Joint cost allocation, sales value, physical measure, NRV methods. Instant Foods produces two types of microwavable products—beef-flavoured ramen and shrimp-flavoured ramen. The two products share common inputs such as noodles 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-flavoured and shrimp-flavoured 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 S, respectively. The monthly data for all the products follow:

REQUIRED .
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 tonne. In a typical month with the production levels shown above, 4,000 tonnes of stock are produced and can be sold by incurring marketing costs of $10,800. Sherrie Dong, a management accountant, points out that in 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?LO1

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Joint costs (costs of noodles, spices, and other inputs and processing to splitoff point) Beginning inventory (tonnes) Production (tonnes) Sales (tonnes) Selling price per tonne Joint Costs $240,000 Beef Ramen Shrimp Ramen 0 0 10,000 20,000 10,000 20,000 $10 $15