Maurice Tutor
$15/per page/Negotiable
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:
| Â |
A |
B |
C |
|
1 |
 |
Joint Costs |
|
|
2 |
Joint costs (costs of noodles, spices, and other inputs and processing to splitoff point) |
$240,000 |
|
|
3 |
 |  | |
|
4 |
 |
Beef Ramen |
Shrimp |
|
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:
| Â |
A |
B |
C |
D |
E |
|
11 |
 |
Joint Costs |
Special B |
Special S |
|
|
12 |
Joint costs (costs of noodles, spices, and other inputs and processing to split off point) |
$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 |
Shrimp |
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?