Question

Check my work Zachary Chicken Corporation processes and packages chicken for grocery stores. It purchases chickens from farmers and processes them into two different products: chicken drumsticks and chicken steak. From a standard batch of 23,000 pounds of raw chicken that costs $14,200, the company produces two parts: 2,500 pounds of drumsticks and 6,000 pounds of breast for a processing cost of $2,282. The chicken breast is further processed into 5,200 pounds of steak for a processing cost of $3,300. The market price of drumsticks per pound is $1.80 and the market price per pound of chicken steak is $5.30. If Zachary decided to sell chicken breast instead of chicken steak, the price per pound would be $2.60. 10 points eBook Required Print References a-1. Allocate the joint cost to the joint products, drumsticks and breasts, using weight as the allocation base. a-2. Calculate the gross profit for each product. a-3. If the drumsticks are producing a loss, should that product line be eliminated? b-1. Reallocate the joint cost to the joint products, drumsticks and breasts, using relative market values as the allocation base. b-2. Calculate the gross profit for each product. C-1. Should Martin further process chicken breasts into chicken steak? (Use the assumption made in requirement b-1. c-2. How would the profit be affected by your answer in c-? Complete this question by entering your answers in the tabs below.

Answer 1

Ans.a-1

	Drumsticks	Breasts
Total Quantity to be used as weights	2500 Pounds	6000 Pounds
Allocation of Joint Cost	=(2282+23000)*2500/8500	=(2282+23000)*6000/8500
Joint Cost	7435.88	17846.12

Ans.a-2

	Chicken Drumsticks	Chicken Breasts
Revenue	4500	15600
Cost of Goods sold	7435.88	17846.12
Gross Margin	-2935.88	-2246.12

Ans.a-3

No, the product should not be discontinued since it is a by-product and cost of further processing is less than the market price after further processing. Hence, it is giving a net benefit of $3828.82 to produce drumsticks.

Ans.b-1

	Drumsticks	Breasts
Total Market Value to be used as weights	4500	15600
Allocation of Joint Cost	=(2282+23000)*4500/20100	=(2282+23000)*15600/20100
Joint Cost	5660.15	19621.85

Ans.b-2

	Chicken Drumsticks	Chicken Breasts
Revenue	4500	15600
Cost of Goods sold	5660.15	19621.85
Gross Margin	-1160.15	-4021.85

Ans.c-1

Additional Sale by producing Chicken Steak	27560
Less: Additional Cost to produce Chicken Steak	3300
Less: Chicken Breasts Sales Foregone	15600
Net Benefit in producing Chicken Steak	8660

Since chicken steak is generating additional profit of $8660, chicken steak should be produced.

Ans.c-2

Additional profit by producing chicken steak is $8,660 (Profit will be increased by $8,660).