Question:
(Joint cost allocation; by-product) The Farmers' Delight Company produces tomato paste and tomato sauce from a joint process. In addition, second-stage processing of the tomato sauce creates a residue mixture of tomato peels and seeds (simply referred to as P&S) as a by-product. P&S is sold for $0.08 per gallon to Pavlov's Doggy Products for that company's use in Canine Delight Chow. Distribution expenses for P&S total $110. In May 2000, 140,000 pounds of tomatoes are processed in the first department; the cost of this input is $44,200. An additional $33,700 is spent on conversion costs. There are 56,000 gallons of output from Department 1. Thirty percent of the output is transferred as tomato paste to Department 2, and 70 percent of the output is transferred to Department 3. Of the input to Department 3, 20 percent will result in P&S and 80 percent will result in tomato sauce. Joint cost is allocated to tomato paste and sauce on the basis of approximated net realizable values at split-off. The tomato paste in Department 2 is processed at a total cost of $9,620; the tomato sauce in Department 3 is processed at a total cost of $6,450. The net realizable value of P&S is accounted for as a reduction in the separate processing costs in Department 3. Selling prices per gallon are $5.25 and $3.45 for tomato paste and tomato sauce, respectively.
a. How many gallons leaving Department 1 are sent to Department 2 for further processing? To Department 3?
b. How many gallons leave Department 3 as P&S? As tomato sauce?
c. What is the net realizable value of P&S?
d. What is the total approximated net realizable value of the tomato paste? The tomato sauce?
e. What amount of joint cost is assigned to each main product?
f. If 85 percent of the final output of each main product is sold during May and Farmers' Delight had no beginning inventory of either product, what is the value of the ending inventory of tomato paste and tomato sauce?