Des Moines Milling buys oats at €.60 per kilo and produces CRM Oat Flour, CRM Oat Flakes and CRM Oat Bran. The process of separating the oats into oat flour and oat bran costs €.30 per kilo. The oat flour can be sold for €1.50 per kilo, the oat bran for €2.00 per kilo. Each kilo of oats has .2 kilos of oat bran and .8 kilos of oat flour. A kilo of oat flour can be made into oat flakes for a fixed cost of €240,000 plus a variable cost of €.60 per kilo.
Des Moines Milling plans to process 1 million kilos of oats in 20X7, at a purchase price of €600,000.
1. Allocate all the joint costs to oat flour and oat bran using the physical-units method.
2. Allocate all the joint costs to oat flour and oat bran using the relative-sales-value method.
3. Suppose there were no market for oat flour. Instead, it must be made into oat flakes to be sold. Oat flakes sell for €2.90 per kilo. Allocate the joint cost to oat bran and oat flakes using the relative-sales-value method.