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 $1.50 per pound. Each 100 pounds of feedstock can produce either of the following mixtures of fertilizer. Output Schedules (in pounds) Greenup Maintane Winterizer

Answer 1

Part A

Allocated cost per pound

$4.75

Per pound

	Output Mix	Kilowatt-hour per pound	Kilowatt-hour per 100 pounds input
Greenup	50	32	1600
Maintane	30	20	600
Winterizer	20	40	800
			3000

Maximum processing = 750,000 kwh / 3,000 kwh/100 pounds = 25000 pounds of input

Fixed cost allocation (81250/25000)	$3.25 per pound
Feedstock cost	1.50
Joint costs	$4.75 per pound

Part B

	Allocated cost
Greenup	$4.97	Per pound
Maintane	$4.26	Per pound
Winterizer	$4.93	Per pound

Total joint cost incurred in processing 30,000 pounds of input = 81250+(25000*1.50) = $118750

Quantities of each product produced:
Greenup (25000*50%)	12500
Maintane (25000*30%)	7500
Winterizer (25000*20%)	5000
	25000

	(1) Sales Price/pound	(2) Selling Cost/pound (20% of Sales Price) (1)*20%)	(3) NRV/pound (1) – (2)	(4) Number of pounds	(5) Total NRV (3)*(4)
Greenup	10.50	2.10	8.40	12500	105000
Maintane	9.00	1.80	7.20	7500	54000
Winterizer	10.40	2.08	8.32	5000	41600
				25000	$200600

	Allocated cost
Greenup (118750*(105000/200600)/12500)	$4.97	Per pound
Maintane (118750*(54000/200600)/7500)	$4.26	Per pound
Winterizer (118750*(41600/200600)/5000)	$4.93	Per pound

Part C

	Schedule A	Schedule B
Operating profit	$81850.00	$71368.04

profit under current production schedule A
Total net realizable value	200600
Less joint costs incurred	118750
	$81850

Outputs under production schedule B

	Output Mix	Kilowatt-hour per pound	Kilowatt-hour per 100 pounds input
Greenup	60	32	1920
Maintane	10	20	200
Winterizer	30	40	1200
			3320

Maximum processing = 750,000 kwh / 3,320 kwh/100 pounds = 22590 pounds of input

Quantities of each product produced:
Greenup (22590*60%)	13554
Maintane (22590*10%)	2259
Winterizer (22590*30%)	6777
	22590

Profit under production schedule B = (8.40*13554)+(7.20*2259)+(8.32*6777)-(1.50*22590) -81250 = $71368.04