Question:
Joint cost allocations
Chikin, Inc., specializes in chicken farming. Chickens are raised, packaged, and sold mostly to grocery chains. Chickens are accounted for in batches of 50,000. At the end of each growing period, the chickens are separated and sold by grades. Grades AA and A are sold to large grocery chains, and B and C are sold to other buyers. For costing purposes, Chikin treats each batch of chicks as a joint product. The cost data for a batch of 50,000 chicks follows:
|
Grade
|
Number of Chickens
|
Average Pounds per Chicken
|
Selling Price per Pound
|
|
AA
|
25,000
|
5
|
$1.00
|
|
A
|
15,000
|
4
|
0.75
|
|
B
|
6,000
|
2
|
0.50
|
|
C
|
4,000
|
1
|
0.25
|
Total joint costs for the batch were $125,000.
Required:
Compute the cost allocations for each product, using the relative sales value method.