Vicki Thalberg owns the Sunny Trails Nursery. While the nursery sells a wide variety of flowers, houseplants, trees, and shrubs, Vicki has a special interest in Chinese pistache trees.

The Chinese pistache is a medium-sized ornamental tree which can have brilliant red fall foliage. Unfortunately, it can also have drab yellow-brown fall foliage, and it is impossible to predict which seedlings will produce the highly prized red foliage. In addition, once the seedling is one year old, its branches cannot be successfully grafted onto other rootstock. (A method which would allow the production of many trees from one identified excellent pro¬

ducer.) As a result, nurseries typically grow many seedlings and just wait until the first au¬

tumn to see what color the leaves turn. Trees with red foliage are sold for $25 and trees with yellow-brown foliage sell for $10.

In a typical year, Vicki grows 500 Chinese pistache seedlings with total joint cost (labor, fertilizer, pots, burlap, and twine) of $5,000. Based on past history, she expects roughly 30%

of the seedlings to develop red fall foliage.

Required:

1. Allocate the joint cost to the red trees and the drab trees using the physical units method.

2. Allocate the joint cost to the red trees and the drab trees using the market value method.

3. A former classmate of Vicki's has just developed a method of determining which seedlings will yield the red foliage by scraping a few cells from the bark and compar¬

ing their genetic structure with that of known red foliage producers. The classmate is willing to check Vicki's seedlings for $5 e^ach.

Once the seedlings were checked, Vicki could graft twigs from the identified red seedlings onto the drab seedling rootstock. This would result in the destruction of all red seedlings and the conversion of all drab seedlings into red foliage producing trees.

Because the genetic test results would not be known until all seedlings had been pot¬

ted, fertilized, etc., all the $5,000 cost would remain. The additional grafting labor would cost about $275. Should Vicki have the seedlings checked?