Question

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 2017 is as follows: Parts Pounds of Product wholesale selling price per pound Breasts 100 .55 Wings 20 .20 Thighs 40 .35 Bones 80 .10 Feathers 10 .05 Joint cost of production in July 2017 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 split off point is assumed to be at the end of the production process. 1) Compute the cost of the special shipment destroyed using the following: a) Sales value at split off method b) Physical-measure method (pounds of finished product) 2) What joint-cost-allocation method would you recommend Quality Chicken use? Explain.

Answer 1