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Chapter 7 BEX BEX.07.08

Allocating Joint Costs using the weighted Average 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 8 peaches are smaler 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 then peaches for slices, yet still food grade for canning, Information on a recent purchase of 20,000 pounds of peaches is as follows: Assume that Sunny Lane, Inc., uses the weighted average method of joint cust allocation and has assigned the following weights to the four gredes of peaches: Grades Pounds Weight Factor Grade A 1,500 3.0 Gradea Saco 2.0 Slices 8,000 0.5 Pureed 5,500 1.0 Total 20,000 Total Joint costs $18,000 Required: 1. Allocate the joint cast to the four grades of peaches using the weighted average method. Round your allocation percentages to four decimal places and round the allocated costs to the nearest dollar. Joint Cost Grades Allocation $ 3,375 Grade A Grade 7,500 Slices Pureed 3,000 X 4,125 x $ 18,000 Total (Note: The Joint cost allocation does not equal $18,000 due to rounding. 2. What if the factory found that Grade A peaches were being valued less by customers and decided to decrease the weight factor for Grade A peaches to 2.0? How would that affect the allocation of cost to Grade A peaches? How would it affect the allocation of cost to the remaining grades? Round your allocation percentages to four decimal places and round the allocated costs to the nearest dollar. Joint Cost Grades Allocation 2,400 X Grade A Grade 8,000 X Slices 3,200 Pureed 4,400 Total $ 18,000 (Note: The joint cost allocation does not equal $18,000 cue to rounding