Allocating Joint Costs and Product Profitability (Appendix). Fresh Catch, Inc., has a fleet of fishing boats. The most recent outing cost $90,000 and yielded 24,000 pounds of salmon and 8,000 pounds of halibut. Fresh Catch can sell salmon for $3 per pound and halibut for $6 per pound. Required:
a. Allocate joint costs to each product using the physical quantities method, and calculate the profit or loss for each product.
b. Allocate joint costs to each product using the relative sales value method, and calculate the profit or loss for each product.
c. Explain what happened to the profitability of each product as the allocation method was changed from requirement a to requirement b. Why might management make bad decisions using the information from requirement a?
d. Assume salmon can be processed further into smoked salmon for an additional $2.50 per pound. Customers are willing to pay $7 per pound for smoked salmon. Should Fresh Catch process the salmon further? Explain.