Question

Bloom Orchards produced a good crop of peaches this year. After preparing the following income statement, the company believes it should have given its No. 3 peachesto charity and saved its efforts.

BLOOM ORCHARDS
Income Statement
For Year Ended December 31, 2011
No. 1 No. 2 No. 3 Combined
Sales (by grade)
No. 1: 450,000 Ibs. @ $5.50/lb $ 2,475,000
No. 2: 400,000 Ibs. @ $4.95/lb $ 1,980,000
No. 3: 920,000 Ibs. @ $0.65/lb $ 598,000
Total sales $ 5,053,000
Costs
Tree pruning and care @ $0.60/Ib 270,000 240,000 552,000 1,062,000
Picking, sorting, and grading @ $0.70/Ib 315,000 280,000 644,000 1,239,000
Delivery costs $0.11/lb 49,500 44,000 101,200 194,700




Total costs 634,500 564,000 1,297,200 2,495,700




Net income (loss) $ 1,840,500 $ 1,416,000 $ (699,200 ) $ 2,557,300





In preparing this statement, the company allocated joint costs among the grades on a physical basis as an equal amount per pound. The company’s delivery cost recordsshow that $93,500 of the $194,700 relates to crating the No. 1 and No. 2 peaches and hauling them to the buyer. The remaining $101,200 of delivery costs is for cratingthe No. 3 peaches and hauling them to the cannery.


3.value:
20 points

Required:
1.
Prepare reports showing cost allocations on a sales value basis to the three grades of peaches. Separate the delivery costs into the amounts directly identifiable witheach grade. Then allocate any shared delivery costs on the basis of the relative sales value of each grade

Answer 1

No.1No.2 No.3
Identifiable cost--$101,200
Joint cost allocation
==============
Relative total sales proportion
2,475+1,980 = 4,455
$93,500 x 2475/4455 $51,944
$93,500 x 1980/4455$41,556
Total Delivery costs $51,944$41,556 $101,200