Question

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 28,000 pounds of apples is as follows: Grades Pounds Grade A 1,960 Grade B 5,600 Slices 9,800 Applesauce 10,640 Total 28,000 Total joint cost is $23,800. Required: 1. Allocate the joint cost to the four grades of apples using the physical units method. Joint Cost Grades Allocation Grade A $ Grade B Slices 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 if there were 2,520 pounds of Grade A apples and 5,040 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 $

Answer 1

1.

Grades	Pounds	Percentage of total	Joint costs allocated
Grade A	1,960	7%	$1,666
Grade B	5,600	20%	$4,760
Slices	9,800	35%	$8,330
Applesauce	10,640	38%	$9,044
Total	28,000	100%	$23,800

2.

Grades	Pounds	Joint cost per pound	Joint costs allocated
Grade A	1,960	$0.85 ($23,800 / 28,000)	$1,666
Grade B	5,600	$0.85	$4,760
Slices	9,800	$0.85	$8,330
Applesauce	10,640	$0.85	$9,044
Total	28,000	$0.85	$23,800

3. The allocation will now look like this:

Grades	Pounds	Percentage of total	Joint costs allocated
Grade A	2,520	9%	$2,142
Grade B	5,040	18%	$4,284
Slices	9,800	35%	$8,330
Applesauce	10,640	38%	$9,044
Total	28,000	100%	$23,800