Question:
Joint costs and byproducts. (W. Crum adapted) Royston, Inc., is a large food processing company. It processes 150,000 pounds of peanuts in the peanuts department at a cost of $180,000 to yield 12,000 pounds of product A, 65,000 pounds of product B, and 16,000 pounds of product C.Product A is processed further in the salting department to yield 12,000 pounds of salted peanuts at a cost of $27,000 and sold for $12 per pound. Product B (raw peanuts) is sold without further processing at $3 per pound. Product C is considered a byproduct and is processed further in the paste department to yield 16,000 pounds of peanut butter at a cost of $12,000 and sold for $6 per pound. The company wants to make a gross margin of 10% of revenues on product C and needs to allow 20% of revenues for marketing costs on product C. An overview of operations follows:
1. Allocate the joint cost to the cookies and the Soyola using the following:
a. Sales value at split off method
b. NRV method
2. Should ISP have processed each of the products further? What effect does the allocation method have on this decision?