Module 9 Problems_Mrnak

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 Breasts Wings Thighs Bones Feathers

Pounds of Product 100 20 40 80 10

Final Wholesale SP/Pound $0.55 0.20 0.35 0.10 0.05

1. Compute the cost of the special shipment destroyed using a. Sales value at the splitoff method Product Produced Breasts Wings Thighs Bones Feathers Total

Pounds of Product 100 20 40 80 10 250

SP per Pound $0.55 0.20 0.35 0.10 0.05

Sales Value at Splitoff Pt. $55.00 $4.00 $14.00 $8.00 $0.50 $81.50

Joint Cost Allocated $33.74 $2.45 $8.59 $4.91 $0.31 $50.00

Cost of destroyed Product Product Produced Breasts: Wings Total

Joint Cost Per Pound $0.3374 $0.1227

Pounds Lost 40 15

Insurance Claim $13.50 $1.84 $15.34

b. Physical measures method Product Produced Breasts Wings Thighs Bones Feathers Total

Pounds of Product 100 20 40 80 10 250

Joint Cost Allocated $20.00 $4.00 $8.00 $16.00 $2.00 $50.00

Joint Cost Per # $0.2000 $0.2000 $0.2000 $0.2000 $0.2000 $0.20

Cost of destroyed Product Product Produced Breasts: Wings

Joint Cost Per Pound $0.2000 $0.2000

Pounds Lost 40 15

Insurance Claim $8.00 $3.00

Joint Cost Per Pound $0.3374 $0.1227 $0.2147 $0.0613 $0.0307

Total 2. What is joint-cost allocation would you recommend? Sales value at the splitoff method generates the highest insurance recovery value.

$11.00

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 Breasts Wings Thighs Bones Feathers

Pounds of Product 100 20 40 80 10

Final Wholesale SP/Pound $0.55 0.20 0.35 0.10 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 Produced Breasts Wings Thighs Bones Feathers Total

Pounds of Product 100 20 40 80 10 250

SP per Pound $0.55 $0.20 $0.35 $0.10 $0.05

Sales Value at Splitoff Pt. $55.00 $4.00 $14.00 $8.00 $0.50 $81.50

Joint Cost Allocated $33.7423 $2.4540 $8.5890 $4.9080 $0.3067 $50.0000

Joint Cost Per # $0.3374 $0.1227 $0.2147 $0.0613 $0.0307

EI in Pounds 15 4 6 5 2

EI in Dollars $5.0613 $0.4908 $1.2883 $0.3067 $0.0613 $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 Produced Breasts Wings Thighs Bones Feathers Total

Pounds of Product 100 20 40 80 10 250

SP per Pound $0.55 $0.20 $0.35 $0.10 $0.05

Sales Value at Splitoff Pt. $55.0000 $4.0000 $14.0000 $8.0000 $0.5000 $81.5000

3. Comment on the differences between the two methods.

Joint Cost Allocated $29.8913 $4.0000 $7.6087 $8.0000 $0.5000 $50.0000

Joint Cost Per # $0.2989 $0.2000 $0.1902 $0.1000 $0.0500

EI in Pounds 15 4 6 5 2

EI in Dollars $4.4837 $0.8000 $1.1413 $0.5000 $0.1000 $7.0250

Product Produced Breasts Wings Thighs Bones Feathers Total

EI in Pounds 15 4 6 5 2 32

Units Sold 85 16 34 75 8 218

Joint Cost Per # $0.3374 $0.1227 $0.2147 $0.0613 $0.0307

Cost of Goods Sold $28.680982 $1.963190 $7.300613 $4.601227 $0.245399 $42.791411

EI in Dollars $5.0613 $0.4908 $1.2883 $0.3067 $0.0613 $7.2086

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.

Total Costs $33.7423 $2.4540 $8.5890 $4.9080 $0.3067 $50.0000

Joint Cost Per # $0.2989 $0.2000 $0.1902 $0.1000 $0.0500

Cost of Goods Sold $25.407609 $3.200000 $6.467391 $7.500000 $0.400000 $42.975000

EI in Dollars $4.4837 $0.8000 $1.1413 $0.5000 $0.1000 $7.0250

Total Costs $29.8913 $4.0000 $7.6087 $8.0000 $0.5000 $50.0000

Corn Syrup

Joint costs (costs of processing corn to splitoff point) Separable cost of processing beyond splitoff point Beginning inventory (cases) Production and Sales (cases) Ending inventory (cases) Selling price per case

Separable cost of processing beyond splitoff point Net realizable value at splitoff Weighting Allocation of Joint Costs

Joint Costs $325,000

$375,000 0 12,500 0 $50

Corn Syrup Final Sales

Corn Starch

$93,750 0

6,250 0 $25

Corn Starch

Joint Costs

$156,250

$781,250

375,000

93,750

$250,000

$62,500

468,750 $312,500

$625,000

80%

20%

$260,000

$65,000

$325,000

Sales Value at Splitoff 1.a - Allocation of cost

Beef Ramen Shrimp Ramen

$100,000

Sales Value Weighting Joint Cost

$300,000

25%

$60,000

1.a - Income Statement - June 2009 Revenues Cost from Panel above Separable Costs Gross Margin Gross Margin Percent

$400,000

75%

$180,000

Special B

Special S

$216,000 60,000 48,000 $108,000

$600,000 180,000 168,000 $252,000

50%

Total

42%

$240,000

Total

$816,000 240,000 216,000 $360,000 44%

Physical Measure at Splitoff 1.b - Allocation of cost Physical Measure (tons) Weighting Joint Cost

1.b - Income Statement - June 2009 Revenues Cost Separable Costs Gross Margin Gross Margin Percent

Beef Ramen Shrimp Ramen

10,000

20,000

33%

$80,000

Total

30,000

67%

$160,000

Special B

Special S

$216,000 80,000 $48,000 $88,000

$600,000 160,000 $168,000 $272,000

40.7%

45.3%

$240,000

Total

$816,000 240,000 216,000 $360,000 44.1%

Net Relizable Value at Splitoff 1.c - Allocation of Cost - June 2009 Revenues Deduct Separable Costs Net Relizable Value Weighting Joint Cost Allocated

Special B

Special S

$216,000 48,000 168,000

$600,000 168,000 432,000

28%

$67,200

Total

$816,000 216,000 600,000

72%

$172,800

$240,000

1.b - Income Statement - June 2009 Revenues Cost Separable Costs Gross Margin Gross Margin Percent

Special B

Special S

Total

$216,000 67,200 $48,000 $100,800

$600,000 172,800 $168,000 $259,200

$816,000 240,000 $216,000 $360,000

46.7%

43.2%

44.1%