Princess Corporation Grows, Processes, Packages, and Sells Three Apple Products

question 66

Essay

Princess Corporation grows, processes, packages, and sells three apple products: slices that are used in frozen pies, applesauce, and apple juice. The outside skin of the apple, which is removed in the cutting department and processed as animal feed, is treated as a by-product. Princess uses the net realizable value method to assign costs of the joint process to its main products. The apple skin by-product net realizable value is used to reduce the joint production costs prior to allocation to the main products. Details of Princess' production process follow:
• The cutting department washes the apples and removes the outside skin. The department then cores and trims the apples for slicing. At this point, each of the three main products and the by-product are recognizable. Each product is then transferred to the next department for final processing.
• The slicing department receives the trimmed apples and slices and freezes them. Any juice generated during the slicing operation is frozen with the slices.
• The crushing department trims pieces of apple and processes them into applesauce. The juice generated during this operation is used in the applesauce.
• The juicing department pulverizes the core and any surplus apple from the cutting department into a liquid. This department experiences a loss equal to 8 percent of the weight of the good output produced.
• The feed department chops the outside skin into animal food and packages it. A total of 270,000 pounds of apples entered the cutting department during November. The following information shows the costs incurred in each department, the proportion by weight (based on pounds) transferred to the four final processing departments, and the selling price of each end product. Assume no beginning or ending inventory of apple slices, applesauce, or juice.
Required:
1. Princess Corporation uses the net realizable value method to determine inventory values for its main products and by-products. For the month of November, calculate each of the following:
a. Output in pounds for apple slices, applesauce, apple juice, and animal feed.
b. Net realizable value at the split-off point for each of the three main products.
c. Cutting department cost assigned to each of the three main products and to the by-product in accordance with corporate policy.
d. Gross margin in dollars for each of the three main products.
2. Comment on the significance to management of the gross margin dollar information by main product for planning and control purposes as opposed to inventory valuation.
3. List the important issues that Princess faces as a global company. What are its critical success factors? Which key issues arise because Princess operates in several countries? Should any of these issues affect the way Princess allocates costs, as determined in requirement 1?

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