Question

Consider the following scenario. Each day, a butcher buys a 200-kilogram pig for $360. The pig can be processed to yield the following three products:
Day 1 The butcher buys a pig. The $360 joint cost of the pig is allocated to individual products based on the relative weights of the products.
Day 2 The butcher buys an identical pig and throws out the bacon because it has been shown to lose money. She now has 80 kilograms of “good output.”
Day 3 The butcher buys an identical pig and throws out the ham and the bacon because they have been shown to lose money. She now has 30 kilograms of “good output.”
Day 4 The butcher buys an identical pig and throws out the whole pig because each product has been shown to lose money. Therefore, she loses $360.
REQUIRED
1. Comment on the preceding series of decisions.
2. How would the joint costs be allocated to all three products using the sales value at splitoff method?
3. Should the operating income numbers from requirement 2 be used to determine whether the butcher is better off by selling or not selling individual products? Explain briefly.


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  • CreatedJuly 31, 2015
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