Question
Tom recently opened a farm in which she grows tea trees for tea leaves. Tom produces two grades of tea: A grade, B grade and
Tom recently opened a farm in which she grows tea trees for tea leaves. Tom produces two grades of tea: A grade, B grade and C grade, which she sells without any additional processing to other companies that dry and mix the leaves into blends for sale. The tea leaves are harvested once a year, and in 2020 the harvesting costs were $400,000. The 2020 harvest yielded 14,500 bushels of A grade leaves, 15,500 bushels of B grade leaves and 18,000 bushels of C grade leaves. Tom sold 12,000 bushels of A grade leaves, 10,000 bushels of B grade leaves, and 16,000 bushels of C grade leaves. The A grade leaves were sold for $14 per bushel, the B grade leaves were sold for $18 per bushel and the C grade leaves were sold for $20 per bushel.
Assume that Tom allocates joint costs using the sales value at the split-off point method.
(a) How much of the joint cost will be allocated to:
A grade leaves?
B grade leaves?
C grade leaves?
What is the gross profit percentage per bushel?
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