Question

Ag-Coop is a large farm cooperative with a number of agriculture-related manufacturing and service divisions. As a cooperative, it pays no federal income taxes. The company owns a fertilizer plant that processes and mixes petrochemical compounds into three brands of agricultural fertilizer: greenup, maintane, and winterizer. The three brands differ with respect to selling price and the proportional content of basic chemicals. Ag-Coop's Fertilizer Manufacturing Division transfers the completed product to the cooperative's Retail Sales Division at a price based on the cost of each type of fertilizer plus a markup. The Manufacturing Division is completely automated so that the only costs it incurs are the costs of the petrochemical feedstocks plus overhead that is considered fixed. The primary feedstock costs $1.70 per pound. Each 100 pounds of feedstock can produce either of the following mixtures of fertilizer. Output Schedules (in pounds) Greenup Maintane 50 60 40 20 Winterizer 10 20

Answer 1

Answer a)  

Dear Student , please see below complete analysis on Joint Cost , allocation of joint cost , calculate per unit cost , derived Schedule A Operating Profit as well as Schedule B . Also derived cost on the basis of NRV rate . Also derived Total input cost + Monthly fixed cost .

Please see line by line calculation and see all cross reference number .

The primary fedstock cost $ 1.70 per pound
Each 100 pounds of feedstock can produced with help of following mixture
Product	A( in Pounds)	B( in Pounds)
Grrenup	50	60
Maintane	40	20
Winterizer	10	20
Production limit is 70,0000 KiloWatt- Hrs
monthly capacity of dehydrator
Product	Killowat-Hr usage Per pound
Grrenup	32
Maintane	20
Winterizer	40
Monthly fixed cost $ 85000
The fertilizer packd in 100 pound bag for
sale of co operative retail stores
Product	Sales price per Pound -$
Grrenup	11.5
Maintane	10
Winterizer	11.4
Selling Expenses = 20% of sales price
Product cost per Kilogram- Schedule A ( as per Question)
Product	A( in Pounds)-A	Killowat-Hr usage Per pound-B	Total Kilowat Hrs(A*B)
Grrenup	50	32	1,600
Maintane	40	20	800
Winterizer	10	40	400
Total	100		2,800
Production limit is 70,0000 KiloWatt- Hrs				7,00,000	c
Total Kilowatt hrs				2,800	d
				250	(c/d)
Input process		250*100 pounds		25,000	Kg(e)
Monthly Fixed cost $				85,000	f
Cost$ per pound	(f/e)			3.40

Joint cost per pound would be				$/Kg
Conversion / Input cost as above				3.40
Add- As per Question - Feedstock				1.70
Joint cost per Pound would be				5.10

Product	A( in Pounds)	% wise	(% wise *Input 25000 Kg)
Grrenup	50	0.50	12,500
Maintane	40	0.40	10,000
Winterizer	10	0.10	2,500
	100	1	25,000
				Amnt($)
Monthly Fixed cost $				85,000
Input cost-Weight ( 25000 Kg) * $ 1.70/ Kg				42,500
Total cost				1,27,500

Product	Selling price($/ Pound)	Selling Expenses -@20%	NRV $ / Pound-M	Number of Pound-N	Total NRV ($)(M*N)
Grrenup	11.50	2.30	9.20	12,500	1,15,000
Maintane	10.00	2.00	8.00	10,000	80,000
Winterizer	11.40	2.28	9.12	2,500	22,800
Total cost NRV basis					2,17,800
Greenup
Total Joint cost allocated				Amnt($)
Total cost ( as calculated above)				1,27,500	( k)
NRV base cost allocate		($115000/$217800)		0.53	(L)
Total Joint cost allocated Greenup				67,321	(k*L)=M
Input process - Kg ( as above)				12,500	N
Cost $/ Pound				5.39	(M/N)
Maintane
Total Joint cost allocated				Amnt($)
Total cost ( as calculated above)				1,27,500	( k)
NRV base cost allocate		($80000/$217800)		0.37	(L)
Total Joint cost allocated Greenup				46,832	(k*L)=M
Input process - Kg ( as above)				10,000	N
Cost $/ Pound				4.68	(M/N)
Winterizer
Total Joint cost allocated				Amnt($)
Total cost ( as calculated above)				1,27,500	( k)
NRV base cost allocate		($22800/$217800)		0.10	(L)
Total Joint cost allocated Greenup				13,347	(k*L)=M
Input process - Kg ( as above)				2,500	N
Cost $/ Pound				5.34	(M/N)

Profitability calculation				Amnt ($)
Cost calculated based on NRV ( as above) $				2,17,800
Less - Joint cost - Input cost allocated ( as above) $				1,27,500
Profitability calculation - Schedule A				90,300

Product cost per Pound- Schedule B ( as per Question)
Product	Schedule B( in Pounds)-A	Killowat-Hr usage Per pound-B	Total Kilowat Hrs(A*B)
Grrenup	60	32	1,920
Maintane	20	20	400
Winterizer	20	40	800
Total	100		3,120
Production limit is 70,0000 KiloWatt- Hrs				7,00,000	c
Total Kilowatt hrs				3,120	d
				224	(c/d)
Input process		224*100 pounds		22,436	Kg(e)

Product	A( in Pounds)	% wise	(% wise *Input 22436 Kg)
Grrenup	60	0.60	13,462
Maintane	20	0.20	4,487
Winterizer	20	0.20	4,487
	100	1	22,436
Product	Selling price($/ Pound)	Selling Expenses -@20%	NRV $ / Pound-M	Number of Pound-N	Total NRV ($)(M*N)
Grrenup	11.50	2.30	9.20	13,462	1,23,846
Maintane	10.00	2.00	8.00	4,487	35,897
Winterizer	11.40	2.28	9.12	4,487	40,923
Total cost NRV basis					2,00,667	( p)
Less - Total cost allocated ( as above) $					1,27,500	(q)
Operating profit $					73,167	(p-q)
As per above analysis, Schedule B Profitability is lower than Schedule A
Profitability of Schedule A $	90,300
Profitability of Schedule B $	73,167