Question

Good Earth Products produces orange juice and candied orange peels. A 1,000-pound batch of oranges, costing $510, is transformed using labor of $40 into 100 pounds of orange peels and 300 pints of juice. The company has determined that the sales value of 100 pounds of peels at the split-off point is $350, and the value of a pint of juice (not pasteurized or bottled) is $0.4. Beyond the split-off point, the cost of sugar-coating and packaging the 100 pounds of peels is $60. The cost of pasteurizing and packaging the 300 pints of juice is $250. A 100-pound box of candied peels is sold to commercial baking companies for $600. Each pint of juice is sold for $1.53.

Allocate joint costs using the relative sales values at the split-off point, and calculate the profit per 100-pound box of sugar-coated peels and the profit per pint of juice.

Answer 1

Joint costs are allocated based on the relative sales value at the split-off point, calculated for both peels and juice. The profit per 100-pound box of sugar-coated peels is $159.57, while the profit per pint of juice is $0.63 after subtracting the allocated joint costs and additional processing costs.

Step-by-step explanation:

The question asks for the allocation of joint costs to the production of orange juice and candied orange peels using the relative sales value at the split-off point, followed by calculating the profit per 100-pound box of sugar-coated peels and per pint of juice. To determine the joint cost allocation, we calculate the total sales value at the split-off point for both products: $350 for peels and $120 for juice (300 pints × $0.4). The total sales value is $470, and the joint costs are $510. The allocation for peels is ($350/$470) × $510 = $380.43 and for juice is ($120/$470) × $510 = $129.57. To find the profit, subtract the allocated joint costs and further processing costs from the sales value. For peels: $600 (sales) - $380.43 (allocated costs) - $60 (additional processing) = $159.57 profit per 100-pound box. For juice: (300 × $1.53) (sales) - $129.57 (allocated costs) - $250 (additional processing) = $189.43 profit for 300 pints, or $0.63 per pint.