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27 December, 10:26

Harper Chicken Corporation processes and packages chicken for grocery stores. It purchases chickens from farmers and processes them into two different products: chicken drumsticks and chicken steak. From a standard batch of 12,000 pounds of raw chicken that costs $7,000, the company produces two parts: 2,800 pounds of drumsticks and 4,200 pounds of breast for a processing cost of $2,450. The chicken breast is further processed into 3,200 pounds of steak for a processing cost of $2,000. The market price of drumsticks per pound is $1.25 and the market price per pound of chicken steak is $4.20. If Harper decided to sell chicken breast instead of chicken steak, the price per pound would be $2.20.

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  1. 27 December, 10:31
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    a1)

    drumstink 3,780

    breast 5,670

    a2)

    drumstink (280)

    breast 3,570

    a3) it cannot be eliminated as it is a subproduct of the breast we cannot produce breast without also, produing the drumstink

    b) joint-cost and gross margin considering market value as wat to allocate joint-cost

    drumstink 2.596,15

    breast. 853,85

    gross margin

    drumstink 903.85

    breast 2,386.15

    Questions:

    a-1. Allocate the joint cost to the joint products, drumsticks and breasts, using weight as the allocation base.

    a-2. Calculate the gross margin for each product.

    a-3. If the drumsticks are producing a loss, should that product line be eliminated?

    b-1. Reallocate the joint cost to the joint products, drumsticks and breasts, using relative market values as the allocation base.

    b-2. Calculate the gross profit for each product.

    Explanation:

    cost for the joint process:

    7,000 raw materials + 2,450 conversion cost = 9,450

    weights: 2,800 drumstiks

    4,200 breast

    total 7,000

    drumstink 9,450 x 2,800/7,000 = 3780

    breast 9,450 x 4,200/7,000 = 5670

    gross margin

    drumstink 2,800 * 1.25 - 3,780 = (280)

    breast 4,200 * 2.20 - 5,670 = 3,570

    using market value as weight:

    drumstink 2,800 * 1.25 = 3,500

    breast 4,200 * 2.20 = 9,240

    total sales value 12,740

    drumstink 9,450 x 3,500/12,740 = 2.596,15

    breast 9,450 x 9,240/12,740 = 6.853,85

    gross margin

    drumstink 3,500 - 2,596.15 = 903.85

    breast 9,240 - 6,853.85 = 2,386.15
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