Question: Bloom 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.
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 $40,500 relates to crating the No. 1 and No. 2 peaches and hauling them to the buyer. The remaining $10,500 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 delivery 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.