Allocating Joint Costs Using the Sales-Value-at-Split-Off Method Orchard Fresh,

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:

Total joint cost is $16,000.

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.

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.

Grades Pounds Price at Split-Off (per lb.) Grade A 1,400 $4.00 Grade B 5,000 1.00    Slices 8,000 0.50 Applesauce 5,600 0.10 Total 20,000

Explanation / Answer

Solution 1:

Solution 2:

Allocation of Joint Cost - Sale Value at Split off Point Particulars Grade A Grade B Slices Applesauce Total Output at split off point 1400 5000 8000 5600 20000 Selling price at split off $4.00 $1.00 $0.50 $0.10 Sale Value at split off $5,600 $5,000 $4,000 $560 $15,160.00 Allocation % 36.9393% 32.9815% 26.3852% 3.6939% Allocation of Joint Cost $5,910 $5,277 $4,222 $591 $16,000

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