The Parvis Paramount Pigsty (PPP) raises pigs,from which a variety of pork products are processed.The herd features the Danish Yorkshire,which typically reaches 105 kgs at maturity.The following table summarizes the production process of producing Porktry,Porfekt,and Porkatoo from one pig $€13.50€50.40€14.00\begin{array}{lrrr} & \text { Porktry } & \text { Porfekt } & \text { Porkatoo } \\\text { Weight, in kgs } & 45 & 20 & 35 \\\text { Sales price, kg } & € 22.50 & € 84.00 & € 28.00 \\\text { Processing costs per kg } & € 13.50 & € 50.40 & € 14.00\end{array}$
Previous research has indicated that raising a Danish Yorkshire from breeding to disposition costs an average of €3 per kg.The ratio of pig parts to products is relatively inflexible;as yet,bio-engineering has failed to produce pigs with other than four legs.Of the statements below,which is true of the allocation of the joint costs?

A) By weight,Porktry is allocated €81.41
B) By relative sales value,Porkatoo is allocated €80.05
C) Since Porktry is the least profitable product,it should be discontinued and resources devoted to Porfekt
D) By relative net realizable values,Porfekt is allocated €135.09
E) None of the choices are correct

Question

The Parvis Paramount Pigsty (PPP) raises pigs,from which a variety of pork products are processed.The herd features the Danish Yorkshire,which typically reaches 105 kgs at maturity.The following table summarizes the production process of producing Porktry,Porfekt,and Porkatoo from one pig

€13.50€50.40€14.00\begin{array}{lrrr} & \text { Porktry } & \text { Porfekt } & \text { Porkatoo } \\\text { Weight, in kgs } & 45 & 20 & 35 \\\text { Sales price, kg } & € 22.50 & € 84.00 & € 28.00 \\\text { Processing costs per kg } & € 13.50 & € 50.40 & € 14.00\end{array}

Previous research has indicated that raising a Danish Yorkshire from breeding to disposition costs an average of €3 per kg.The ratio of pig parts to products is relatively inflexible;as yet,bio-engineering has failed to produce pigs with other than four legs.Of the statements below,which is true of the allocation of the joint costs?

A) By weight,Porktry is allocated €81.41
B) By relative sales value,Porkatoo is allocated €80.05
C) Since Porktry is the least profitable product,it should be discontinued and resources devoted to Porfekt
D) By relative net realizable values,Porfekt is allocated €135.09
E) None of the choices are correct

Zanaya Pannell · Accepted Answer

Final Answer : D, Explanation :  Joint costs are allocated based on the relative net realizable values of the products. To calculate the net realizable value, the sales price is subtracted by the processing cost.Net realizable value of Porktry = €22.50 - €13.50 = €9 per kgNet realizable value of Porfekt = €84 - €50.40 = €33.60 per kgNet realizable value of Porkatoo = €28 - €14 = €14 per kgTo allocate the joint cost, we need to find the total net realizable value of the products:(45 kg x €9/kg) + (20 kg x €33.60/kg) + (35 kg x €14/kg) = €405 + €672 + €490 = €1567Now we can allocate the joint cost to each product based on its proportion of the total net realizable value:Porktry: (45 kg x €9/kg) / €1567 = €0.26 per kgPorfekt: (20 kg x €33.60/kg) / €1567 = €0.45 per kgPorkatoo: (35 kg x €14/kg) / €1567 = €0.29 per kgTherefore, based on the relative net realizable values, Porfekt is allocated the highest joint cost per kg, which is €13.50 x 0.45 = €6.08 per kg.

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