Question

Chapter 24 Problem

Jack and Susan Roberts own a farm that produces potatoes. Based on a review of the income statement shown below, Jack remarked that they should have fed the No. 3 potatoes to the pigs; then they would have avoided the loss from the sale of those potatoes.

JACK AND SUSAN ROBERTS

Income from the Production and Sale of Potatoes

For Year Ended December 31, 20xx

	Results by Grade
	No. 1	No. 2	No. 3	Combined
Sales by grades:
No. 1, 300,000 lbs. $0.045 per lb.	$13,500
No. 2, 500,000 lbs. $0.04 per lb.		$20,000
No. 3, 200,000 lbs. $0.03 per lb.			$6,000
Combined				$39,500
Costs:
Land preparation, seed, planting,
cultivating @ $0.01422 per lb.	4,266	7,110	2,844	14,220
Harvesting, sorting, grading
@ $0.01185 per lb.	3,555	5,925	2,370	11,850
Marketing @ $0.00415 per lb.	1,245	2,075	830	4,150
Total costs	9,066	15,110	6,044	30,220
Net income (or loss)	$4,434	$4,890	($44)	$9,280

Jack and Susan divided their costs among the grades on a per pound basis, because their records do not show cost per grade. However, their records did show that $4,020 of the $4,150 of marketing costs represented the cost of placing the No. 1 and No. 2 potatoes in bags and hauling them to the warehouse of the produce buyer. Bagging and hauling costs were the same for both grades. The remaining $130 represented the cost of loading the No. 3 potatoes into the trucks of the potato starch factory that bought these potatoes in bulk and picked them up at the farm.

Required:

Prepare an income statement that will better show the results of producing and marketing the each of the grades of potatoes.

Answer 1