Harper Chicken Corporation processes and packages chicken for grocery stores. It purchases chickens from farmers and processes them into two different products: chicken drumsticks and chicken steak. From a standard batch of 12,000 pounds of raw chicken that costs $7,000, the company produces two parts: 2,800 pounds of drumsticks and 4,200 pounds of breast for a processing cost of $2,450. The chicken breast is further processed into 3,200 pounds of steak for a processing cost of $2,000. The market price of drumsticks per pound is $1.25 and the market price per pound of chicken steak is $4.20. If Harper decided to sell chicken breast instead of chicken steak, the price per pound would be $2.20.

Required

a-1. Allocate the joint cost to the joint products, drumsticks and breasts, using weight as the allocation base.

a-2. Calculate the gross margin for each product.

a-3. If the drumsticks are producing a loss, should that product line be eliminated?

b-1. Reallocate the joint cost to the joint products, drumsticks and breasts, using relative market values as the allocation base.

b-2. Calculate the gross profit for each product.

c-1. Should Harper further process chicken breasts into chicken steak? (Use the assumption made in requirement b-1).

c-2. How would the profit be affected by your answer in c-1?