Chapter 5, Problem 4PA

Joint cost allocation

Florissa’s Flowers jointly produces three varieties of flowers in the same garden: tulips, lilies, and daisies. The flowers are all watered via the same irrigation system and all receive the same amount of water; daisies require three times as much as lilies, and the water required for tulips is about halfway between the amounts needed for daisies and lilies. Although the lilies and tulips receive more water than they need due to the joint irrigation process, they are not hurt by the overwa-tering. The joint production cost of the three varieties of flowers is about $30 per harvest. Every harvest yields 10 tulips, 20 lilies, and 20 daisies.

Instructions

1. 1. Allocate the joint costs of production to each product using the physical units method. Which products receive the largest portion of the joint costs?
2. 2. Allocate the joint costs of production to each product using the weighted average method. Now which product receives the largest portion of the joint costs?
3. 3. Why would it be important to consider whether the amount of watering is an appropriate weight factor?