Joint-cost allocation, insurance settlement. Quality Chicken grows and processes
ID: 2451111 • Letter: J
Question
Joint-cost allocation, insurance settlement. Quality Chicken grows and processes chickens. Each chicken is disassembled into five main parts. Information pertaining to production in July 2014 is as follows:
Parts
Pounds of Product
Wholesale Selling Price per Pound When Production Is Complete
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 2014 was $50.
A special shipment of 40 pounds of breasts and 15 pounds of wings has been destroyed in a fire. Quality Chicken’s insurance policy provides reimbursement for the cost of the items destroyed. The insurance company permits Quality Chicken to use a joint-cost-allocation method. The splitoff point is assumed to be at the end of the production process.
Required
1. Compute the cost of the special shipment destroyed using the following:
a. Sales value at splitoff method
b. Physical-measure method (pounds of finished product)
2. What joint-cost-allocation method would you recommend Quality Chicken use? Explain.
Parts
Pounds of Product
Wholesale Selling Price per Pound When Production Is Complete
Breasts
100
$0.55
Wings
20
0.20
Thighs
40
0.35
Bones
80
0.10
Feathers
10
0.05
Explanation / Answer
Answer:1
Answer:2 Sales value at the splitoff method generates the higher insurance recovery value.
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 Wings $0.2000 15 $3.00 Total $11.00Related Questions
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