Question

Penny's Pineapples is a pineapple grower. After cultivating, fertilizing, growing, and picking pineapples, the company sells whole pineapples to food processors. The company is considering adding a processing line where sliced pineapples and pineapple juice, along with a "mash" used for animal feed will be the final products. Projected information about the costs follows:

Product	Units produced			Separable costs			Final selling price per unit
Sliced pineapple	900,000	cans		$	600,000		$	3.00	per can
Pineapple juice	400,000	bottles		$	150,000		$	1.75	per bottle
Mash	500,000	pounds		$	120,000		$	0.50	per pound

Joint product costs of cultivating, fertilizing and picking pineapples total $1,000,000.

Required:

(a) Determine the amount of joint costs allocated to each product using the net realizable value method.

(b) Determine the final cost per unit for each product.

(c) Determine the gross margin as a percent of sales for each product.

(d) A fertilizer manufacturer approaches Penny Martin, the President of the company, and asks to buy the rinds and other excess materials currently used to produce Mash. He would be willing to pay $0.30 per pound for these materials. What advice would you give Penny?

Answer 1