Georgia Orchards produced a good crop of peaches this year. After preparing the following income statement, the company believes it should have given its No. 3 peaches to charity and saved its efforts.
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In preparing this statement, the company allocated joint costs among the grades on a physical basis as an equal amount per pound. The company's delivery cost records show that $ 30,000 of the $ 67,500 relates to crating the No. 1 and No. 2 peaches and hauling them to the buyer. The remaining $ 37,500 of delivery costs is for crating the No. 3 peaches and hauling them to the cannery.
Required:
1. Prepare reports showing cost allocations on a sales value basis to the three grades of peaches. Separate the delivery costs into the amounts directly identifiable with each grade. Then allocate any shared de-livery costs on the basis of the relative sales value of each grade.
2. Using your answers to part 1, prepare an income statement using the joint costs allocated on a sales value basis. Analysis Component:
3. Do you think delivery costs fit the definition of a joint cost?Explain.