sol16 - CHAPTER 16 COST ALLOCATION: JOINT PRODUCTS AND...

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CHAPTER 16 COST ALLOCATION: JOINT PRODUCTS AND BYPRODUCTS 16-16 (20-30 min.) Joint-cost allocation, insurance settlement. 1. (a) Sales value at splitoff method: Pounds of Product Wholesale Selling Price per Pound Sales Value at Splitoff Weighting: Sales Value at Splitoff Joint Costs Allocated Allocated Costs per Pound Breasts Wings Thighs Bones Feathers 100 20 40 80 10 250 $0.55 0.20 0.35 0.10 0.05 $55.00 4.00 14.00 8.00 0 .50 $ 81 .50 0.675 0.049 0.172 0.098 0 .006 1 .000 $33.75 2.45 8.60 4.90 0 . 3 0 $ 5 0 .00 0.3375 0.1225 0.2150 0.0613 0.0300 Costs of Destroyed Product Breasts: $0.3375 per pound × 40 pounds = $13.50 Wings: $0.1225 per pound × 15 pounds = 1.84 $15. 34 b. Physical measure method: Pounds of Product Weighting: Physical Measures Joint Costs Allocated Allocated Costs per Pound Breasts Wings Thighs Bones Feathers 100 20 40 80 10 250 0.400 0.080 0.160 0.320 0.040 1.000 $20.00 4.00 8.00 16.00 2 .00 $ 50 .00 $0.200 0.200 0.200 0.200 0.200 Costs of Destroyed Product Breast: $0.20 per pound × 40 pounds = $ 8 Wings: $0.20 per pound × 15 pounds = 3 $1 1 Note : Although not required, it is useful to highlight the individual product profitability figures: Sales Value at Splitoff Method Physical Measures Method Product Sales Value Joint Costs Allocated Gross Income Joint Costs Allocated Gross Income Breasts Wings Thighs Bones Feathers $55.00 4.00 14.00 8.00 0.50 $33.75 2.45 8.60 4.90 0.30 $21.25 1.55 5.40 3.10 0.20 $20.00 4.00 8.00 16.00 2.00 $35.00 0.00 6.00 (8.00) (1.50) 16-1
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2. The sales-value at splitoff method captures the benefits-received criterion of cost allocation and is the preferred method. The costs of processing a chicken are allocated to products in proportion to the ability to contribute revenue. Quality Chicken’s decision to process chicken is heavily influenced by the revenues from breasts and thighs. The bones provide relatively few benefits to Quality Chicken despite their high physical volume. The physical measures method shows profits on breasts and thighs and losses on bones and feathers. Given that Quality Chicken has to jointly process all the chicken products, it is non- intuitive to single out individual products that are being processed simultaneously as making losses while the overall operations make a profit. Quality Chicken is processing chicken mainly
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This note was uploaded on 09/13/2011 for the course ACCT 305 taught by Professor Franz during the Spring '07 term at S.F. State.

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sol16 - CHAPTER 16 COST ALLOCATION: JOINT PRODUCTS AND...

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