Allocating Joint Costs Using the Weighted Average Method

Sunny Lane, Inc., purchases peaches from local orchards and sorts them into four categories:

- Grade A: Large, blemish-free peaches sold to gourmet fruit sellers.
- Grade B: Smaller, slightly out-of-proportion peaches sold to grocery stores.
- Slices: Even smaller peaches with blemishes, used for canned peaches.
- Pureed: Lower-grade peaches used for sauces.

Information on a recent purchase of 20,000 pounds of peaches is as follows:

| Grade | Pounds | Weight Factor |
|--------|--------|---------------|
| Grade A| 1,600 | 3.0 |
| Grade B| 4,000 | 2.0 |
| Slices | 9,000 | 0.5 |
| Pureed | 5,400 | 1.0 |
| Total | 20,000 | |

Total joint cost: $18,000

Required:

1. Allocate the joint cost to the four grades of peaches using the weighted average method. Round your allocation percentages to four decimal places and round the allocated costs to the nearest dollar.

| Joint Cost Grades | Allocation |
|-------------------|-----------------|
| Grade A | |
| Grade B | |
| Slices | |
| Pureed | |
| Total | $18,000 |

(Note: The joint cost allocation does not equal $18,000 due to rounding.)

2. Effect of Weight Factor Change:
- If the factory finds that Grade A peaches are being valued less by customers and decides to decrease the weight factor for Grade A peaches to 2.0, how would that affect the allocation of cost to Grade A peaches?
- How would it affect the allocation of cost to the remaining grades?

Round your allocation percentages to four decimal places and round the allocated costs to the nearest dollar.

| Joint Cost Grades | Allocation |
|-------------------|-----------------|
| Grade A | |
| Grade B | |
| Slices | |
| Pureed | |
| Total | $18,000 |

(Note: The joint cost allocation does not equal $18,000 due to rounding.)

The joint cost allocation is determined using the weighted average method. The weight factor for each grade of peaches is multiplied by the total joint cost of $18,000 to calculate the allocated cost for each grade.

For Grade A, the weight factor is 3.0, so the allocated cost is $18,000 × 3.0/12.5 = $5,400.

For Grade B, the weight factor is 2.0, so the allocated cost is $18,000 × 2.0/12.5 = $7,200.

For Slices, the weight factor is 0.5, so the allocated cost is $18,000 × 0.5/12.5 = $3,600.

For Pureed, the weight factor is 1.0, so the allocated cost is $18,000 × 1.0/12.5 = $1,800.

2. If the weight factor for Grade A peaches is decreased to 2.0, the allocation of cost to Grade A peaches would change. The new allocated cost for Grade A would be $18,000 × 2.0/9.5 = $3,789.47 (rounded to the nearest dollar).

The decrease in the weight factor for Grade A peaches would also affect the allocation of cost to the remaining grades. The allocated cost for Grade B, Slices, and Pureed would be adjusted proportionally based on their respective weight factors.

However, without the specific weight factors for the remaining grades, it is not possible to provide the exact allocation percentages and costs.

It's important to note that the total joint cost allocation may not equal $18,000 due to rounding.

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AtSingh AtSingh · Answer 2 · 2025-02-20T03:21:05-05:00

1. Allocation of joint cost using the weighted average method: - Grade A: $2,700 - Grade B: $5,400 - Slices: $6,750- Pureed: $3,150

2. If the weight factor for Grade A peaches is decreased to 2.0:- Allocation of cost to Grade A peaches: $3,600 - Allocation of cost to Grade B peaches: $5,400- Allocation of cost to Slices: $7,200- Allocation of cost to Pureed: $2,800

1. To allocate the joint cost using the weighted average method, we need to multiply the weight factor of each grade by the total joint cost of $18,000. The allocation percentages are calculated by dividing the allocated cost of each grade by the total joint cost and rounding to four decimal places. The allocated costs are rounded to the nearest dollar. Using the provided weights, the allocations are as follows:

- Grade A: Weight (3.0) * Joint Cost ($18,000) / Total Weight (6.5) = $2,700

- Grade B: Weight (2.0) * Joint Cost ($18,000) / Total Weight (6.5) = $5,400

- Slices: Weight (0.5) * Joint Cost ($18,000) / Total Weight (6.5) = $6,750

- Pureed: Weight (1.0) * Joint Cost ($18,000) / Total Weight (6.5) = $3,150

2. If the weight factor for Grade A peaches is decreased to 2.0, the allocation of cost to Grade A peaches would increase because the weight factor directly influences the allocation.

The allocation of cost to the remaining grades (Grade B, Slices, and Pureed) would remain the same because their weight factors are unchanged.

By decreasing the weight factor for Grade A peaches, the cost allocated to Grade A would increase, resulting in a higher proportion of joint cost assigned to Grade A peaches.

The allocation percentages and allocated costs for each grade can be recalculated using the adjusted weight factor for Grade A.

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