Physical and sales value allocations and sell or process further

Indianola Beef buys sides of beef to convert into three products: steaks, roasts, and ground beef. In April, Indianola bought multiple sides of beef for $$20,000$ that were converted into the following products at a cost of $$6,400$ :

Product # of Pounds Sales Value at Split$-$Off

Steaks $3,312$ $$4\mathrm{.}25$ per pound

Roasts $6,210$ $$3\mathrm{.}80$ per pound

Ground beef $4,278$ $$0\mathrm{.}90$ per pound

The remaining $1,200$ pounds were lost as waste.

a$.$ Allocate the joint cost to the three products using the physical units method.

Note: Round proportions to the nearest tenth of a percentage $($i$.$e$.$ round $13\mathrm{.}45\%$ to $13\mathrm{.}5\%)$ and dollar amounts to the nearest whole dollar.

Allocated Joint Cost

Steaks Answer

$6,336$

Roasts Answer

$11,880$

Ground beef Answer

$8,184$

Total Answer

$26,400$

What problem do you find with this method?

The problem with this method is that the joint cost assigned to each product is approximately $Answer

$0$

per pound which makes every pound of ground beef sold appear to lose $Answer

$0$

$.$

b$.$ Allocate the joint cost to the three products using the sales value at split$-$off method.

Note: Round proportions to the nearest tenth of a percentage $($i$.$e$.$ round $13\mathrm{.}45\%$ to $13\mathrm{.}5\%)$ and dollar amounts to the nearest whole dollar.

Allocated Joint Cost

Steaks Answer

$3,850$

Roasts Answer

$3,850$

Ground beef Answer

$3,850$

Total Answer

$26,400$

Does this allocation eliminate the problem identified in $($a$)?$

The problem mentioned in $($a$)$ is corrected with this method because the joint cost assigned to each pound of ground beef sold is now only $Answer

$0\mathrm{.}4$

$.$

c$.$

Assume that the ground beef could be processed into sausage that could be sold for $$2\mathrm{.}10$ per pound to a distributor that wants a special label costing $$0\mathrm{.}15$ per pound attached to the sausage. If Indianola Beef uses the sales value at split$-$off method to allocate joint cost, what is the maximum separate cost of processing that the company could incur to still appear to earn $$0\mathrm{.}40$ per pound upon the sale?

$Answer

$0\mathrm{.}99$

per pound