Joint-cost allocation, sales value, physical measure, NRV methods. Tasty Foods produces two types of microwavable products: beef-flavored ramen and shrimp-flavored ramen. The two products share common inputs such as noodle and spices. The production of ramen results in a waste product referred to as stock, which Tasty dumps at negligible costs in a local drainage area. In June 2017, the following data were reported for the production and sales of beef-flavored and shrimp-flavored ramen:

Due to the popularity of its microwavable products, Tasty decides to add a new line of products that targets dieters. These new products are produced by adding a special ingredient to dilute the original ramen and are to be sold under the names Special B and Special S, respectively. Following are the monthly data for all the products:

1. Calculate Tasty’s gross-margin percentage for Special B and Special S when joint costs are allocated using the following:

a. Sales value at splitoff method

b. Physical-measure method c. Net realizable value method

2. Recently, Tasty discovered that the stock it is dumping can be sold to cattle ranchers at $5 per ton. In a typical month with the production levels shown, 3,000 tons of stock are produced and can be sold by incurring marketing costs of $11,100. Sabrina Donahue, a management accountant, points out that treating the stock as a joint product and using the sales value at splitoff method, the stock product would lose about $6,754 each month, so it should not be sold. How did Donahue arrive at that final number, and what do you think of her analysis? Should Tasty sell the stock?

 

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