Allocating Joint Costs Using the Physical Units Method Orchard Fresh, Inc., purc
ID: 2342510 • Letter: A
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 30,000 pounds of apples is as follows:
Total joint cost is $25,500.
Required:
1. Allocate the joint cost to the four grades of apples using the physical units method.
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.
3. What if there were 3,000 pounds of Grade A apples and 5,400 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?
Grades Pounds Grade A 2,400 Grade B 6,000 Slices 12,000 Applesauce 9,600 Total 30,000Explanation / Answer
Required: 1. Allocate the joint cost to the four grade of apples using the physical units method.
Grades
Physical unit allocation
Joint cost allocated
Grade A
25500 * 2400 / 30000
2040
Grade B
25500 * 6000 / 30000
5100
Slices
25500* 12000 / 30000
10200
Apple sauce
25500* 9600 / 30000
8160
Total
25500
2. Allocate the joint cost to the four grades of apples by finding the average joint cost per pound
Average joint cost per pound = 25500/ 30000 = $ 0.85 per pound
Grades
Average cost allocation
Joint cost allocated
Grade A
2400 * 0.85
2040
Grade B
6000 * 0.85
5100
Slices
12000 * 0.85
10200
Apple Sauces
9600 * 0.85
8160
Total
25500
3. What if there were 3000 pounds of Grade A apples and 5400 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?
Grades
Average cost allocation
Joint cost allocated
Grade A
3000 * 0.85
2550
Grade B
5400 * 0.85
4590
Slices
12000 * 0.85
10200
Apple Sauces
9600 * 0.85
8160
Total
25500
Required: 1. Allocate the joint cost to the four grade of apples using the physical units method.
Grades
Physical unit allocation
Joint cost allocated
Grade A
25500 * 2400 / 30000
2040
Grade B
25500 * 6000 / 30000
5100
Slices
25500* 12000 / 30000
10200
Apple sauce
25500* 9600 / 30000
8160
Total
25500
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