Question: Rita and Rick Redding own and operate
Rita and Rick Redding own and operate a tomato grove. After preparing the following income statement, Rita believes they should have offered the No. 3 tomatoes to the public for free and saved themselves time and money.
In preparing this statement, Rita and Rick allocated joint costs among the grades on a physical basis as an equal amount per pound. Also, their delivery cost records show that $17,000 of the $20,000 relates to crating the No. 1 and No. 2 tomatoes and hauling them to the buyer. The remaining $3,000 of delivery costs is for crating the No. 3 tomatoes and hauling them to the cannery.
Required1. Prepare reports showing cost allocations on a sales value basis to the three grades of tomatoes. Separate the delivery costs into the amounts directly identifiable with each grade. Then allocate any shareddelivery costs on the basis of the relative sales value of each grade. (Round percents to the nearest onetenth and dollar amounts to the nearest whole dollar.)
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.
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RITA AND RICK REDDING Income Statement For Year Ended December 31, 2013 No. I No. 2 No. 3 Combined Sales (by grade) No. I:500,000 Ibs. @ $1.80/b $900,000 No. 2: 400,000 Ibs. @ $1.25/b $0,00 No. 3: 100,000 lbs. @ $0.40/b $ 40,000 Total sales. $1.440,000 Costs Land preparation, seeding, and cultivating @ s0.70/b 350,000 280,000 70,000 700,000 Harvesting, sorting, and grading @ $0.04/lb. 20,000 16,000 4,000 40,000 Delivery costs 10,000 7,000 3,000 20,000 760,000 $ 680,000 Total costs 380,000 303,000 77,000 Net income (loss) $520,000 $197,000 $(37,000)
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