QUESTION 4 - Joint product costing

The Apple Barn Inc. processes raw apples into two products; applesauce and apple juice. Sales value, production and sales information for September were as follows:

Sales value LitresLitres sold

Productat Splitoff (per litre) producedin September

Applesauce$2.50144,000139,500 litres

Apple juice$4.0060,00054,200 litres

During September the joint costs of processing were $366,000. There were no beginning inventories for the month.

The Apple Barn has the option to process the apple juice further into apple vinegar at a cost of $48,000. The litres produced would be the same.

Required

(a)Prepare a partial income statement for September showing gross margin for both products separately. Assume that both products are sold at the splitoff point and joint costs are allocated using the sales value at splitoff method. (5 marks)

(b)The Apple Barn's owner is deciding whether to continue selling the apple juice at the splitoff point or to process it further into apple vinegar.

At what selling price per litre of apple vinegar will the Apple Barn be indifferent[1] between selling the apple juice at the splitoff point and processing it further into apple vinegar? (5 marks)

[1] Indifference in this situation is where profits will be the same under either option.