AFM481 Study Guide - Final Guide: Gross Margin, Sunk Costs, Energizer

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ochrekangaroo272

30 May 2013

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM481

Professor

Grant Russell

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Document Summary

Joint products: in the process of making one product, one or more other products are created. A main product has high sales value compared to the other joint products. A by-product has low sales value compared to the other joint products. Joint costs: costs incurred to jointly produce a group of goods (e. g. labour, insurance, property taxes) Split-off point: point at which individual products are identified. Separable costs: costs incurred after the split-off point. The join costs of processing maple sap were ,000,000. Methods of allocating joint costs to main products: physical output method. Allocates join costs using the relative proportion of physical output for each main product. Each main product is allocated a proportion of joint costs, based on that product"s physical output (final product) divided by the total physical output of all main products. Distortions are likely to occur when the incremental contribution (incremental revenue incremental costs) of some products is relatively high.

Related Questions

Check my work Check My Work button is now enabledItem 1 Item 166.66 points (Prepared from a situation suggested by Professor JohnW. Hardy.) Lone Star Meat Packers is a major processor of beef andother meat products. The company has a large amount of T-bone steakon hand, and it is trying to decide whether to sell the T-bonesteaks as they are initially cut or to process them further intofilet mignon and the New York cut. If the T-bone steaks are sold asinitially cut, the company figures that a 1-pound T-bone steakwould yield the following profit: Selling price ($2.40 per pound) $2.40 Less joint costs incurred up to the split-off point whereT-bone steak can be identified as a separate product 1.35 Profitper pound $ 1.05 If the company were to further process the T-bonesteaks, then cutting one side of a T-bone steak provides the filetmignon and cutting the other side provides the New York cut. One16-ounce T-bone steak cut in this way will yield one 6-ounce filetmignon and one 8-ounce New York cut; the remaining ounces arewaste. It costs $0.17 to further process one T-bone steak into thefilet mignon and New York cuts. The filet mignon can be sold for$4.00 per pound, and the New York cut can be sold for $3.00 perpound. Required: 1. What is the financial advantage (disadvantage)of further processing one T-bone steak into filet mignon and NewYork cut steaks?

turquoiselouse396

Prepared from a situation suggested by Professor John W. Hardy.) Lone Star Meat Packers is a major processor of beef and other meat products. The company has a large amount of T-bone steak on hand, and it is trying to decide whether to sell the T-bone steaks as they are initially cut or to process them further into filet mignon and the New York cut.

If the T-bone steaks are sold as initially cut, the company figures that a 1-pound T-bone steak would yield the following profit:


Selling price ($2.00 per pound)	$	2.00
Less joint costs incurred up to the split-off point where T-bone steak can be identified as a separate product		1.45
Profit per pound	$	0.55

If the company were to further process the T-bone steaks, then cutting one side of a T-bone steak provides the filet mignon and cutting the other side provides the New York cut. One 16-ounce T-bone steak cut in this way will yield one 6-ounce filet mignon and one 8-ounce New York cut; the remaining ounces are waste. It costs $0.15 to further process one T-bone steak into the filet mignon and New York cuts. The filet mignon can be sold for $4.40 per pound, and the New York cut can be sold for $3.70 per pound.

Required:

1. What is the financial advantage (disadvantage) of further processing one T-bone steak into filet mignon and New York cut steaks?

2. Would you recommend that the T-bone steaks be sold as initially cut or processed further?

skyotter646

(Prepared from a situation suggested by Professor John W. Hardy.) Lone Star Meat Packers is a major processor of beef and other meat products. The company has a large amount of T-bone steak on hand, and it is trying to decide whether to sell the T-bone steaks as they are initially cut or to process them further into filet mignon and the New York cut.

If the T-bone steaks are sold as initially cut, the company figures that a 1-pound T-bone steak would yield the following profit:


Selling price ($2.00 per pound)	$	2.00
Less joint costs incurred up to the split-off point where T-bone steak can be identified as a separate product		1.45
Profit per pound	$	0.55

Required:

1. What is the financial advantage (disadvantage) of further processing one T-bone steak into filet mignon and New York cut steaks?

2. Would you recommend that the T-bone steaks be sold as initially cut or processed further?

lemonyak871

AFM481 Study Guide - Final Guide: Gross Margin, Sunk Costs, Energizer

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