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E1116. 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:

The remaining 1,200 pounds were lost as waste.

a. Allocate the joint cost to the three products using the physical units method. What problem do you nd with this method?

b. Allocate the joint cost to the three products using the sales value at split-off method. (Round proportions to the nearest whole percentage.) Does this allocation eliminate the problem iden- tied in (a)?

c. Assume that the ground beef could be processed into sausage that could be sold for $2.10 per pound to a distributor that wants a special label costing $0.15 per pound attached to the sau- sage. 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 $0.40 per pound upon the sale? If this separate cost were incurred, would you consider the $0.40 per pound a real prot amount?

\begin{tabular}{lcc} \hline Product & \# of Pounds & Sales Value at Split-Off \\ \hline Steaks. & 3,312 & $4.25 per pound \\ Roasts & 6,210 & $3.80 per pound \\ Ground beef & 4,278 & $0.90 per pound \\ \hline \end{tabular}