Question

Allocating Joint Costs Using the Sales-Value-at-Split-Off 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 20,000 pounds of apples is as follows: Assume that Orchard Fresh, Inc., uses the sales-value-at-split-off method of joint cost allocation and has provided the following information about the four grades of apples:

Grades	Pounds	Price at Split-Off (per lb.)
Grade A	1,500	$4.00
Grade B	4,000	1.00
Slices	9,000	0.50
Applesauce	5,500	0.10
Total	20,000

Total joint cost is $21,000.

Required:

1. Allocate the joint cost to the four grades of apples using the sales-value-at-split-off method. Round your allocation percentages to four decimal places and round the allocated costs to the nearest dollar.

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

2. What if the price at split-off of Grade B apples increased to $1.20 per pound? How would that affect the allocation of cost to Grade B apples? 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
Grade A	$
Grade B
Slices
Applesauce
Total	$

Answer 1

Part 1
	Allocation of Joint Cost on the basis of sales value at Split-off point:
	Grades	Pounds	Price at Split-off point	Sales value at Split-off point	% of Allocation
	Grade A	1500	$4.00	$6,000.00	39.8671%
	Grade B	4000	$1.00	$4,000.00	26.5781%
	Slices	9000	$0.50	$4,500.00	29.9003%
	Applesauce	5500	$0.10	$550.00	3.6545%
	Total			$15,050.00
	Allocation of Joint Costs
	Grades	% of Allocation	Allocation($21,000*% of allocation)
	Grade A	39.8671%	$8,372
	Grade B	26.5781%	$5,581
	Slices	29.9003%	$6,279
	Applesauce	3.6545%	$767
	Total		$21,000
Part 2
	Allocation of Joint Cost on the basis of sales value at Split-off point:
	Grades	Pounds	Price at Split-off point	Sales value at Split-off point	% of Allocation
	Grade A	1500	$4.00	$6,000.00	37.8549%
	Grade B	4000	$1.20	$4,800.00	30.2839%
	Slices	9000	$0.50	$4,500.00	28.3912%
	Applesauce	5500	$0.10	$550.00	3.4700%
	Total			$15,850.00
	Allocation of Joint Costs
	Grades	% of Allocation	Allocation($21,000*% of allocation)
	Grade A	37.8549%	$7,950
	Grade B	30.2839%	$6,360
	Slices	28.3912%	$5,962
	Applesauce	3.4700%	$729
	Total		$21,000