Doe Corporation grows, processes, cans, and sells three main pineapple products: sliced pineapple, crushed pineapple, and pineapple juice. The outside skin, which is removed in the cutting department and processed as animal feed, is treated as a by-product.

Doe’s production process is as follows: Pineapples are first processed in the cutting department.

The pineapples are washed, and the outside skin is cut away. Then the pineapples are cored and trimmed for slicing. The three main products (sliced, crushed, juice) and the by-product (animal feed) are recognizable after processing in the cutting department. Each product is then transferred to a separate department for final processing.

The trimmed pineapples are forwarded to the slicing department where they are sliced and canned. Any juice generated during the slicing operation is packed in the cans with the slices. The pieces of pineapple trimmed from the fruit are diced and canned in the crushing department. Again, the juice generated during this operation is packed in the can with the crushed pineapple. The core and surplus pineapple generated from the cutting department are pulverized into a liquid in the juicing department. An evaporation loss equal to 8% of the weight of the good output produced in this department occurs as the juices are heated. The outside skin is chopped into animal feed in the feed department.

Doe Corporation uses the net realizable value method to assign costs of the joint process to its main products. The by-product is inventoried at its net realizable value. The NRV of the by-product reduces the joint costs of the main products.

A total of 270,000 pounds entered the cutting department in May. The schedule shows the costs incurred in each department, the proportion by weight transferred to the four final processing departments, and the selling price of each product.

REQUIRED

A. How many pounds of pineapple result as output for pineapple slices, crushed pineapple, pineapple juice, and animal feed?

B. What is the net realizable value of each of the main products?

C. What is the amount of the cost of the cutting department (joint costs) assigned to each of the main products and the by-product using Doe’s allocation method?

D. What is the gross margin for each of the three main products?

E. How valuable is the gross margin information for evaluating the profitability of each main product?

F. If no market exists for the outside skin as animal feed and, instead, it must be disposed of at a cost of $800, what effect will this cost have on the costs allocated to the main products?

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May Processing Data and Costs Selling Price per Pound of Final Product None $0.60 0.55 0.30 0.10 Proportion of Product by Weight Transferred to Departments Department Cutting Slicing Crushing Juicing Animal Feed Total Costs Incurred $60,000 4,700 10,580 3,250 35% 28 27 700 $79,230 100%