Cornerstone Exercise 7.7 (Algorithmic)

Allocating Joint Costs Using the Physical Units Method

Cornerstone Exercise 7.7 (Algorithmic)

Allocating Joint Costs Using the Physical Units Method

Orchard Fresh, Inc., purchases apples from local orchards and sorts them into four categories. Grade A are large blemish-free apples that can be sold to gourmet fruit sellers. Grade B apples are smaller and may be slightly out of proportion. These are packed in boxes and sold to grocery stores. Apples for slices are even smaller than Grade B apples and have blemishes. Apples for applesauce are of lower grade than apples for slices, yet still suitable for canning. Information on a recent purchase of 26,000 pounds of apples is as follows:

GradesPoundsGrade A 2,600Grade B 6,500Slices 10,400Applesauce 6,500Total 26,000Total joint cost is $18,200.

Required:

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

Joint Cost Grades Allocation Grade A$

BSlices

Applesauce

Total$

2.Allocate the joint cost to the four grades of apples 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 = $per pound.

Joint Cost Grades Allocation Grade A$Grade B$Slices$Applesauce$

3.What ifthere were 3,120 pounds of Grade A apples and 5,980 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$

Grade B$

Slices$

Applesauce$