Fancy Foods produces two types of microwavable products: beef-flavored ramen and shrimp-flavored ramen. The two products share common inputs such as noodle and spices. The production of ramen results in a waste product referred to as stock, which Tasty dumps at negligible costs in a local drainage area.
In June 2017, the following data were reported for the production and sales of beef-flavored and shrimp-flavored ramen:

Joint Costs
Joint costs (cost of noodles, spices, and
otherinputs and processes to split off point) 400,000
Beef Ramen Shrimp ramen
Beginning Inventory (tons) 0 0
Production (tons) 20,000 28,000
Sales (tons) 20,000 28,000
Selling price per ton $5 $20

Due to the popularity of its microwaveable products, Fancy decides to add a new line of products thattargets dieters. These new flavors of products are produced by adding a special ingredient to dilute the original ramen and are to be sold under the names Special B and Special S. Following are the monthly data for all the products:

Joint Costs Special B Special S
Joint costs (cost of noodles, spices,-
and other inputs and processes to-
split off point) 400,000
Separable costs of processing-
20,000 tons of B. R into 25,000-
tons of Special B 100,000
Separable cost of processing-
28,000 tons of S. R into 34,000-
tons of Special S 238,000
Beef Ramen Shrimp ramen Special B Special S Beginning Inventory (tons) 0 0 0 0
Production (tons) 20,000 28,000 25,000 34,000
Transfer for further processing
(tons) 20,000 28,000
Sales (ton) 25,000 34,000
Selling price per ton $5 $20 $17 $33

Required:
1. Calculate Fancy’s gross margin percentage for Special B and Special S when joint costs are allocated.
a) Sales value at split-off method.
b) Physical measure method.
c) NRV method.

2. Recently, Fancy discovered that the stock it is dumping can be sold to cattle ranchers at $4 per ton. In a typical month with the production levels shown, 6000 tons of stock are produced and can be sold by incurring marketing costs of $12400. Sandra Dashel, a management accountant, points out that treating the stock as a joint product and using the sales value at split-off method, the stock product would lose about $2,435 each month, so it should not be sold. How did Dashel arrive at that final number, and what do you think of her analysis? Should fancy sell the stock?