Question

Sunny Lane, Inc., purchases peaches from local orchards and sorts them into four categories. How should the joint cost be allocated to the four grades of peaches using the sales-value-at-split-off method?

Answer 1

When using the sales-value-at-split-off method, joint costs are allocated based on the relative sales values of the products. Sunny Lane, Inc. should allocate the joint cost to the four grades of peaches based on their selling prices after sorting.

Step-by-step explanation:

When using the sales-value-at-split-off method to allocate joint costs, the costs are allocated based on the relative sales values of the different products. In the case of Sunny Lane, Inc., the joint cost should be allocated to the four grades of peaches based on the prices at which they can be sold after sorting. Essentially, the higher the price at which a grade of peaches can be sold, the larger portion of the joint cost it should bear.