Question

Allocating Joint Costs Using the Weighted Average Method 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 weighted average method of joint cost allocation and has assigned the following weights to the four grades of apples: Grades Pounds Weight Factor

Grade A 1,600 4.0

Grade B 4,000 2.0

Slices 9,000 1.0

Applesauce 5,400 0.5

Total 20,000

Total joint cost is $19,000. Required:

1. Allocate the joint cost to the four grades of apples using the weighted average method. Round your allocation percentages to four decimal places and round the allocated costs to the nearest dollar. Joint Cost Grades Allocation Grade A $ Grade B Slices Applesauce Total $ (Note: The joint cost allocation does not equal $19,000 due to rounding.)

2. What if the factory found that Grade A apples were being valued less by customers and decided to decrease the weight factor for Grade A apples to 3.0? How would that affect the allocation of cost to Grade A apples? How would it affect the allocation of cost to the remaining grades? Round your allocation percentages to four decimal places and round the allocated costs to the nearest dollar. Joint Cost Grades Allocation Grade A $ Grade B Slices Applesauce Total $ (Note: The joint cost allocation does not equal $19,000 due to rounding.)

Answer 1

1. Allocation of Joint Cost

Joint Cost =$19000

Category Weight Factor Working Joint Cost

Grade A 4 4/7.5*19000 $10133.3333   

Grade B 2 2/7.5*19000 $ 5066.6666   

Slices 1 1/7.5*19000 $2533.3333

AppleSauce 0.5 0.5/7.5*19000 $1266.6666

Total 7.5 $18999.9998

2.

Joint Cost =$19000

Category Weight Factor Working Joint Cost

Grade A 3 3/6.5*19000 $8769.2307   

Grade B 2 2/6.5*19000 $5846.1538   

Slices 1 1/6.5*19000 $2923.0769   

AppleSauce 0.5 0.5/6.5*19000 $1461.5384

Total 6.5 $18999.9998

Joint cost of Grade A Apples decreases with a decrease in weight factor and Joint cost of remaining apples increases.