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: Assume that Orchard Fresh, Inc., uses the sales-value-at-split-off method of joint cost allocation and has provided the following information about the four grades of apples: Grades Pounds Price at Split-Off(per Ib.)
Grade A $1,600 $4.00
Grade B $5,000 1.00
Splices $8,000 0.50
Applesauce $5,400 0.10
Total $20,000
Total joint cost is $18,000.
Required:
1. Allocate the joint cost to the four grades of apples using the sales-value-at-split-off method.
2. What if the price at split-off of Grade B apples increased to $1.20 per pound? How would that affect the allocation of cost to Grade B apples? How would it affect the allocation of cost to the remaining grades?

Orchard Fresh, Inc.

1. Allocation of the joint cost to the four grades of apples using the sales-value-at-split-off method:

Total joint cost allocation rate is $18,000/$20,000 = $0.90

Grade A             $1,600 * $0.90 =  $1,440

Grade B            $5,000 * $0.90 = $4,500

Splices              $8,000 * $0.90 = $7,200

Applesauce     $5,400 * $0.90 =  $4,860

Total allocated costs                   $18,000

2. When Grades B apples price increased to $1.20 per pound:

Total joint cost allocation rate is $18,000/$21,000 = $0.857

Grade A             $1,600 * $0.857 =   $1,371

Grade B            $6,000 * $0.857 =  $5,142

Splices              $8,000 * $0.857 = $6,856

Applesauce     $5,400 * $0.857 =  $4,628

Total allocated costs                      $17,997

Explanation:

a) Data and Calculations:

Grades    Pounds    Total costs  Price at Split-  

                                                    Off(per Ib.)    

Grade A             400        $1,600        $4.00

Grade B          5,000       $5,000           1.00

Splices          16,000       $8,000          0.50

Applesauce 54,000       $5,400          0.10

Total                             $20,000

Joint cost = $18,000

Allocation of joint costs:

Total joint cost is $18,000/$20,000 = $0.90

Grade A             $1,600 * $0.90 =  $1,440

Grade B            $5,000 * $0.90 = $4,500

Splices              $8,000 * $0.90 = $7,200

Applesauce     $5,400 * $0.90 =  $4,860

Total allocated costs                   $18,000

Total joint cost is $18,000/$21,000 = $0.857

Grade A             $1,600 * $0.857 =   $1,371

Grade B            $6,000 * $0.857 =  $5,142

Splices              $8,000 * $0.857 = $6,856

Applesauce     $5,400 * $0.857 =  $4,628

Total allocated costs                      $17,997

a corporation is legally separate from its owner, and it pays its own taxes.

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