Quality Chicken grows and processes chickens. Each chicken is disassembled into
ID: 2451352 • Letter: Q
Question
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.
Explanation / Answer
1. a and b:
Note:
1)
for breast the joint cost apportioned on the basis of sale value = ($50/$81.5) * $55 = $33.74
for breast the joint cost apportioned on the basis of physical units = ($50/250) * 100 = $20
the others have been calculated in the same way.
The unit rate used to apportion joint cost for sale value = ($50 /$ 81.5)
The unit rate used to apportion joint cost for physical units = $50 / 250 units
2)
Cost of breast destroyed using the sale value method = (40/100)*33.74 = $13.496
Cost of breast destroyed using physical units method = (40/100)* $20 = $8
the others have calculated similarly.
2) Sale value , as it will help the company to better value as reimbursement from the insurance company.
breasts wings thigh bones feathers total Weight in pounds 100 20 40 80 10 250 selling price per pound ($) 0.55 0.2 0.35 0.1 0.05 Total selling price ($) 55 4 14 8 0.5 81.5 Joint cost apportioned on the basis of sale value at the split of point 33.74 2.45 8.59 4.91 0.31 50.00 joint cost appotioned on the basis of physical units at the split off point 20 4 8 16 2 50.00