Question 1

Janine Grimm has decided to set up a business with her cousin to use old barrels from a local winery. They plan to cut up the barrels to produce wood, which is sold to barbecue-pit enthusiasts to impart what Janine calls a unique flavour to your barbecuing. Janine will pay the winery $20 for each barrel and pay her cousin Clementine $5 to disassemble each barrel.

The barrels render three products:

staves that can be cut and packaged into bundles and sold to barbecue enthusiasts

solid white oak barrel tops and bottoms that are sanded and sold to craft enthusiasts

steel barrel hoops that are sold to the local scrap yard without further processing

It costs $3 per barrel to sand and package the top/bottom, and $2 to cut and package the staves. The following table summarizes the yield from each wine barrel:

Product Top/Bottom Hoops Staves

Number of each, per barrel 2 4 18

Sales value at split-off, per barrel $15 $0.10 $20

Sales value after sanding or cutting $19 $0.10 $24

Required:

1. Assuming that the tops / bottoms and the staves are treated as joint products and the hoops are treated as byproducts, use each of the following methods to allocate the joint cost of each barrel. Assume that the byproducts are recognized at the time production is completed.
   1. Physical output method
   2. Sales value at split-off
   3. Net realizable value
   4. Constant gross margin percentage

2. Janine discovers that the batch of staves from each barrel could be rendered into charcoal for an extra $6, packaged for $1, and sold for $30. If this option is chosen, the $2 currently spent on cutting and packaging could be saved. Should Janine get into the charcoal business? If so, recalculate the joint cost allocations, assuming the following allocation method:
   1. Net realizable value