Gem Potato Processors – Joint Costs

Gem Potato Processors produces three products: fries, nuggets and crunchy peels. They are all made from a cull potatoes they purchase from sorting sheds. Follow is information about each product.

  Fries  Nuggets  Peelings

Pounds Produced  50,000  40,000  10,000

Pounds Sold at Retail Point  45,000  35,000  10,000

Sales Price at Split-off  $3.00  $2.00  $1.00

Retail Sales Price  $5.00  $4.00  $1.00

Separate Costs  $50,000  $20,000  $0

Joint Costs before Split-off Point is $200,000.

Required:

1. Allocate the joint costs using the NRV method.
2. Allocate the joint costs using the physical units method.
3. What is the other acceptable method used to allocate joint costs?
4. Which is the best method and why?

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