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Management Accounting


QUESTION 1 (7 MARKS) Should a company allocate its corporate costs to divisions? Discuss using real world examples to support your discussion. You must disclose the source of your information (referencing) QUESTION 2 (6 MARKS) Big Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned tomatoes. During the summer of 2013, the joint costs of processing the tomatoes were $420,000. There was no beginning or ending inventories for the summer. Production and sales value information for the summer is as follows: Product Cases Sales Value at Splitoff Point Separable Costs Selling Price Catsup 100,000 $6 per case $3.00 per case $28 per case Juice 150,000 8 per case 5.00 per case 25 per case Canned 200,000 5 per case 2.50 per case 10 per case Required: 1. Determine the amount allocated to each product if the estimated net realizable value method is used, and compute the cost per case for each product. 2. What pitfalls are there in allocating joint costs among joint products, from a decision-making point of view? 3. What guidelines can be used in determining whether a joint product should be sold at the split-off point or processed further?