Question

Idaho Spuds, Inc. processes potatoes into four types of frozen fries for retail sale. Last month, the company incurred $280,000 in joint processing costs. There was no inventory at the beginning of the month. Production and sales value information for the month is as follows: Sales Value at Total Split-off Point (per oz) Ending Inventory (oz.) 0.30 0.40 0.45 0.10 Product Qunces 6,000,000 3,000,000 2,000,000 1,000,000 500,000 250,000 100,000 50,000 French Fries Crinkle Fries Curly Fries Steak Fries Required: Determine the value of ending inventory value of each product if the sales value at split-off method is used 2 Sales of curly fries have been declining over the past year. The marketing manager of Idaho Spuds believes this is because spicy curly fries have become more popular than plain curly fries. She recommends that the company start making spicy curly fries rather than plain curly fries. The company would charge $0.49 per oz. for the spicy curly fries. Additional costs of $0.025 per oz. in materials and $0.011 per oz. in labor would be incurred to make the spicy fries Should the company start making spicy curly fries or continue to make plain curly fries? Support your conclusion with numerical calculations. You must show all of your work to receive full credit.

Answer 1

a units sold Solution (1) - calculation of units sold units Produce - closing units French fries - 6900,000 - 500,000 (raucae fries - 3900,000 - 250,000 Curly fries - 2900,000 - 100000 Steak fries - 10,000,000 - 50,000 55,00 000 = 27, Sqooo = 19,00,000 = 9,50,000 salte - Calculation of Products Units sold value Price value (a) x (6) 0.30 1650,000 fresch fries 8500,000 Crinkle fries 27,50,000 curly fries 19,00,000 Steak fries 9, 50,000 040 11,00,000 0.45 8,55,000 0 0 95000 - sale value at 37,00,000 calculation of value of ending inventory by split off method. Products closing units cost french fries 500000 280,000 x 1650 000 3700,000 Crinkle fries 250,000 280,000 x 11,00 000 curly fries 370,000 100,000 280,000 X 855000 stear fries 370,000 280,000 x 95000 379000 - 124865 - 83243 - 64 703 So 000 = 7189

Curly fries wou Solution (2) Additional cost Particulars Materials Labor for making spicy $ 0 0.025 0.01) 0.036 per oz Additional revenue on sale of spicy cury fries would be; Particulars & spicy curly fries 0.49 plain curly fries 0.45 0.040 per oz sale Net benefit on of spicy curly fries would be Particulars d Additional Revenue 0.040 les Additional cost 0.036 $ 0.004 per oz. As there would be an additional net gain of $ 0.004 per oz in making and selling of spicy curly fries. We recommend the Idaho to start making spicy curly tries instead of plain curly fries.