Chapter 16, Problem 16.26E

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 at a cost of $27,000. It yields 12,000 pounds of salted peanuts, which are 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 at a cost of $12,000. It yields 16,000 pounds of peanut butter, which are 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. 1. Compute unit costs per pound for products A, B, and C, treating C as a byproduct. Use the NRV method for allocating joint costs. Deduct the NRV of the byproduct produced from the joint cost of products A and B.

Required

1. 2. Compute unit costs per pound for products A, B, and C, treating all three as joint products and allocating joint costs by the NRV method.