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?

Transcribed Image Text:

Joint Costs Joint costs (costs of noodes, spices, and other inputs and processing to splitoff point) $400,000 mp Ramen Ramen Beginning inventory (tons) Production (bns) Sales (tons) Selling price per ton 20,000 28,000 20,000 28,000 S5 20 Joint Costs Joint costs (costs of noodies, spices, and other nputs and processing to splitoff point Separable costs of processing 20,000 tons of Beef Ramen into 25,000 tons of Special B Separable cost of processing 28,000 tons of Shrimp Ramen into 34,000 tons of Special S $400,000 $100,000 $238,000 Ramen Ramen Special B Special S 34,000 34.000 Beef Shrimp Beginning inventory (tons) Production (tons) 20,000 28,000 25,000 20,000 28,000 ales tons) Seling prioe per ton 2500034,000 is 51s 20|$17|$ 33 Joint Costs Joint oosts (costs of nood es, spices, andother inputs and processing to spitoff point)$400,000 Bee Shrimp Ramen Ramen Begining invertory (tons) Production (tons Sales (tons) Selling price per ton 20,000 28,000 20,000 28,000 $5 S 20