Question

Problem 7-15

Vaughn West is a commercial fisherman, and he has just returned from a trip off the coast of Maine. He has calculated the cost of his catch as follows:

Wages of deckhands		$34,400
Vaughn’s wage		19,100
Food, medical supplies, etc.		7,100
Depreciation of netting and other equipment		6,000
Depreciation of boat		13,400
Fuel		18,400
Total		$98,400

Vaughn’s nets yielded a catch of 15,200 pounds of salmon, 23,560 pounds of halibut, and 37,240 pounds of flounder. Salmon sells for $10.00 per pound, halibut for $6.00 per pound, and flounder for $3.00 per pound.

Allocate joint costs based on weight. With these costs, what is the profit associated with each type of fish?

		Profit
Salmon		$
Halibut		$
Flounder		$

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Allocate joint costs based on relative sales values. With these costs, what is the profit associated with each type of fish? (Round relative sales value proportion percent to 3 decimal places, e.g. 32.954% and final answers to 0 decimal places, e.g. 125.)

		Profit
Salmon		$
Halibut		$
Flounder		$

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Vaughn is considering turning the flounder into fish paste. The incremental cost of this operation is $9,100. Each pound of flounder yields one-half pound of paste, and the paste sells for $6 per pound. Will Vaughn be better off selling the flounder or turning it into paste? Net incremental benefitcost of converting the flounder into fish paste is $ . Vaughn will be better off selling the flounderturning it into paste .

Answer 1

Allocation of joint costs: Weight

	Weight (Pounds)	Percent of total weight	Allocation of Joint Cost	Selling Price per pound	Sales Value	Profit
Salmon	15200	20%	$                               19,680	$                                  10.00	$       1,52,000	$ 1,32,320
Halibut	23560	31%	$                               30,504	$                                    6.00	$       1,41,360	$ 1,10,856
Flounder	37240	49%	$                               48,216	$                                    3.00	$       1,11,720	$     63,504
Total	76000	100%	$                               98,400

Allocation of joint costs: Relative sales value

	Sales Value	Percent of total sales value	Allocation of Joint Cost	Profit
Salmon	$              1,52,000	37.523%	$                               36,923	$                            1,15,077
Halibut	$              1,41,360	34.897%	$                               34,339	$                            1,07,021
Flounder	$              1,11,720	27.580%	$                               27,139	$                                84,581
Total	$              4,05,080	100.000%	$                               98,400

Incremental revenue*	$ 0
Less: Incremental cost	$         9,100
Net incremental benefit (cost)	$       -9,100

*Incremental revenue = (37240/2 x $6) - (37240 x $3) = $111720 - $111720 = $0

Net incremental cost of converting the flounder into fish paste is $9,100. Vaughn will be better off selling the flounder.