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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: Total joint cost is $18,000. Required: 1. Allocate the joint cost to the four grades of apples using the physical units method. (Carry out the percent calculations to four significant digits.) 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 all cost allocations to the nearest dollar.) 3. What if there were 2,000 pounds of Grade A apples and 4,600 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?

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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Chapter
Section
BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 7, Problem 7CE
Textbook Problem
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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:

Chapter 7, Problem 7CE, Orchard Fresh, Inc., purchases apples from local orchards and sorts them into four categories. Grade

Total joint cost is $18,000.

Required:

  1. 1. Allocate the joint cost to the four grades of apples using the physical units method. (Carry out the percent calculations to four significant digits.)
  2. 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 all cost allocations to the nearest dollar.)
  3. 3. What if there were 2,000 pounds of Grade A apples and 4,600 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?

1.

To determine

Allocate the joint costs to the four grades of apples using the physical unit’s method.

Explanation of Solution

Joint cost: The total cost incurred to produce or manufacture or process, more than two (multiple) products at the same time, is referred to as joint cost.

Allocate the joint costs:

Grades

Pounds

(a)

Percent of Units

(b)

Joint Cost Allocation

[(b)×$18,000]

Grade A 1,600(1)8.00%$1,440
Grade B 5,000(1)25%$4,500
Slices 8,000(1)40%$7,200
Applesauce 5,400(1)27%$4,860
Total20,000100

2.

To determine

Allocate the joint costs to the four grades of apples by finding the average joint cost per pound and by multiplying it by the number of pounds in the grade.

3.

To determine

Explain the manner in which 2,000 pounds of grade A apples and 4,600 pounds of grade B affect the allocation of cost of these two grades and explain the manner in which it affects the allocation of cost to the remaining common grades.

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Chapter 7 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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