Exercise $17-20$

Physical$-$Units Method; Joint Cost Allocation

$($LO $17-4)$

Breakfasttime Cereal Company manufactures two breakfast cereals in a joint process. Cost and quantity information is as follows:

Joint Cost

$$30,000$

Cereal

Quantity at Split$-$Off Point

Yummies $.$

$12,000$ kilograms $.$

$8,000$ kilograms

Sales Price per Kilogram

Crummies

$$2\mathrm{.}00$

$2\mathrm{.}50$

Exercise $17-22$

Net$-$Realizable$-$Value Method; Joint Cost Allocation $($LO $17-4)$

Refer to the data given in Exercise $17-20.$ Breakfasttime Cereal Company has an opportunity to process its Crummies further into a mulch for ornamental shrubs. The additional processing operation costs $$\mathrm{.}50$ per kilogram, and the mulch will sell for $$3\mathrm{.}50$ per kilogram.

Required:

Should Breakfasttime's management decide to process Crummies into the mulch? Why?

Suppose the company does process Crummies into the mulch. Use the net$-$realizable$-$value method to allocate the joint production cost between the mulch and the Yummies.