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Joint-Cost Allocation for Insurers

Quality Chicken grows and processes chickens into five main parts. In July 2012, the joint cost of production was $50. A shipment of 40 lbs of breasts and 15 lbs of wings was destroyed in a fire. The insurance company will reimburse using a joint-cost allocation method. 1. Using the sales value at split-off point method, the cost of the destroyed shipment is $15.34. Using the physical measure method based on pounds, the cost is $11. 2. Quality Chicken should use the sales value at split-off point method because it generates a higher insurance recovery value.

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374 views3 pages

Joint-Cost Allocation for Insurers

Quality Chicken grows and processes chickens into five main parts. In July 2012, the joint cost of production was $50. A shipment of 40 lbs of breasts and 15 lbs of wings was destroyed in a fire. The insurance company will reimburse using a joint-cost allocation method. 1. Using the sales value at split-off point method, the cost of the destroyed shipment is $15.34. Using the physical measure method based on pounds, the cost is $11. 2. Quality Chicken should use the sales value at split-off point method because it generates a higher insurance recovery value.

Uploaded by

Amanda Veronika
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd

Exercises 16-16

Joint-cost allocation, insurance settlement. Quality Chicken grows and processes chickens.
Each chicken is disassembled into five main parts. Information pertaining to production in July 2012 is as follows:

Joint cost of production in July 2012 was $50.


A special shipment of 40 pounds of breasts and 15 pounds of wings has been destroyed in a fire
Quality Chicken’s insurance policy provides reimbursement for the cost of the items destroyed
The insurance company permits Quality Chicken to use a joint-cost-allocation method
The splitoff point is assumed to be at the end of the production process.

1. Compute the cost of the special shipment destroyed using the following:
a. Sales value at splitoff method
b. Physical-measure method (pounds of finished product)
2. What joint-cost-allocation method would you recommend Quality Chicken use? Explain.

Answer

1. Compute the cost of the special shipment destroyed using

a. Sales value at the splitoff method

product produced Pounds of Product SP per Pound Sales Value at Splitoff Pt.
Breasts 100 $ 0.55 $55.00
Wings 20 $ 0.20 4
Thigs 40 $ 0.35 14
Bones 80 $ 0.10 8
Feathers 10 $ 0.05 0.5
Total 250 81.5

Cost of destroyed Product


product produced Join Cost per Pound Pounds Lost Insurance Claim
Breasts $ 0.3374 40 $ 13.50
Wings $ 0.1227 15 $ 1.84
Total $ 15.34

b. Physical measures method


product produced Pounds of Product Join Cost Allocated Join Cost per #
Breasts 100 $ 20.00 $ 0.2000
Wings 20 $ 4.00 $ 0.2000
Thigs 40 $ 8.00 $ 0.2000
Bones 80 $ 16.00 $ 0.2000
Feathers 10 $ 2.00 $ 0.2000
Total 250 $ 50.00

Cost of destroyed Product


product produced Join Cost per Pound Pounds Lost Insurance Claim
Breasts $ 0.2000 40 $ 8.00
Wings $ 0.2000 15 $ 3.00
Total $ 11.00

2. What joint-cost-allocation method would you recommend Quality Chicken use? Explain.
Sales value at the splitoff method generates the higherinsurance recovery value

AMANDA VERONIKA
19102077
Join Cost Allocated Join Cost Per Pound
$ 33.74 $ 0.3374
$ 2.45 $ 0.1227
$ 8.59 $ 0.2147
$ 4.91 $ 0.6130
$ 0.31 $ 0.0307
$ 50.00

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