Joint-cost allocation, sales value, physical measure, NRV methods. Instant Foods produces two types of microwavable products—beef-flavored ramen and shrimp-flavored ramen. The two products share common inputs such as noodle and spices. The production of ramen results in a waste product referred to as stock, which Instant dumps at negligible costs in a local drainage area. In June 2009, the following data were reported for the production and sales of beef-flavored and shrimp-flavored ramen:

Due to the popularity of its microwavable products, Instant decides to add a new line of products that targets dieters. These new products are produced by adding a special ingredient to dilute the original ramen and are to be sold under the names Special B and Special 5, respectively. The following is the monthly data for all the products:

1. Calculate Instant’s gross-margin percentage for Special B and Special S when joint costs are allocated using:

a. Sales value at splitoff method

b. Physical-measure method

c. Net realizable value method

2. Recently, Instant discovered that the stock it is dumping can be sold to cattle ranchers at $5 per ton. In a typical month with the production levels shown above, 4,000 tons of stock are produced and car sold by incurring marketing costs of $10,800. Sherrie Dong, a management accountant points out that treating the stock as a joint product and using the sales value at splitoff method, the stock product would lose about $2,228 each month, so it should not be sold. How did Dong arrive at that final number, and what do you think of her analysis? Should Instant sell the stock?

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Joint Costs Joint costs (costs of noodles, spices, and other inputs and processing to splitoff point) $240,000 Shrimp Beef Ramen Ramen Beginning inventory (tons) Production (tons) Sales (tons) Selling price per ton 10,000 20,000 20,000 10,000 $ 10 $ 15