Allocating Joint Costs Using the Physical Units Method

Sunny Lane, Inc., purchases peaches from local orchards and sorts them into four categories. Grade A are large blemish$-$free peaches that can be sold to gourmet fruit sellers. Grade B peaches are smaller and may be slightly out of proportion. These are packed in boxes and sold to grocery stores. Peaches to be sliced for canned peaches are even smaller than Grade B peaches and have blemishes. Peaches to be pureed for use in sauces are of lower grade than peaches for slices, yet still food grade for canning. Information on a recent purchase of $20,000$ pounds of peaches is as follows:

Grades Pounds

Grade A $1,500$

Grade B $5,000$

Slices $8,000$

Pureed $5,500$

Total $20,000$

Total joint cost is $$18,000.$

Required:

$1.$ Allocate the joint cost to the four grades of peaches using the physical units method.

Joint Cost

Grades Allocation

Grade A $fill in the blank $1$

$1,350$

Grade B fill in the blank $2$

$4,500$

Slices fill in the blank $3$

$7,200$

Pureed fill in the blank $4$

$4,950$

Total $fill in the blank $5$

$18,000$

$2.$ Allocate the joint cost to the four grades of peaches by finding the average joint cost per pound and multiplying it by the number of pounds in the grade. Round the average cost answer to the nearest cent.

Average cost $=$ $fill in the blank $6$

$0\mathrm{.}90$

per pound.

Joint Cost

Grades Allocation

Grade A $fill in the blank $7$

$1,350$

Grade B $fill in the blank $8$

$4,500$

Slices $fill in the blank $9$

$7,200$

Pureed $fill in the blank $10$

$4,950$

$3.$ What if there were $2,000$ pounds of Grade A peaches and $4,500$ pounds of Grade B$?$ How would that affect the allocation of cost to these two grades? How would it affect the allocation of cost to the remaining common grades?

Joint Cost

Grades Allocation

Grade A $fill in the blank $11$

$1,800$

Grade B $fill in the blank $12$

$4,047$

Slices $fill in the blank $13$

$7,200$

Pureed $fill in the blank $14$

$4,950$