16-22 Joint-cost allocatioaat. . p.ysical measure.·milk instint Foods produces t

Question

16-22 Joint-cost allocatioaat. . p.ysical measure.·milk instint Foods produces two types of microwavable products-beef-flavored ramen and shrimp-flavored ramen. The two products share common inputs such as noodie and spices. The production of ramen results in a waste product referred to as stock, which Instant dumps at negligible costs in a local drainage area. In June 2012, the following data were reported for the production and sales of beet-flavored and shrimp-flavored ramen Page layout Joint Costs Joint costs (costs of noodies, spices, and other inputs and processing to spltof poirg) $240,000 Ramen Ramen 6 Production (lons) 7 Sales (tons) 8 Selling price per lon 10000 20000 10.000 20000 15 10 Due to the popularity of its microwavable products, Instant decides to add a new line of products that tar gets dieters. These new products are produced by adding a special ingredient to dilute the original ramen and are to be sold under the names Special B and Special S, respectively. The following is the monthly data for all the products: Joint Costs Special B Special S oint costs (costs of noodles, spices, and other 12 nouts and processing to splidoff poing) $240,000 costs of processing 10,000 tons of 13 Beef Ramen into 12,000 tons of Special B Separable cost of processing 20,000 tons of 14 Shrimp Ramen into 24,000 tons of Special S 15 168.000 Ramen Ramen Special B Special S 10,000 20,000 12000 24,000 12000 24,000 Beef Shrimp 16 18 Production (lons) 19 Transfer for further processing ftons) 20 Sales (tons 21 Selling price per ton 10000 20.000 S 10$ 15S 18 S 25 1. Calculate Instant's gross-margin percentage for Special B and Special S when joint costs are allo cated using the following b. Physical-measure method 2. Recently, Instant discovered that the stock it is dumping can be sold to cattle ranchers at $5 per ton In a typical month with the production levels shown, 4,000 tons of stock are produced and can be sold by incurring marketing costs of $10,800. Sherrie Dong, a management accountant, points out that treating the stock as a joint product and using the sales value at splitoff method, the stock product would lose about $2,228 each month, so it should not be sold. How did Dong arrive at that final number, and what de you think of her analysis? Should Instant sel th tock?

Explanation / Answer

1. Gross margin %

2.

arriving the loss calculated by accountant:

The method followed by accountatnt is incorrect. joint costs are not allocated to byproducts. rather the net sale proceeds from the byproducts are reduced from total joint cost and the remaining is allocated to main products ramely beef and shrimp ramen.

Here by incurring market costs of 10800, stock can be sold for 20000 which means incremental revenue of 9200. it should be sold. by doing so total joint costs will reduce by 9200.

only incremental costs are considered in taking a decision.

Particulars Special B Special S Seling price per unit 18 25 Sales units 12000 24000 Sales dollars 216000 600000 Costs: Further processing costs 48000 168000 Joint costs 80000 160000 Total costs 128000 328000 Gross profit 88000 272000 Gross profit % 40.74% 45.33%

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