Fundamental Accounting Principles -Hardcover
Fundamental Accounting Principles -Hardcover
22nd Edition
ISBN: 9780077862275
Author: John J Wild, Ken Shaw Accounting Professor, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
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Chapter 24, Problem 5BPSB
To determine

Introduction When a cost in incurred in a joint process, it is termed as joint cost. Normally, there are some products used in joint process which require single input and in return produce multiple outputs. These products can be termed as joint products.

  • Cost allocations on a sales value basis to the three grades of tomatoes.
  • Income statement using joint costs allocated on a sales value basis
  • To analyze whether delivery costs fit the definition of a joint cost.

Expert Solution & Answer
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Answer to Problem 5BPSB

Solution

1.

    Allocation of Costs
    ParticularsNo.1No.2No.3Combined Note
     
     
     
     
     
     
    Sales
    900000
    500000
    40000
    1440000
     
    Sales in percentage
    62%
    35%
    3%
    100%
    (a)
     




     
    Costs: 
     
     
     
     
    Land preparation, seeding & cultivation
    434000
    245000
    21000
    700000
    (b)
    Harvesting, sorting and grading
    24800
    14000
    1200
    40000
    ©
    Delivery costs
    10866
    6134
    3000
    20000
    (d)

2. The income statement is as follows:

    ParticularsAllocation of Costs
    No.1No.2No.3Combined
     
     
     
     
     
    Sales(A)
    900000
    500000
    40000
    1440000
    Sales in percentage
    62%
    35%
    3%
    100%
     
     
     
     
     
    Less Costs:
     
     
     
     
    Land preparation, seeding & cultivation
    434000
    245000
    21000
    700000
    Harvesting, sorting and grading
    24800
    14000
    1200
    40000
    Delivery costs
    10866
    6134
    3000
    20000
    Total costs (B)
    469666
    265134
    25200
    760000
     
     
     
     
     
    Net Income (A-B)43033423486614800680000

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

Explanation of Solution

1. A cost object can be referred to any item or any activity. The process of assigning costs to cost objects is known as cost allocation.
Therefore, allocation of cost on departmental sales can be computed on the percentage of contribution of each department to the total revenue earned by Sales.

Calculation of cost allocated based on sales
Note
Particulars
Formula
Allocation of Costs

No.1
No.2
No.3
(a)

  Divisonal SalesTotal Sales
Sales in percentage

   900000 1440000 =62%

   500000 1440000 =35%

   40000 1440000 =3%
(b)

  Total Land preparation,seeding& cultivation*Salesin percentage
Land preparation, seeding & cultivation

  700000*62100 =434000

  700000*35100 =245000

  700000*3100 =21000
©

  Total Harvesting,sorting and grading*Sales in percentage
Harvesting, sorting and grading

  40000*62100 =24800

  40000*35100 =14000

  40000*3100 =1200
(d)

  Total Delivery costs*Sales in percentage
Delivery costs

  17000*6297 =10866

  17000*3597 =6134
3000

Note:

i) The total of sales percentage taken is 97% instead of 100% as for No.3 the delivery cost has already been allocated.
ii) It has been given that the delivery cost to be directly allocated to No.3 is 3000$. So, the balance of $17000 ($20000-$3000) has to be allocated to No. 1 & No. 2 tomatoes based on their sales percentages.

2. Income statement shows the financial position of a business firm in a given period. Being one of the final accounts statements, it represents the revenue earned and expenses incurred for a given period. The excess of revenue over expenses is the net income and on the other hand the shortage of revenue when compared to expenses incurred is termed as net loss. The business may incur profit or loss at some point or the other.

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

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Fundamental Accounting Principles -Hardcover

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