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 20,000 pounds of apples is as follows:

Grades	Pounds
Grade A	1,600
Grade B	5,000
Slices	8,000
Applesauce	5,400
Total	20,000

  Total joint cost is $18,000.

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 2,000 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?

	Joint Cost
Grades	Allocation
Grade A	$
Grade B	$
Slices	$
Applesauce	$

Answer 1

Answer to Question

	Orchard Fresh, Inc.
1	allocation of joint cost to the four grades of apples using the physical units method.
			in $
	Grades	Pounds	Joint Cost Allocation
	Grade A	1,600	1440
	Grade B	5,000	4500
	Slices	8,000	7200
	Applesauce	5,400	4860
	Total	20,000	18000
	Note
	Joint cost	(Pounds *joint cost)/Total pounds
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.
				in $
	Grades	Pounds	Average cost	Joint Cost Allocation
	Grade A	1,600	0.9	1440
	Grade B	5,000	0.9	4500
	Slices	8,000	0.9	7200
	Applesauce	5,400	0.9	4860
	Total	20,000		18000
		Note
		Average cost	Toatl Joint Cost / Total Pounds
			0.9
		Joint Cost Allocation	Pounds * Average cost
3	if there were 2,000 pounds of Grade A apples and 4,600 pounds of Grade B and following way would that affect the allocation of cost to these two grades also it affect the allocation of cost to the remaining common gradesa are as follow
	using physical units method.
	Grades	Pounds	Joint Cost Allocation
	Grade A	2,000	1800
	Grade B	4,600	4140
	Slices	8,000	7200
	Applesauce	5,400	4860
	Total	20,000	18000
	Using Average cost method
				in $
	Grades	Pounds	Average cost	Joint Cost Allocation
	Grade A	2,000	0.9	1800
	Grade B	4,600	0.9	4140
	Slices	8,000	0.9	7200
	Applesauce	5,400	0.9	4860
	Total	20,000		18000