Lynch Chicken Ranch, Inc.

Assignment 7 Gouri Sankar Sahoo M092-15 Section B Case 19.5:- Lynch’s Chicken Ranch Inc. Solution:As per the discussion among Gary Judy and Ron….the problem has come up basically due to the drought in the Midwest region because of which the chicken feed prices have gone up by 20%.According to the case details, the feed is being purchased by Egg division headed by Gary from the Feed division at current market price. The transaction at market price is quite justified one as in a joint costing process there is no point in incurring losses by Feed division. Hence it is apt on the part of Ron who heads feed division to disagree with Gary’s point of view. Furthermore the claims put forward by Ron that during the bumper crop period, when the profit taken up by Egg division was not shared with feed division justifies that the transaction should be done or carried out at Market Price only.

The losses incurred by Egg division can be shared by both egg division and fertilizer division as the profits raked up by fertilizer division is dependent on egg division’s performance also, so a certain portion of losses incurred by egg division should be shared by Fertilizer division. In addition to that, if egg division reduces or cuts own the flock, it would be a precarious condition for Fertilizer

division as well, because of which the fertilizer division won’t be able to cover up their fixed costs. In my opinion in such cases of Joint costing, it would be better for the Lynch company to bring Egg division and fertilizer division under a single division as the products i.e. egg and fertilizer are dependent in nature, so that this loss won’t be incurred only by egg division rather it would result in better profitability of the entire organisation in toto .Furthermore the fixed costs borne by fertilizer department would also be significantly reduced which is much better way of complementing with each other resulting in better profitability of both the subdivisions.