accounting 324 BBCC project

(8 marks) a) (4 marks) Based on the information provided by the cocoa bean processing division manager, assess the profits and gross margin percentage of each of the following options: i) Current sales of cocoa butter and cocoa cakes ii) Proposed sales of cocoa butter and canned, powdered baking cocoa iii) Proposed sales of chocolate liquor Comment on which of the three options is most desirable for the company to pursue. b) (4 marks) Allocate joint costs using the following options and methods: i) Based on the current sales of cocoa butter and cocoa cakes, use the sale value at split-off method. ii) Based on the proposed sales of cocoa butter and canned, powdered baking cocoa, use the net realizable method.

THE PROJECT DETAILS:

Additional information on cocoa bean processing

The job in the cocoa bean processing division is to process raw cocoa beans through fermentation and roasting, and processing the chocolate nibs into chocolate liquor, cocoa butter and cocoa cakes. The cocoa cakes are what is left of the chocolate liquor after the cocoa butter is removed. The original purpose was to process the beans for the chocolate bar division; however, there is enough capacity to process more beans and sell the intermediate products to outside customers. The questions are the profitability of the products being currently sold to outside customers and the opportunities for a new product.

Currently, the chocolate liquor, which is the first saleable product in the bean processing division, is processed further into cocoa butter and cocoa cakes. The cocoa butter is sold to a plant that processes it for skin cream and the cocoa cakes are packaged in bulk and sold to other manufacturers to include in baking products.

One option to consider is to grind the cocoa cakes into powder and package the final product into tins to be sold to retail grocery stores as baking chocolate. However, there is also a market for chocolate liquor.

An illustration including the proposed process follows.

The company would like advice on the following:

1. Is it profitable to process cocoa cakes further into a powder, package it in cans and sell it as baking cocoa?

2. Is it still profitable to process chocolate liquor into cocoa cakes and cocoa butter?

3. Using the most profitable method of processing cocoa beans, how should the joint costs be allocated?Illustration of cocoa bean processing and opportunities

Procedure cocoa bean processing division

The illustration is based on the following data:

Unprocessed cocoa beans price per 5,000 kg $10,000

Roasting and refining costs resulting in chocolate liquor $6,500

Yield of chocolate liquor 80%

Selling price of chocolate liquor per kilogram $13.50

Cost of processing liquor into cocoa butter and cakes $5,300

Yield of cocoa butter 53%

Yield of cocoa cakes 47%

Sales value of cocoa butter per kilogram $16.00

Sales value of cocoa cakes per kilogram $4.00

Cost of grinding cocoa cakes into powder and packaging $6,500

Yield of cans of powdered baking cocoa 6,800

Selling price per can of powdered baking cocoa $4.25

The final issue is the increasing cost of cocoa for production. Because of rising temperatures in cocoa-producing countries, it is predicted that many of Africas cocoa-production areas will be too hot to grow cocoa crops in the near future. Some farmers are already replacing their cocoa crops with palm oil or rubber. This will put upwards pressure on the price of cocoa if there are fewer suppliers.

To compensate for this, a cash requirements budget for the coming year would be useful. The information is below.

Production and cash requirements

The following tables provide the details required to prepare the production and purchases budget for 20X8. Additional information is as follows:

? BBCCs accounts payable payment policy is to pay 80% of purchases in the quarter purchased and the remainder in the quarter following purchase.

? When planning for ending chocolate bar inventories, the companys policy is to have 7% of the next quarters sales available on hand at the end of the quarter for The- Bar and Alamonde. Because Salt-Lick is made to order, no ending inventories o

bars are kept. Also, it plans to have 9% of next quarters estimated ingredients requirements on hand at the end of the quarter for all products.

Table 1: Sales forecasts for 20X8 and the first half of 20X9 Quarter	The-Bar			Alamonde			Salt-lick			Total
20X8 Q1	180,400			118,800			66,000			365,200
20X8 Q2	187,000			123,200			69,300			379,500
20X8 Q3	206,800			134,200			77,000			418,000
20X8 Q4	178,200			116,600			68,200			363,000
20X8 totals	752,400			492,800			280,500			1,525,700
20X9 Q1	188,600			124,200			69,000			381,800
20X9 Q2	193,200			127,650			70,150			391,000
Almonds		$10.00 per kg			0.00			21.00			0.00
Himalayan salt		$5.50 per kg			0.00			0.00			9.63
Other		0.08 per bar			80.00			80.00			80.00
Total cost of ingredients			$ 426.49			$ 437.56			$ 426.99