Reference no: EM132999601

Question - Ferguson Company purchases cocoa beans and processes them into cocoa butter, cocoa powder and cocoa shells. The standard yield from each 100 pound sack of unprocessed cocoa beans is 20 pounds of butter, 45 pounds of powder, and 35 pounds of shells. The butter must be molded and packed before it can be sold. The further processing costs is P1.50 per pound, but the resulting processed butter can be sold for P12.50 per pounds. The powder can be sold for P9.00 per pound at the split-off point. The shells, which are considered a by-product, sell for P0.40 per pound. The company estimates net realizable value at the split-off point if no market price is available at that point. The costs of the cocoa beans is P1,500 per hundred pounds. It costs P3,700 in labor and overhead to process each 100 pounds of beans up to the split-off point.

Requirements -

1. Assuming that the shells are recorded as other income at the time they are sold, compute the allocated joint costs of the butter and powder produced from 100 pounds of cocoa beans, using the net realizable value method.

2. Assuming that the shells are recorded as other income at the time they are sold, compute the allocated joint cost of the butter and powder produced from each 100 pounds of cocoa beans, using the physical quantities (pounds) method.

3. If the net realizable value of the shells is entered as a credit to the primary manufacturing costs at the time the shells are recovered and if the net realizable value method is used for joint cost allocation, what would be the allocation of the joint cost to the main products.