The Bean Company provides fresh coffee beans for restaurants, hotels, and other food service companies. Bean offers three types of coffee beans: Premium, Gourmet, and Quality. Each of the three coffees is produced in a joint process in which beans are cleaned and sorted. The sorting process is the split-off point in this joint process, and the output is the three types of beans. The beans can be sold at the split-off point or processed further, with different types of roasting and additional sorting. The additional processing requires additional, separable processing costs, as shown next. Separable processing requires no special facilities, and the production costs of further processing are entirely variable and traceable to the products involved. Last year all three products were processed beyond split-off. Joint production costs for the year were $155,000,000. Sales values and costs needed to evaluate Bean's production policy follow: Pounds produced Separable processing cost Pounds sold Total joint cost Sales price/pound (after additional processing) Sales price at split-off Premium 23,000,000 $ 22,000,000 23,000,000 $8 6 Gourmet 27,600,000 $ 20,000,000 27,600,000 6 5 Quality 4,600,000 $ 18,000,000 4,600,000 $3 2 Total 55,200,000 $ 60,000,000 55,200,000 $ 155,000,000 Required: 1. Determine last year's unit cost and unit gross profit for each product assuming Bean allocates joint production costs using the physical measure method. 2. Determine unit cost and unit gross profit for each product if Bean allocates joint costs using the sales value at split-off method.
The Bean Company provides fresh coffee beans for restaurants, hotels, and other food service companies. Bean offers three types of coffee beans: Premium, Gourmet, and Quality. Each of the three coffees is produced in a joint process in which beans are cleaned and sorted. The sorting process is the split-off point in this joint process, and the output is the three types of beans. The beans can be sold at the split-off point or processed further, with different types of roasting and additional sorting. The additional processing requires additional, separable processing costs, as shown next. Separable processing requires no special facilities, and the production costs of further processing are entirely variable and traceable to the products involved. Last year all three products were processed beyond split-off. Joint production costs for the year were $155,000,000. Sales values and costs needed to evaluate Bean's production policy follow: Pounds produced Separable processing cost Pounds sold Total joint cost Sales price/pound (after additional processing) Sales price at split-off Premium 23,000,000 $ 22,000,000 23,000,000 $8 6 Gourmet 27,600,000 $ 20,000,000 27,600,000 6 5 Quality 4,600,000 $ 18,000,000 4,600,000 $3 2 Total 55,200,000 $ 60,000,000 55,200,000 $ 155,000,000 Required: 1. Determine last year's unit cost and unit gross profit for each product assuming Bean allocates joint production costs using the physical measure method. 2. Determine unit cost and unit gross profit for each product if Bean allocates joint costs using the sales value at split-off method.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:**The Bean Company - Coffee Bean Production Analysis**
The Bean Company supplies fresh coffee beans to various food service establishments, offering three bean types: Premium, Gourmet, and Quality. These products emerge from a joint process involving cleaning and sorting of beans. At the split-off point, the beans can either be sold or subjected to additional roasting and sorting, which incurs additional processing costs.
In the last year, all three coffee bean types were processed further after the split-off point. These additional processing costs are variable and directly traceable to the products. The company's joint production cost for that year was $155,000,000. Below, the production and financial data are provided to aid in evaluating Bean's production policies:
### Production and Financial Data:
| | Premium | Gourmet | Quality | Total |
|---------------------|---------------|---------------|---------------|--------------|
| **Pounds produced** | 23,000,000 | 27,600,000 | 4,600,000 | 55,200,000 |
| **Separable processing cost** | $22,000,000 | $20,000,000 | $18,000,000 | $60,000,000 |
| **Pounds sold** | 23,000,000 | 27,600,000 | 4,600,000 | 55,200,000 |
- **Total joint cost:** $155,000,000
#### Additional Information:
- **Sales price per pound** (after additional processing):
- Premium: $8
- Gourmet: $6
- Quality: $3
- **Sales price at split-off**:
- Premium: $6
- Gourmet: $5
- Quality: $2
### Required Analysis:
1. **Unit Cost and Unit Gross Profit (Physical Measure Method):**
- Determine the unit cost and unit gross profit for each product, assuming allocation of joint production costs based on physical measures (pounds produced).
2. **Unit Cost and Unit Gross Profit (Sales Value at Split-off Method):**
- Calculate the unit cost and unit gross profit for each product if joint costs are allocated using sales value at the split-off method.
This information is crucial for analyzing the cost-effectiveness of The Bean Company's current production and allocation methods, aiding strategic decisions for future processing and sales policies.
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