Georgia Orchards produced a good crop of peaches this year. After preparing the

Question

Georgia 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 poaches to charity and saved us efforts. 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 records show that $30,000 of the $67,500 relates to crating the No. 1 and No. 2 peaches and hauling them to the buyer. The remaining $37,500 of delivery costs is for crating the No. 3 peaches and hauling them to the cannery. Required 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 with each grade. Then allocate any shared deliver) costs on the basis of the relative sales value of each grade. Using your answers to part 1, prepare an income statement using the joint costs allocated on a sales value basis. Analysis Component Do you think delivery costs fit the definition of a joint cost? Explain.

Explanation / Answer

Delivery Costs are not joint cost but in some businesses if the delivery is done for all the department in one delivery vehicle then it can be treated as joint cost

Georgia Orchards Schedule of Cost Allocations For the Year ended December 31, 2015 No.1 No.2 No.3 Combined Tree Pruning and Care $194,400 $129,600 $81,000 $405,000 Picking Sorting and Grading $97,200 $64,800 $40,500 $202,500 Delivery Costs $18,000 $12,000 $37,500 $67,500 Total Costs $309,600 $206,400 $159,000 $675,000 Explanation: Cost is allocated Between No.1 No.2 and No.3 on Sales Value Basis in the ratio of 450:300:187.50 Delivery Cost of $30000 is allcoated in the sales ration of 3:2 between No.1 and No.2 whree as $37500 allocated to No.3 Georgia Orchards Income Statement For the Year ended December 31, 2015 No.1 No.2 No.3 Sales(By Grade) No.1: 3,00,000 lbs @1.50/lb $450,000 No.2: 3,00,000 lbs@1.00/lb $300,000 No.3: 7,50,000 lbs@0.25/lb $187,500 Total Sales $937,500 Costs: Tree Pruning and Care $194,400 $129,600 $81,000 $405,000 Picking Sorting and Grading $97,200 $64,800 $40,500 $202,500 Delivery Costs $18,000 $12,000 $37,500 $67,500 Total Costs $309,600 $206,400 $159,000 $675,000 Net Income (Loss) $140,400 $93,600 $28,500 $262,500

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