Question

Allocating Joint Costs Using the Physical Units 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 25,000 pounds of apples is as follows: Grades Pounds Grade A 2,250       Grade B 6,250       Slices 10,000       Applesauce 6,500       Total 25,000         Total joint cost is $18,750. Required: 1. Allocate the joint cost to the four grades of apples using the physical units method. Joint Cost Grades Allocation Grade A $ Grade B Slices Applesauce   Total $ 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 the average cost answer to the nearest cent. Average cost = $  per pound. Joint Cost Grades Allocation Grade A $ Grade B $ Slices $ Applesauce $ 3. What if there were 2,750 pounds of Grade A apples and 5,750 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? Joint Cost Grades Allocation Grade A $ Grade B $ Slices $ Applesauce $

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Answer 1

Physical unit method
Grades	Pounds	Percentage	Joint Cost	Allocation
Grade A	2,250	9.00%	18750	1,688
Grade B	6,250	25.00%	18750	4,688
Slices	10,000	40.00%	18750	7,500
Applesauce	6,500	26.00%	18750	4,875
Total	25,000
Per unit cost method
Grades	Pounds
Grade A	2,250
Grade B	6,250
Slices	10,000
Applesauce	6,500
Total	25,000
Joint cost	18750
Total	25,000
Cost per pound	=18750/25000	0.75
Cost allocation
Grades	Pounds
Grade A	2,250	1,687.50
Grade B	6,250	4,687.50
Slices	10,000	7,500.00
Applesauce	6,500	4,875.00
Total	25,000	18,750.00
As we can see that the allocation of joint cost is same in both method
If quantities are changed
Grades	Pounds	Percentage	Joint Cost	Allocation
Grade A	2,750	11.00%	18750	2,063
Grade B	5,750	23.00%	18750	4,313
Slices	10,000	40.00%	18750	7,500
Applesauce	6,500	26.00%	18750	4,875
Total	25,000