Question 4 Fancy Foods produces two types of microwavable products: beef-flavored ramen and shrimp- flavored ramen. The two products share common inputs such as noodle and spices. The production of ramen results in a waste product referred to as stock, which Fancy dumps at negligible costs in a local drainage area. In June 2017, the following data were reported for the production and sales of beef-flavored and shrimp-flavored ramen: Joint Cost $ 400,000 Joint costs ( cost of noodles, spices and other inputs and processing to split off point) Beef Ramen Shrimp Ramen 0 0 Beginning inventory (tons) Production (tons) 20,000 28,000 Sales (tons) 20,000 28,000 Selling price per ton $ 5 $ 20 Due to the popularity of its microwavable products, Fancy decides to add a new line of products that targets dieters. These new products are produced by adding a special ingredient to dilute the original ramen and are to be sold under the names Special B and Special S, respectively. Following are the monthly data for all the products: Joint Costs Special B Specials $ 400,000 Joint costs ( cost of noodles, spices, and other inputs and processing to split off point) $100,000 Separable costs of processing 20,000 tons of Beef Ramen into 25,000 tons of special B $238,000 Separable costs of processing 28,000 tons of Shrimp Ramen into 34,000 tons of special S Special B Specials Beef Ramen Shrimp Ramen 0 0 0 Beginning inventory 0 Production (tons) 20,000 28,000 25,000 34,000 20,000 28,000 Transfer of further processing (tons) 25,000 34,000 Sales (tons) $5 $20 $17 Selling price per ton $33 Required: 1. Calculate Fancy's gross-margin percentage for Special B and Special S when joint costs are allocated using the following: a. Sales value at split off method (4 Marks) b. Physical measure method (4 Marks) c. Net realizable value method (5 Marks) 2. Recently, Fancy discovered that the stock it is dumping can be sold to cattle ranchers at $4 per ton. In a typical month with the production levels shown, 6,000 tons of stock are produced and can be sold by incurring marketing costs of $12,400. Sandra Dashel, a management accountant, points out that treating the stock as a joint product and using the sales value at split off method, the stock product would lose about $2,435 each month, so it should not be sold. How did Dashel arrive at that final number, and what do you think of her analysis? Should Fancy sell the stock? (12 Marks)