Instant Foods produces two types of microwavable products—beef-flavoured ramen and shrimp-flavoured ramen. The two products share common inputs such as noodles and spices. The production of ramen results in a waste product referred to as stock, which Instant dumps at negligible costs in a local drainage area. In June 2013, the following data were reported for the production and sales of beef-flavoured and shrimp-flavoured ramen:
Due to the popularity of its microwavable products, Instant 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. The monthly data for all the products follow:
1. Calculate Instant’s gross margin percentage for Special B and Special S when joint costs are allocated using:
a. Sales value at splitoff method.
b. Physical measure method.
c. Net realizable value method.
2. Recently, Instant discovered that the stock it is dumping can be sold to cattle ranchers at $5 per tonne. In a typical month with the production levels shown above, 4,000 tonnes of stock are produced and can be sold by incurring marketing costs of $10,800. Sherrie Dong, a management accountant, points out that in treating the stock as a joint product and using the sales value at splitoff method the stock product would lose about $2,228 each month, so it should not be sold. How did Dong arrive at that final number, and what do you think of her analysis? Should Instant sell the stock?

  • CreatedJuly 31, 2015
  • Files Included
Post your question