Flowering Friends is a small nursery. The company grows rhododendrons and azaleas. The plants are dug up and potted after three years of growth. Some of them are considered premium because they are taller and have more bloom buds than the rest. They are placed in a greenhouse for several months, fertilized heavily, and then sold when they are in bloom. The others are sold at the time they are dug. Joint costs for raising the plants are $15,000. Following is information about potential allocation bases for the joint costs of growing the plants.

REQUIRED

A. Allocate the joint cost using the following methods:

1. Sales value at split-off point

2. Physical output

3. Net realizable value

B. If the premium plants are repotted in ceramic pots just before Mother’s Day, they can be sold for $35. Labor (plus fringe benefits) for repotting costs $20 per hour and 4 plants can be repotted by an employee each hour. The ceramic pots cost $3 each. Calculate the gain or loss from processing the product further.

Transcribed Image Text:

Premium Regular Allocation Base Number of pots Sales value per pot at the time they are dug Net realizable value (NRV) per pot 2,000 pots $5 $25 8,000 pots $3 $10