Downeast Fisheries operates a fish processing plant. Fish is processed in batches of 10,000 kilograms. Processing fish yields three products:

fillets, which are sold fresh or quick-frozen

fish pieces, which are sold to another fish-products plant to be used in breaded fish cakes

offal (unused parts of the fish), which is transported to a fertilizer plant

The following table summarizes the yield and financial characteristics of processing a batch of fish:

	Fillets	Pieces	Offal
Yield (kilograms)	2,000	1,000	7,000
Revenue (disposal cost) per kilogram	$6.00	$3.00	($0.20)
Separable processing and selling cost per kilogram	$1.50	$1.00	0

Fresh fish can be quick-frozen with an associated separable processing and selling cost of

$0.50 per kilogram; it is then sold for $5.50 per kilogram. Quick-freezing also incurs a fixed cost of $500 per batch. If the fresh fish is frozen, the $1.50 separable cost of processing the fresh fish would be avoided.

Required:

a) Should the fillets be sold as fresh fish or quick-frozen?

a) Assume that the joint cost, which includes the cost of purchasing and processing the fish, is

$7,000 per batch and the offal is treated as a by-product that is recognized at the split-off point. Allocate the joint cost to each of the products using:

i) Physical output method

ii) Net realizable value method

iii) Constant gross margin percentage

Answer rating: 100% (QA)

To answer question a part first we need to find out the revenue of fillets when it is sold as fresh ... View the full answer