Question:
(Joint cost allocation; ending inventory valuation; by-product) During March 2010, the first month of operations, Oink Oink's Pork Co. had the operating statistics shown in the following table.
|
Weight in
|
Sales Value at
|
Pounds
|
|
|
Products
|
Pounds
|
Split-Off
|
Produced
|
Pounds Sold
|
|
Tenderloin
|
8,600
|
$132,000
|
6,440
|
5,440
|
|
Roast
|
13,400
|
86,000
|
16,740
|
14,140
|
|
Ham
|
10,800
|
22,400
|
8,640
|
7,640
|
|
Hooves
|
4,600
|
4,600
|
9,200
|
8,000
|
Costs of the joint process were direct material, $40,000; direct labor, $23,400; and over-head, $10,000. The company's main products are pork tenderloin, roast pork, and ham; pork hooves are a by-product of the process. The company recognizes the net realizable value of by-product inventory at split-off by reducing total joint cost. Neither the main products nor the by-product requires any additional processing or disposal costs, although management could consider additional processing.
a. Calculate the ending inventory values of each joint product based on (1) relative sales value and (2) pounds. (Round to nearest whole percentage.)
b. Discuss the advantages and disadvantages of each allocation base for (1) financial statement purposes and (2) decisions about the desirability of processing the joint products beyond the split-off point.