Joint-cost allocation, sales value, physical measure, NRV methods. Instant Foods produces two types…


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Joint-cost allocation, sales value, physical measure, NRV methods. Instant Foods produces two types of microwavable products—beef-flavored ramen and shrimp-flavored ramen. The two products share common inputs such as noodle 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 beef-flavored and shrimp-flavored ramen: A B C 1 Joint Costs Joint Costs 2 Joint costs (costs of noodles, spices, and other inputs and processing to splitoff point) $240,000 $240,000 3 4 Beef Ramen Shrimp Ramen 5 Beginning inventory (tons) 0 0 6 Production (tons) 10,000 20,000 7 Sales (tons) 10,000 20,000 8 Selling price per ton $ 10 $ 15 Due to the popularity of its microwavable products, Instant decides to add a new line of products that targets 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: A B C D E 11 Joint Costs Joint Costs Special B Special S 12 Joint costs (costs of noodles, spices, and other inputs and processing to split off point) $240,000 $240,000 13 Separable costs of processing 10,000 tons of Beef Ramen into 12,000 tons of Special B $48,000 14 Separable cost of processing 20,000 tons of Shrimp Ramen into 24,000 tons of Special S $168,000 15 16 Beef Ramen Shrimp Ramen Special B Special S 17 Beginning inventory (tons) 0 0 12,000 24,000 18 Production (tons) 10,000 20,000 0 0 19 Transfer for further processing (tons) 10,000 20,000 20 Sales (tons) 12,000 24,000 21 Selling price per ton $ 10 $ 15 $ 18 $ 25 1. Calculate Instant’s gross-margin percentage for Special B and Special S when joint costs are allocated using the following: a. Sales value at split off method b. Physical-measure method c. Net realizable value 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 split off 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 do you think of her analysis? Should Instant sell the stock?

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