Question

FINS produces three products from its fish farm: fish, fish oil, and fish meal. During July 2010, FINS produced the following average quantities of each product from each pound (16 ounces) of fi sh processed:

Of each pound of fi sh processed, 2 ounces are waste. In July, FINS processed 37.5 tons of fi sh (1 ton equals 2,000 pounds). Joint cost amounted to $142,800. On average, each pound of product has the following selling prices: fi sh, $4.50; fish oil, $6.50; and fi sh meal, $2.

a. Allocate the joint cost using weight as the basis. (Round to nearest whole percentage.)

b. Allocate the joint cost using sales value as the basis. (Round to nearest whole percentage.)

c. Discuss the advantages and disadvantages of the answers to parts (a) and (b).

Answer 1

c. Although an unchanging measure, the physical measure of pounds treats all products as equally valuable. Because of inflation and market price variability, sales value is a changing measure; however, this method is a better way of matching joint cost to the benefits from the production process because of the substantial differences in per pound prices among the three products. 

a. $108,528; $ 55,216; $26,656

b. $100,912; $76,160; $13,328

c. Because of inflation and market price variability, sales value is a changing measure.