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Refer to Cornerstone Exercise 7.7. 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 $18,000. Required: 1. Allocate the joint cost to the four grades of apples using the sales-value-at-split-off method. (Carry out the percent calculations to four significant digits. Round all cost allocations 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?
Cornerstones of Cost Management (C...
Solutions
Cornerstones of Cost Management (C...
Refer to Cornerstone Exercise 7.7. 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 $18,000.
Required:
- 1. Allocate the joint cost to the four grades of apples using the sales-value-at-split-off method. (Carry out the percent calculations to four significant digits. Round all cost allocations 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?
1.
Allocate joint costs to the four grades of apples using the sales-value-at-split-off method.
Explanation of Solution
Joint cost: The total cost incurred to produce or manufacture or process, more than two products at the same time, is referred to as joint cost.
Allocate joint costs:
| Grades |
Pounds produced (a) |
Price at Split-Off (per pound) (b) |
Total Market Value at Split-Off |
Percent of Total Market Value (d) |
Allocated Joint Cost |
| Grade A | 1,600 | $4.00 | $6,400 | (1)0.4015 | $7,227 |
| Grade B | 5,000 | $1 | $5,000 | (1)0.3137 | $5,647 |
| Slices | 8,000 | $0 |
2.
State the impact of the price at split-off of grade B apple increases to $1.20 per pound, explain the manner in which it affects the allocation of cost to grade B apples and explain the manner in which it affects the allocation of cost to the remaining grades.
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