Joint costs and byproducts. (W. Crum) Royston, Inc. is a large food processing company. It processes 120,000 pounds of peanuts in the Peanuts Department at a cost of $1 60,000 to yield 10,000 pounds of product A, 60,000 pounds of product B, and 20,000 pounds of product C.
Product A is processed further in the Salting Department to yield 10,000 pounds of salted peanuts at a cost of $20,000 and sold for $10 per pound.
Product B (Raw Peanuts) is sold without further processing at$2 per pound.
Product C is considered a byproduct and is processed further in the Paste Department to yield 20,000 pounds of peanut butter at a cost of $10,000 and sold for $3 per pound.
The company wants to make a gross margin of 10% of revenues on product C and needs to allow 25% of revenues for marketing costs on product C. An overview of operations follows:
1. Compute unit costs per pound for products A, B, and C, treating C as a byproduct. Use the NRV method for allocating joint costs. Deduct the NRV of the byproduct produced from the joint cost of products A and B.
2. Compute unit costs per pound for products A, B, and C, treating all three as joint products and allocating joint costs by the NRVmethod.
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