Anderson Company pays a flat fee of £500 for the right to retrieve stray golf balls from lakes and ponds at golf and country clubs. The recovered balls are then cleaned, graded as to quality (birdie, bogey, or duffer), and sold to sporting goods stores at the following prices per dozen: birdie quality, £5; bogey quality, £4; and duffer quality, £3. Last month £8,000 of cost was incurred retrieving the following quantities of golf balls: birdie quality, 1000 dozen; bogey quality, 3,000 dozen; and duffer quality, 2,000 dozen.
Required:
(Calculate relative quantity to three decimal points.)
a.
Determine the cost and gross profit per cent for each type of golf ball using the physical units method of joint cost allocation.
b.
Repeat part (a) using the sales-value-at-split-off method of joint cost allocation.
c.
The company has an opportunity to sell bogey quality balls for £4.50 per dozen to a company that operates golf driving ranges; however, the balls will have to be painted and striped. The company estimates that the cost of painting and striping will be 60 cents per dozen. Assuming the physical unit method is used to allocate joint costs, should the offer be accepted?

Question

Quizplus · Accepted Answer

The Answer of Anderson Company pays a flat fee of £500 for the right to retrieve stray golf balls from lakes and ponds at golf and country clubs. The recovered balls are then cleaned, graded as to quality (birdie, bogey, or duffer), and sold to sporting goods stores at the following prices per dozen: birdie quality, £5; bogey quality, £4; and duffer quality, £3. Last month £8,000 of cost was incurred retrieving the following quantities of golf balls: birdie quality, 1000 dozen; bogey quality, 3,000 dozen; and duffer quality, 2,000 dozen.
Required:
(Calculate relative quantity to three decimal points.)
a.
Determine the cost and gross profit per cent for each type of golf ball using the physical units method of joint cost allocation.
b.
Repeat part (a) using the sales-value-at-split-off method of joint cost allocation.
c.
The company has an opportunity to sell bogey quality balls for £4.50 per dozen to a company that operates golf driving ranges; however, the balls will have to be painted and striped. The company estimates that the cost of painting and striping will be 60 cents per dozen. Assuming the physical unit method is used to allocate joint costs, should the offer be accepted?

Anderson Company Pays a Flat Fee of £500 for the Right