Connect 2-Semester Access Card for Fundamental Accounting Principles
Connect 2-Semester Access Card for Fundamental Accounting Principles
22nd Edition
ISBN: 9780077632755
Author: John Wild
Publisher: McGraw-Hill Education
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Chapter 24, Problem 5APSA
To determine

Introduction

A cost incurred in a joint process is known as joint cost.

To Determine
1. The cost allocations on a sales value basis to the three grades of peaches.
2. The Income Statement
3. Whether the delivery costs fit the definition of joint cost.

Expert Solution & Answer
Check Mark

Answer to Problem 5APSA

Solution

1. The cost allocations are as follows:

    Tree Pruning and Care
    GradeSales ValueIndirect costAllocated cost
    No.1
    450000
    405000
    194400
    No.2
    300000
    405000
    129600
    No.3
    187500
    405000
    81000
    Total
    937500
     
    405000




    Picking, Sorting and Grading
    GradeSales ValueIndirect costAllocated Cost
    No.1
    450000
    405000
    97200
    No.2
    300000
    405000
    64800
    No.3
    187500
    405000
    40500
    Total
    937500
     
    202500




    4DQ
    GradeSales ValueIndirect costAllocated Cost
    No.1
    450000
    30000
    18000
    No.2
    300000
    12000
    No.3
    187500
    37500
    37500
    Total
    937500
    67500
    67500



2. The income statement is shown in the explanation section.

3. Yes, the delivery costs fits the definition of joint cost.

Explanation of Solution

Explanation

1. The calculation of the cost allocations are as follows:

    Tree Pruning and Care
    GradeSales ValuePercentage of Allocation BaseIndirect costAllocated Cost
    No.1
    450000

      450000937500*100=48%
    405000

      405000*48%=194400
    No.2
    300000

      300000937500*100=32%
    405000

      405000*32%=129600
    No.3
    187500

      187500937500*100=20%
    405000

      405000*20%=81000
    Total
    937500
     
     
    405000

    Picking, Sorting and Grading
    GradeSales ValuePercentage of Allocation BaseIndirect costAllocated Cost
    No.1
    450000

      450000937500*100=48%
    405000

      202500*48%=97200
    No.2
    300000

      300000937500*100=32%
    405000

      202500*32%=64800
    No.3
    187500

      187500937500*100=20%
    405000

      202500*20%=40500
    Total
    937500
     
     
    202500

    Delivery
    GradeSales ValuePercentage of Allocation BaseIndirect costAllocated Cost
    No.1
    450000

      450000/750000=60%
    30000

      30000*60%=18000
    No.2
    300000

      300000/750000=40%
    30000

      30000*40%=12000
     
    750000
     
     
     
    No.3
    187500

      187500/187500=100%
    37500

      37500*100%=37500
    Total
    937500
     
     
    67500

2. The income statement is as follows:

    GEORGIA ORCHIDS
    INCOME STATEMENT
    For the Year Ended December 31, 2015
    ParticularsNo.1No.2No.3Combined
    Sales (A)
    450000
    300000
    187500
    937500
     
    Less Costs
     
     
     
     
    Tree pruning and care
    194400
    129600
    81000
    405000
    Picking, sorting and grading
    97200
    64800
    40500
    202500
    Delivery costs
    18000
    12000
    37500
    67500
    Total costs (B)
    309600
    206400
    159000
    675000
    Net Income (A-B)1404009360028500262500

3. Yes. The delivery costs fits the definition of a joint cost as the No.1 & 2 grades of peaches are allocated delivery costs which are incurred on transporting them to the buyer as their destination is the same. No. 3 graded peaches delivery costs are directly linked with the produce going to the cannery.

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Chapter 24 Solutions

Connect 2-Semester Access Card for Fundamental Accounting Principles

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