LYNCHS CHICKEN RANCH

There are two things in this case;

1. Joint product costing

2. Transfer pricinG

Discussion started by the increase of the feed by 20% becuse of the drouht.This decrease has caused
the Egg Division to become unprofitable. Gary Dawson, the Egg Division manager realizes that , Ron
Johnson’s Feed division was not affected by the drought .
To absorb the losses to create gains the sale of fertilizer stemming from reprocessing of chicken
droppings was created and the egg division employees collect the waste and deliver it to the Fertilizer
Division, which uses automated “digesters” to convert the waste into a marketable product. 40% of the
nutrients the chickens eat is excreted in the waste. So,he wants the Fertilizer Division to pay for 40%
of the cost of feeding the chickens. Judy replies that Gary is already getting a large benefit from her
converting the waste to fertilizer. He formerly had to pay $200,000-250,000 to have the droppings
removed. In this example, the chicken droppings can be seen as a by-product (joint product costing) of
producing the eggs, or eggs and fertilizer can be seen as joint products.