Question
Joint products and byproducts (continuation of 16-21 in Self-Study pack). Quality Chicken grows and processes chickens. Each chicken is disassembled into five main parts. Information
Joint products and byproducts (continuation of 16-21 in Self-Study pack). Quality Chicken grows and processes chickens. Each chicken is disassembled into five main parts. Information pertaining to production in July 2017 is as follows:
Parts Pounds of Product Wholesale Selling Price per Pound When
Production Is Complete
Breasts 100 $0.55
Wings 20 0.20
Thighs 40 0.35
Bones 80 0.10
Feathers 10 0.05
Joint cost of production in July 2017 was $50.
A special shipment of 40 pounds of breasts and 15 pounds of wings has been destroyed in a fire. Quality Chicken's insurance policy provides reimbursement for the cost of the items destroyed. The insurance company permits Quality Chicken to use a joint-cost-allocation method. The splitoff point is assumed to be at the end of the production process.
Quality Chicken is computing the ending inventory values for its July 31, 2017, balance sheet. Ending inventory amounts on July 31 are 15 pounds of breasts, 4 pounds of wings, 6 pounds of thighs, 5 pounds of bones, and 2 pounds of feathers.
Quality Chicken's management wants to use the sales value at splitoff method. However, management wants you to explore the effect on ending inventory values of classifying one or more products as a byproduct rather than a joint product.
Required:
1. Assume Quality Chicken classifies all five products as joint products. What are the ending inventory values of each product on July 31, 2017?
2. Assume Quality Chicken uses the production method of accounting for byproducts. What are the ending inventory values for each joint product on July 31, 2017, assuming breasts and thighs are the joint products and wings, bones, and feathers are byproducts?
3. Comment on differences in the results in requirements 1 and 2.
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