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 30,000 pounds of apples is as follows:

Grades	Pounds
Grade A	2,400
Grade B	6,000
Slices	12,000
Applesauce	9,600
Total	30,000

  Total joint cost is $25,500.

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 3,000 pounds of Grade A apples and 5,400 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	$

Answer 1

Required: 1. Allocate the joint cost to the four grade of apples using the physical units method.
Grades	Physical unit allocation	Joint cost allocated
Grade A	25500 * 2400 / 30000	2040
Grade B	25500 * 6000 / 30000	5100
Slices	25500* 12000 / 30000	10200
Apple sauce	25500* 9600 / 30000	8160
Total		25500

2. Allocate the joint cost to the four grades of apples by finding the average joint cost per pound

Average joint cost per pound = 25500/ 30000 = $ 0.85 per pound
Grades	Average cost allocation	Joint cost allocated
Grade A	2400 * 0.85	2040
Grade B	6000 * 0.85	5100
Slices	12000 * 0.85	10200
Apple Sauces	9600 * 0.85	8160
Total		25500

3. What if there were 3000 pounds of Grade A apples and 5400 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?
Grades	Average cost allocation	Joint cost allocated
Grade A	3000 * 0.85	2550
Grade B	5400 * 0.85	4590
Slices	12000 * 0.85	10200
Apple Sauces	9600 * 0.85	8160
Total		25500