Joint-cost allocation, sales value, physical measure, NRV methods.

Tasty Foods
produces two types of microwavable products, beef- flavoured ramen and shrimp-
flavoured ramen. The two products share common inputs such as noodle and spices.
The production of ramenresults in a waste product refereed to as stock, which Tasty
dumps at a negligible costs in a local drainage area. In June 2017, the following
datawere reported for the production and sales of beef- flavoured and shrimp-
flavoured ramen.

A B C
Join cost ( costs of noodles, spices, and other inputs and processing to Joint Costs
splitoff point) $380,00
Beef Shrimp
Ramen Ramen
Beginning Inverntory ( Tons) 0 0
Production ( Tons) 9,000 11,000
Sales (Tons) 9,000 11,000
Selling price per ton $15 $35

Due to the popularity of its microwavable products. Tasty 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 are to be sold under the names Special B and Special S, respectively. Follwoing
are the monthly data for all the products.

A B C D E
Joint Costs Special B Special S
Joint Costs ( costs of noodles, spices, and other inputs
and processing to spli off) $380,000
Seperable costs of prpcessimg 9,000 tons of Beef
Ramen into 12,000 tons of special B $36,000
Seperable costs of prpcessimg 9,000 tons of Shrimp
Ramen into 17,000 tons of special S $136,000

Beef Shrimp
Ramen Ramen Special B Special S
Beginning Inventory 0 0 0 0
Production 9,000 11,000 12,000 17,000
Transfer for further processing 9,000 11,000
Sales 12,000 17,000
Selling price per ton $15 $35 $20 $47

Required:

1. Calculate Tasty's gross-margin percentage for special B and special S

2. Recently, Tasty 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, 3,000 tons of stock are produced and
can be sold by incurring marketing costs of $11,000. Sabrina, a management accountant, points
out thsat treating the stock as a joint product and using the sales value at split off method, the
stock product would lose about $6,754 each month, so it should not be slod. How did sabrian
arrive at that final number, and what do you think of her analysis? Should Tasty seel all the
stock?
 1- a
Special Special
Panel A: Allocation of joint cost using sales value at Beef Shrimp
split off method Ramen Ramen Total
Sales value of total production at splitoff point
( 9,000 tons * $15 per ton; 11,000 * $35 per ton) $135,000 $385,000 $520,000
Weighting ( $ 135,000; $385,000 / $520,000) 0.26 0.74 1
Joint costs allocated (0.26;0.74 * $380,000) $98,800 $281,200 380,000

Special Special
Beef Shrimp
Panel B: Product line income sttement for june 2017 Ramen Ramen Total
Revenues (12,000 tons * $20 per ton; 17,000 * $47
per ton) $240,000 $799,000 $1,039,000
Deduct joint costs allocated ( from Panel A) 98,800 281,200 380,000
Deduct seperable costs 36,000 136,000 172,000
Gross margin $105,200 $381,800 $487,000
Gross margin percentage 44% 48% 47%

1b.
Special Special
Panel A: Allocation of joint cost using sales value at Beef Shrimp
split off method Ramen Ramen Total
Physical measure of total production ( tons) 9,000 11,000 20,000
Weighting ( 9,000 tons; 11,000 tons / 20,000 tons) 45% 55% 100%
Joint costs allocated ( 0.45; 0.55 * $380,000) $171,000 $209,000 $380,000

Special Special
Beef Shrimp
Panel B: Product line income sttement for june 2017 Ramen Ramen Total

Revenues (12,000 tons * $20 per ton; 17,000 * $47

1c
Special Special
Panel A: Allocation of joint cost using sales value at Beef Shrimp
split off method Ramen Ramen Total
Final sales of total production during accounting
period ( 12,000 tons * $20 per ton; 17,000 * $ 47per
ton) $240,000 $799,000 $1,039,000
Deduct seperable costs 36,000 136,000 172,000
Net realizable value at split off point $204,000 $663,000 $867,000
Weighting ($204,000; $663.000 / $867,000) 24% 76% 100%
Joint costs allocated (0.24; 0.76 * $380,000) $91,200 288,800 380,000

Special Special
Beef Shrimp
Panel B: Product line income sttement for june 2017 Ramen Ramen Total
Revenues (12,000 tons * $20 per ton; 17,000 * $47
per ton) $240,000 $799,000 $1,039,000
Deduct joint costs allocated ( from Panel A) 91,200 288,800 380,000
Deduct seperable costs 36,000 136,000 172,000
Gross margin $112,800 $374,200 $487,000
Gross margin percentage 47% 47% 47%