17-21. JOINT-COST ALLOCATION, INSURANCE SETTLEMENT. Quality Chicken grows and processes chickens. Each chicken is...
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17-21. 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 2020 follows:
Joint cost of production in July 2020 was $50.
A special shipment of 40 pounds of breasts and 15 pounds of wings has been destroyed in a fire. Quality Chickens 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.
Required
1. Compute the cost of the special shipment destroyed using the following:
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.
\begin{tabular}{lcc} Parts & Pounds of Product & \begin{tabular}{c} Wholesale Selling Price per Pound When \\ Production Is Complete \end{tabular} \\ \hline Breasts & 100 & $0.55 \\ Wings & 20 & 0.20 \\ Thighs & 40 & 0.35 \\ Bones & 80 & 0.10 \\ Feathers & 10 & 0.05 \end{tabular}
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