Question

Merlin’s Landscapes is a small local nursery that specializes in producing cardinal and gold azaleas. The azaleas are dug up and potted after three years of growth. Some of them are considered premium because they are taller and have more blooms in bud than the rest. If sold when dug up, a premium plant is worth $5. The premium plants can be placed in a greenhouse for several months, fertilized heavily, repotted for $10 per plant, and then sold when they are in bloom for $40 per plant. The other plants are not as large or as healthy. These regular plants can be sold at the time they are dug up for $3 each, or they can be potted and watered for a week at a cost of $2 per plant. They would then sell for $9.75 per plant. Each crop has some ugly plants that could be sold as hog food for $100 total. Instead, Merlin’s Landscapes spends $875 grinding them up for mulch and sells them for $1,000 total. Joint costs for raising all the plants total $18,000. The crop will yield 2,000 premium plants and 10,000 regular plants.

a. Assume Merlin’s Landscapes accounts for the byproduct at the time of production and uses Net Realizable Value to allocate joint cost. Find the joint costs allocated to each product line and the profitability of each product line, as well as any additional profit.

b. Now assume Merlin’s Landscapes accounts for byproduct at time of sale and uses Sales Value at Split off to allocate joint costs. Find the joint costs allocated to each product line and the profitability of each product line, as well as any additional profit

(please explain in a very detailed way possible, thank you! ).

Answer 1

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