Chapter 7 BEX

1. BEX.07.07

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. 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 1,800.00 Grade B 4,500 x Slices 7,200 Pureed 4,950