Joint- c o s t al l ocation, insu r an c e sett l ement.

Joint- c o s t al l ocation, insu r an c e sett l ement.

Galinha-Esquina SA grows and processes chickens. Each chicken is disassembled into five main parts. Information pertaining to production in July 2008 is as follows:

Parts	Kilograms of product	Wholesale selling price per kilogram at end of production line
Breast	100	€1.10
Wings	20	0.40
Thighs	40	0.70
Bones	80	0.20
Feathers	10	0.10

Joint costs of production in July 2008 were €100.

A special shipment of 20 kg of breasts and 10 kg of wings has been destroyed in a fire. Galinha-Esquina’s insurance policy provides for reimbursement for the cost of the items destroyed. The insurance company permits Galinha-Esquina to use a joint-cost-allocation method. The split-off point is assumed to be at the end of the production line.

Required

1 Calculate the cost of the special shipment destroyed using (a) the sales value at split-off point method, and (b) the physical measure method using kilograms of finished product.

2 Which joint-cost-allocation method would you recommend that Galinha-Esquina use?

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