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Question: finch chicken corporation processes and packages chicken for grocery stores...

Question details

Finch Chicken Corporation processes and packages chicken for grocery stores. It purchases chickens from farmers and processes them into two different products: chicken drumsticks and chicken steak. From a standard batch of 15,000 pounds of raw chicken that costs $7,900, the company produces two parts: 3,000 pounds of drumsticks and 6,000 pounds of breast for a processing cost of $6,491. The chicken breast is further processed into 5,200 pounds of steak for a processing cost of $2,000. The market price of drumsticks per pound is $1.55 and the market price per pound of chicken steak is $4.00. If Finch decided to sell chicken breast instead of chicken steak, the price per pound would be $2.30.

Required

  1. a-1. Allocate the joint cost to the joint products, drumsticks and breasts, using weight as the allocation base.

  2. a-2. Calculate the gross margin for each product.

  3. a-3. If the drumsticks are producing a loss, should that product line be eliminated?

  4. b-1. Reallocate the joint cost to the joint products, drumsticks and breasts, using relative market values as the allocation base.

  5. b-2. Calculate the gross margin for each product.

  6. c-1. Should Martin further process chicken breasts into chicken steak? (Use the assumption made in requirement b-1).

  7. c-2. How would the profit be affected by your answer in c-1?

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