Question

Breakfasttime Cereal Company manufactures two breakfast cereals in a joint process. Cost and quantity information is as follows:

  

Joint Cost			Cereal	Quantity at Split-Off Point			Sales Price per Kilogram
$	93,000		Yummies		12,300	kilograms	$	6.30
			Crummies		8,300	kilograms		7.80

Breakfasttime Cereal Company has an opportunity to process its Crummies further into a mulch for ornamental shrubs. The additional processing operation costs $1.80 per kilogram, and the mulch will sell for $12.00 per kilogram.

Required:

1-a.	Compute the net incremental revenue per kilogram if management decide to process Crummies into the mulch. (Round your answer to 2 decimal places.)
	Net incremental revenue $2.40 per kilogram
1-b.	Should Breakfasttime’s management decide to process Crummies into the mulch?
	Yes No
2.	Suppose the company does process Crummies into the mulch. Use the net-realizable-value method to allocate the joint production cost between the mulch and the Yummies. (Round your calculation of relative proportions to 3 decimal places.)

	Allocation of Joint Cost Yummies $ Mulch $

Answer 1

1a) Net incremental revenue = 2.40

1b) Yes

2) Allocation of Joint cost

Product	NRV	Ratio	Joint Cost	Allocation of Joint Cost
Yummies	6.3*12300 = 77490	0.478	93000	44454
Mulch	10.2*8300 = 84660	0.522	93000	48546
Total	162150			93000