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?