Joint cost allocation, insurance settlement. Chicken Little raises and processes chickens.

Each chicken is disassembled into five main parts. Information pertaining to production in July 2007 is as follows:

Parts Kilograms of Product Wholesale Selling Price per Kilogram When Production Is Complete Breasts 100 $1.32 Wings 20 0.48 Thighs 40 0.84 Bones 80 0.24 Feathers 10 0.12 Joint costs of production in July 2007 were $100.

A special shipment of 30 kilograms of breasts and 15 kilograms of wings has been destroyed in a fire. Chicken Little’s insurance policy provides for reimbursement for the cost of the items destroyed. The insurance company permits Chicken Little to use a joint cost allocation method. The splitoff point is assumed to be at the end ofthe production line.

Required 1. Compute die cost of the special shipment destroyed using

(a) the sales value at splitoff method and

(b) the physical measure method using kilograms offinished product.

2. Which joint cost allocation method would you recommend that Chicken Little use?