at Splitoff Pt. Allocated Per # Pounds Dollars
Breasts 100 $0.55 $55.00 $33.7423 $0.3374 15 $5.0613 Wings 20 $0.20 $4.00 $2.4540 $0.1227 4 $0.4908 Thighs 40 $0.35 $14.00 $8.5890 $0.2147 6 $1.2883 Bones 80 $0.10 $8.00 $4.9080 $0.0613 5 $0.3067 Feathers 10 $0.05 $0.50 $0.3067 $0.0307 2 $0.0613 Total 250 $81.50 $50.0000 $7.2086
2. Assume Quality Chicken uses the production method of accounting for byproducts. What are the EI values for each joint product on July 31, 2009, assuming breasts and thighs are the joint products and wings, bones, and feathers are byproducts?
Product Pounds of SP per Sales Value Joint Cost Joint Cost EI in EI in
Produced Product Pound at Splitoff Pt. Allocated Per # Pounds Dollars
Breasts 100 $0.55 $55.0000 $29.8913 $0.2989 15 $4.4837 Wings 20 $0.20 $4.0000 $4.0000 $0.2000 4 $0.8000 Thighs 40 $0.35 $14.0000 $7.6087 $0.1902 6 $1.1413 Bones 80 $0.10 $8.0000 $8.0000 $0.1000 5 $0.5000 Feathers 10 $0.05 $0.5000 $0.5000 $0.0500 2 $0.1000 Total 250 $81.5000 $50.0000 $7.0250
Product EI in Units Joint Cost Cost of EI in Total Joint Cost
Produced Pounds Sold Per # Goods Sold Dollars Costs Per #
Breasts 15 85 $0.3374 $28.680982 $5.0613 $33.7423 $0.2989 Wings 4 16 $0.1227 $1.963190 $0.4908 $2.4540 $0.2000 Thighs 6 34 $0.2147 $7.300613 $1.2883 $8.5890 $0.1902 Bones 5 75 $0.0613 $4.601227 $0.3067 $4.9080 $0.1000 Feathers 2 8 $0.0307 $0.245399 $0.0613 $0.3067 $0.0500 Total 32 218 $42.791411 $7.2086 $50.0000
Both methods account for all of the $50 of joint manufacturing costs as either COGS or EI. Both methods are arbitrary and acceptable under GAAP.
Cost of EI in Total
Goods Sold Dollars Costs
$25.407609 $4.4837 $29.8913 $3.200000 $0.8000 $4.0000 $6.467391 $1.1413 $7.6087 $7.500000 $0.5000 $8.0000 $0.400000 $0.1000 $0.5000 $42.975000 $7.0250 $50.0000
Corn Syrup Corn Starch Joint Costs
$325,000 $375,000 $93,750
Beginning inventory (cases) 0 0
Production and Sales (cases) 12,500 6,250
Ending inventory (cases) 0 0
Selling price per case $50 $25
Corn Syrup Corn Starch Joint Costs
Final Sales $625,000 $156,250 $781,250
375,000 93,750 468,750 Net realizable value at splitoff $250,000 $62,500 $312,500
Weighting 80% 20%
Allocation of Joint Costs $260,000 $65,000 $325,000 Joint costs (costs of processing
corn to splitoff point) Separable cost of processing beyond splitoff point
Separable cost of processing beyond splitoff point
Sales Value at Splitoff
1.a - Allocation of cost Beef Ramen Shrimp Ramen Total
Sales Value $100,000 $300,000 $400,000
Weighting 25% 75%
Joint Cost $60,000 $180,000 $240,000
1.a - Income Statement - June 2009 Special B Special S Total
Revenues $216,000 $600,000 $816,000
Cost from Panel above 60,000 180,000 240,000
Separable Costs 48,000 168,000 216,000
Gross Margin $108,000 $252,000 $360,000
Gross Margin Percent 50% 42% 44%
Physical Measure at Splitoff
1.b - Allocation of cost Beef Ramen Shrimp Ramen Total Physical Measure (tons) 10,000 20,000 30,000
Weighting 33% 67%
Joint Cost $80,000 $160,000 $240,000
1.b - Income Statement - June 2009 Special B Special S Total
Revenues $216,000 $600,000 $816,000
Cost 80,000 160,000 240,000
Separable Costs $48,000 $168,000 216,000
Gross Margin $88,000 $272,000 $360,000
Gross Margin Percent 40.7% 45.3% 44.1%
Net Relizable Value at Splitoff
1.c - Allocation of Cost - June 2009 Special B Special S Total
Revenues $216,000 $600,000 $816,000
Deduct Separable Costs 48,000 168,000 216,000 Net Relizable Value 168,000 432,000 600,000
Weighting 28% 72%
1.b - Income Statement - June 2009 Special B Special S Total
Revenues $216,000 $600,000 $816,000
Cost 67,200 172,800 240,000
Separable Costs $48,000 $168,000 $216,000
Gross Margin $100,800 $259,200 $360,000
