Chapter 24, Problem 5APSA

To determine

Introduction

A cost incurred in a joint process is known as joint cost.

To Determine
1. The cost allocations on a sales value basis to the three grades of peaches.
2. The Income Statement
3. Whether the delivery costs fit the definition of joint cost.

Answer to Problem 5APSA

Solution

1. The cost allocations are as follows:

Tree Pruning and Care
Grade	Sales Value	Indirect cost	Allocated cost
No.1	450000	405000	194400
No.2	300000	405000	129600
No.3	187500	405000	81000
Total	937500		405000

Picking, Sorting and Grading
Grade	Sales Value	Indirect cost	Allocated Cost
No.1	450000	405000	97200
No.2	300000	405000	64800
No.3	187500	405000	40500
Total	937500		202500

4DQ
Grade	Sales Value	Indirect cost	Allocated Cost
No.1	450000	30000	18000
No.2	300000	12000
No.3	187500	37500	37500
Total	937500	67500	67500

2. The income statement is shown in the explanation section.

3. Yes, the delivery costs fits the definition of joint cost.

Explanation of Solution

Explanation

1. The calculation of the cost allocations are as follows:

Tree Pruning and Care
Grade	Sales Value	Percentage of Allocation Base	Indirect cost	Allocated Cost
No.1	450000	$\frac{450000}{937500}*100=48\%$	405000	$405000*48\%=194400$
No.2	300000	$\frac{300000}{937500}*100=32\%$	405000	$405000*32\%=129600$
No.3	187500	$\frac{187500}{937500}*100=20\%$	405000	$405000*20\%=81000$
Total	937500			405000

Picking, Sorting and Grading
Grade	Sales Value	Percentage of Allocation Base	Indirect cost	Allocated Cost
No.1	450000	$\frac{450000}{937500}*100=48\%$	405000	$202500*48\%=97200$
No.2	300000	$\frac{300000}{937500}*100=32\%$	405000	$202500*32\%=64800$
No.3	187500	$\frac{187500}{937500}*100=20\%$	405000	$202500*20\%=40500$
Total	937500			202500

Delivery
Grade	Sales Value	Percentage of Allocation Base	Indirect cost	Allocated Cost
No.1	450000	$450000/750000=60\%$	30000	$30000*60\%=18000$
No.2	300000	$300000/750000=40\%$	30000	$30000*40\%=12000$
	750000
No.3	187500	$187500/187500=100\%$	37500	$37500*100\%=37500$
Total	937500			67500

2. The income statement is as follows:

GEORGIA ORCHIDS
INCOME STATEMENT
For the Year Ended December 31, 2015
Particulars	No.1	No.2	No.3	Combined
Sales (A)	450000	300000	187500	937500
Less Costs
Tree pruning and care	194400	129600	81000	405000
Picking, sorting and grading	97200	64800	40500	202500
Delivery costs	18000	12000	37500	67500
Total costs (B)	309600	206400	159000	675000
Net Income (A-B)	140400	93600	28500	262500

3. Yes. The delivery costs fits the definition of a joint cost as the No.1 & 2 grades of peaches are allocated delivery costs which are incurred on transporting them to the buyer as their destination is the same. No. 3 graded peaches delivery costs are directly linked with the produce going to the cannery.