Red Deer Milling buys oats at $0.60 per kilogram and produces CRM Oat Flour, CRM Oat Flakes,
Question:
Red Deer Milling buys oats at $0.60 per kilogram and produces CRM Oat Flour, CRM Oat Flakes, and CRM Oat Bran. The process of separating the oats into oat flour and oat bran costs $0.30 per kilogram. The oat flour can be sold for $1.50 per kilogram, the oat bran for $2.00 per kilogram. Each kilogram of oats has 0.2 kilograms of oat bran and 0.8 kilograms of oat flour. A kilogram of oat flour can be made into oat flakes for a fixed cost of $240,000 plus a variable cost of $0.60 per kilogram. Red Deer Milling plans to process 1 million kilograms of oats in 2012, at a purchase price of $600,000.
1. Allocate all the joint costs to oat flour and oat bran using the physical units method.
2. Allocate all the joint costs to oat flour and oat bran using the relative-sales-value method.
3. Suppose no market existed for oat flour. Instead, it must be made into oat flakes to be sold. Oat flakes sell for $2.90 per kilogram. Allocate the joint cost to oat bran and oat flakes using the relative sales- value method.
Step by Step Answer:
Management Accounting
ISBN: 978-0132570848
6th Canadian edition
Authors: Charles T. Horngren, Gary L. Sundem, William O. Stratton, Phillip Beaulieu