Super Apple Inc. harvests apples, and then makes apple sauce and apple cider. Th

Question

Super Apple Inc. harvests apples, and then makes apple sauce and apple cider. The joint cost of harvesting apples is $20,000. Once the apples are cleaned, they can made into apple sauce and apple cider. From the harvest, 14,000 gallons of apple sauce and 16,000 gallons of apple cider can be produced. The apple sauce can be sold as-is for $4 per gallon or processed further for an additional $2 per gallon and sold as premium apple sauce for $7 per gallon. The apple cider can be sold as-is for $3 per gallon or processed further for an additional $1 per gallon and sold as premium apple cider for $6 per gallon.

a. How much joint costs will be assigned to each product (apple sauce and apple cider), if joint costs are allocated on the basis of gallons produced?

b. How much joint costs will be assigned to each product (apple sauce and apple cider), if joint costs are allocated on the basis of relative sales?

Explanation / Answer

Answer:- a)-Joint costs are allocated on the basis of gallons produced:-

Total gallons produced:-14000+16000 = 30000 gallons

Total joint cost =$20000

Joint cost allocated to Apple sauce =($20000*14000)/30000 = $9333

Joint cost allocated to Apple cider =($20000*16000)/30000 = $10667

b)-Joint costs are allocated on the basis of relative sales:-

Total relative sales=(14000 gallons*$4 per gallon)+ (16000 gallons*$3 per gallon)

=$56000+$48000 = $104000

Joint cost allocated to Apple sauce =($20000*56000)/104000 = $10769

Joint cost allocated to Apple cider =($20000*48000)/104000 = $9231

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