Chapter 16, Problem 16.21E

Joint-cost allocation, insurance settlement. Quality Chicken grows and processes chickens. Each chicken is disassembled into five main parts. Information pertaining to production in July 2017 is as follows:

Parts	Pounds of Product	Wholesale Selling Price per Pound When Production Is Complete
Breasts	100	$0.55
Wings	20	0.20
Thighs	40	0.35
Bones	80	0.10
Feathers	10	0.05

Joint cost of production in July 2017 was $50.

A special shipment of 40 pounds of breasts and 15 pounds of wings has been destroyed in a fire. Quality Chicken’s insurance policy provides reimbursement for the cost of the items destroyed. The insurance company permits Quality Chicken to use a joint-cost-allocation method. The splitoff point is assumed to be at the end of the production process.

1. 1. Compute the cost of the special shipment destroyed using the following:

  Required

1. a. Sales value at splitoff method
2. b. Physical-measure method (pounds of finished product)
3. 2. What joint-cost-allocation method would you recommend Quality Chicken use? Explain.