The Bean Company provides fresh coffee beans for restaurants, hotels and other food service companies. The Bean offers three types of coffee beans: Premium, Gourmet, and Quality. Each of the three coffees is produced in a joint process in which beans are cleaned and sorted. The sorting process is the split-off point in this joint process, and the output is the three types of beans. The beans can be sold at the split-off point or processed further, with different types of roasting and additional sorting. The additional processing requires additional, separable processing costs, as shown next. Separable processing requires no special facilities, and the production costs of further processing are entirely variable and traceable to the products involved.

Last year all three products were processed beyond split-off. Joint production costs for the year were $90,000,000. Sales values and costs needed to evaluate the Bean's production policy follow:

Required
1. Determine the unit cost and gross profit for each product if the Bean allocates joint production costs in proportion to the relative physical volume of output.
2. Determine unit costs and gross profit for each product if the Bean allocates joint costs using the sales value at split-off method.
3. Should the Bean sell any of its products after further processing?

Transcribed Image Text:

Quality Total Gourmet 10,000,000 2,000,000 12,000,000 5.00 Premium Pounds produced Separable processing cost Pounds sold Total joint cost Sales price/lb. (after addt'l processing) Sale price at split-off 2,000,000 24,000,000 $9,000,000 $7,000,000 $5,000,000 S21,000,000 2,000,000 24,000,000 S90,000,000 10,000,000 $7.00 5.00 S2.00 1.00 4.00