Question

Harper Chicken Corporation processes and packages chicken for grocery stores. It purchases chickens from farmers and processes them into two different products: chicken drumsticks and chicken steak. From a standard batch of 12,000 pounds of raw chicken that costs $7,000, the company produces two parts: 2,800 pounds of drumsticks and 4,200 pounds of breast for a processing cost of $2,450. The chicken breast is further processed into 3,200 pounds of steak for a processing cost of $2,000. The market price of drumsticks per pound is $1.25 and the market price per pound of chicken steak is $4.20. If Harper decided to sell chicken breast instead of chicken steak, the price per pound would be $2.20.

Answer 1

Answer:

a1)

drumstink  3,780

breast        5,670

a2)

drumstink  (280)

breast       3,570

a3) it cannot be eliminated as it is a subproduct of the breast we cannot produce breast without also, produing the drumstink

b) joint-cost and gross margin considering market value as wat to allocate joint-cost

drumstink  2.596,15

breast  .853,85

gross margin

drumstink 903.85

breast    2,386.15

Questions:

a-1. Allocate the joint cost to the joint products, drumsticks and breasts, using weight as the allocation base.

a-2. Calculate the gross margin for each product.

a-3. If the drumsticks are producing a loss, should that product line be eliminated?

b-1. Reallocate the joint cost to the joint products, drumsticks and breasts, using relative market values as the allocation base.

b-2. Calculate the gross profit for each product.

Explanation:

cost for the joint process:

7,000 raw materials + 2,450 conversion cost = 9,450

weights: 2,800 drumstiks  

              4,200 breast        

total       7,000

drumstink 9,450 x 2,800/7,000  = 3780

breast  9,450 x 4,200/7,000  = 5670

gross margin

drumstink 2,800 * 1.25  - 3,780=  (280)

breast 4,200 * 2.20  - 5,670 =     3,570

using market value as weight:

drumstink 2,800 * 1.25  =  3,500

breast 4,200 * 2.20       = 9,240

total sales value                12,740

drumstink 9,450 x 3,500/12,740  = 2.596,15

breast  9,450 x 9,240/12,740  = 6.853,85

gross margin

drumstink 3,500  - 2,596.15 = 903.85

breast 9,240  - 6,853.85 =   2,386.15