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
Wings $0.2000 15 $3.00
 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

3. Comment on the differences between the two methods.

 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
Joint costs (costs of processing
corn to splitoff point) $325,000
Separable cost of processing
beyond splitoff point $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
Separable cost of processing
beyond splitoff point 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
 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%
Joint Cost Allocated $67,200 $172,800 $240,000
 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
Gross Margin Percent 46.7% 43.2% 44.1%