Martin 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 23,000 pounds of raw chicken that costs $15,600, the company produces two parts: 4,000 pounds of drumsticks and 6,000 pounds of breast for a processing cost of $3,384. The chicken breast is further processed into 5,200 pounds of steak for a processing cost of $3,200.
The market price of drumsticks per pound is $1.75 and the market price per pound of chicken steak is $5.20. If Martin decided to sell chicken breast instead of chicken steak, the price per pound would be $2.60.
Required:
a-1. Allocate the joint cost to the joint products, drumsticks and breasts, using weight as the allocation base. (Round "Allocation rate" to 2 decimal places and other answers to the nearest dollar amount.)
a-2. Calculate the gross margin for each product.
a-3. If the drumsticks are producing a loss, should that product line be eliminated?
Yes
No
b-1. Reallocate the joint cost to the joint products, drumsticks and breasts, using relative market values as the allocation base. (Round your intermediate calculations and final answers to 2 decimal places.)
b-2. Calculate the gross margin for each product. (Round your intermediate calculations and final answers to 2 decimal places.)
c-1. Should Martin further process chicken breasts into chicken steak? (Use the assumption made in requirement b-1).
Yes
No
c-2. How would the profit be affected by your answer c-1