Acct434 Advanced Cost Management: P16-16 Quality Chicken grows and processes chickens

Acct434 Advanced Cost Management

Problem 16-16. Joint-cost allocation, insurance settlement
Quality Chicken grows and processes chickens. Each chicken is disassembled into five main parts. Information pertaining to production in July 2012 is:
Parts Pounds of Product Final Wholesale SP/Pound
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 2012 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.

1. Compute the cost of the special shipment destroyed using
a. Sales value at the splitoff method
b. Physical measures method
2. What is joint-cost allocation would you recommend?
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