Downeast Fisheries operates a fish processing plant. Fish is processed in batches of 10,000 kilograms. Processing fish yields three products:

fillets, which are sold fresh or quick-frozen

fish pieces, which are sold to another fish-products plant to be used in breaded fish cakes

offal (unused parts of the fish), which is transported to a fertilizer plant

The following table summarizes the yield and financial characteristics of processing a batch of fish:

Fillets Pieces Offal

Yield (kilograms) 3,000 2,000 8,500

Revenue (disposal cost) per kilogram $12.00 $8.50 ($0.40)

Separable processing and selling cost per kilogram $7.00 $2.50 -

Fresh fish can be quick-frozen with an associated separable processing and selling cost of $3.00 per kilogram; it is then sold for $15.00 per kilogram. Quick-freezing also incurs a fixed cost of $750 per batch. If the fresh fish is frozen, the $4.50 separable cost of processing the fresh fish would be avoided.

Required:

a) Should the fillets be sold as fresh fish or quick-frozen?

b) Assume that the joint cost, which includes the cost of purchasing and processing the fish, is $10,800 per batch, and the offal is treated as a by-product that is recognized at the splitoff point. Allocate the joint cost to each of the products using:

i) Physical output method

ii) Net realizable value method

iii) Constant gross margin percentage