Joint-cost allocation, insurance settlement Quality Chicken grows and processes chickens. Each chicken is disassembled into five main parts. Information pertaining to production in July 2009 is:

Joint cost of production in July 2009 was $50.

A special shipment of 40 pounds of breasts and 15 pounds of wings has been destroyed in a fire. Quality Chicken’s insurance policy provides reimbursement for the cost of the items destroyed. The insurance company permits Quality Chicken to use a joint-cost-allocation method. The splitoff point is assumed to be at the end of the production process.

1. Compute the cost of the special shipment destroyed using

a. Sales value at splitoff method

b. Physical-measure method (pounds of finished product)

2. What joint-cost-allocation method would you recommend Quality Chicken use? Explain.

Wholesale Selling Price per Pound Pounds of Product 100 20 40 80 When Production Is Complete $0.55 Parts Breasts Wings Thighs Bones Feathers 0.20 0.35 0.10 0.05 10