Question

Fancy 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 Fancy dumps at negligible costs in a local drainage area. In June 2014, the following data were reported for the production and sales of beef-flavored and shrimp-flavored ramen:


Due to the popularity of its microwavable products, Fancy 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. Following are the monthly data for all the products:


Required
1. Calculate Fancy’s gross-margin percentage for Special B and Special S when joint costs are allocated using the following:
a. Sales value at splitoff method
b. Physical-measure method
c. Net realizable value method
2. Recently, Fancy discovered that the stock it is dumping can be sold to cattle ranchers at $ 4 per ton. In a typical month with the production levels shown, 6,000 tons of stock are produced and can be sold by incurring marketing costs of $ 12,400. Sandra Dashel, a management accountant, points out that treat-ing the stock as a joint product and using the sales value at splitoff method, the stock product would lose about $ 2,435 each month, so it should not be sold. How did Dashel arrive at that final number, and what do you think of her analysis? Should Fancy sell thestock?


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  • CreatedMay 14, 2014
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