Question:
(Joint products; by-product) Fredericksburg Vegetable is a fruit-packing business. The firm buys peaches by the truckload in season and separates them into three categories: premium, good, and fair. Premium peaches can be sold as is to supermarket chains and to specialty gift stores. Good peaches are sliced and canned in light syrup and sold to supermarkets. Fair peaches are considered a by-product and are sold to Altas Company, which processes the peaches into jelly.
Fredericksburg Vegetable has two processing departments: (1) Cleaning and Sorting (joint cost) and (2) Cutting and Canning (separate costs). During the month, the company paid $15,000 for one truckload of fruit and $700 for labor to sort the fruit into categories. Fredericksburg Vegetable uses a predetermined overhead rate of 40 percent of direct labor cost. The following yield, costs, and final sales value resulted from the month's truckload of fruit.
|
Premium
|
Good
|
Fair
|
|
Yield in pecks
|
1,500
|
2,000
|
500
|
|
Cutting and canning costs
|
$0
|
$2,000
|
$0
|
|
Total packaging and delivery costs
|
$1,500
|
$2,200
|
$500
|
|
Total final sales value
|
$30,000
|
$15,000
|
$4,500
|
a. Determine the joint cost.
b. Diagram Fredericksburg Vegetable's process.
c. Allocate joint cost using the approximated net realizable value at split-off method, assuming that the by-product is recorded when realized and is shown as Other Income on the income statement.
d. Using the allocations from (c), prepare the necessary entries assuming that the by-product is sold for $4,500 and that all costs were as shown.
e. Allocate joint cost using the approximated net realizable value at split-off method, assuming that the by-product is recorded using the net realizable value approach and that the joint cost is reduced by the net realizable value of the by-product.
f. Using the allocations from (d), prepare the necessary entries, assuming that the estimated realizable value of the by-product is $4,000.