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Alternate Demo Problem Chapter Twenty-Four
Jack and Susan Roberts own a farm that produces potatoes. Based on a
review of the income statement shown below, Jack remarked that they
should have fed the No. 3 potatoes to the pigs; then they would have
avoided the loss from the sale of the those potatoes.
JACK AND SUSAN ROBERTS
Income from the Production and Sale of Potatoes
For Year Ended December 31, 20xx
Results by Grade
No. 1 No. 2 No. 3 Combined
Sales by grades:
No. 1, 300,000 lbs. $0.045 per lb. $13,500
No. 2, 500,000 lbs. $0.04 per lb. $20,000
No. 3, 200,000 lbs. $0.03 per lb. $6,000
Combined $39,500
Costs:
Land preparation, seed,
Jack and Susan divided their costs among the grades on a per pound
basis, because their records do not show cost per grade. However, their
records did show that $4,020 of the $4,150 of marketing costs represented
the cost of placing the No. 1 and No. 2 potatoes in bags and hauling them
to the warehouse of the produce buyer. Bagging and hauling costs were
the same for both grades. The remaining $130 represented the cost of
loading the No. 3 potatoes into the trucks of the potato starch factory that
bought these potatoes in bulk and picked them up at the farm.
Required:
Prepare an income statement that will better show the results of producing
and marketing the each of the grades of potatoes.
JACK AND SUSAN ROBERTS
Income from the Production and Sale of Potatoes
For Year Ended December 31, 20xx
Results by Grade
No. 1 No. 2 No. 3 Combined
Revenue from sales: $13,500 $20,000 $6,000 $39,500
Costs:
Land preparation, seed,
COST ALLOCATIONS
Land preparation, seed, planting, and
cultivating:
No. 1: $13,500 / $39,500 x $14,220 =
No. 2: $20,000 / $39,500 x $14,220 =
$ 4,860
7,200
No. 3: Loading costs 130
$4,150
