Apples Galore, a local orchard, grows and sells apples and apple pies. At harvest time, apples are sorted into saleable apples and defective apples. The defective apples are considered a by-product and are sold as animal feed to local hog farmers. The saleable apples are sorted by size. The larger, visually appealing apples are sold as eating apples. The smaller apples could be sold as seconds or processed further into apple pies, which are then sold at farmers€™ markets. Apples Galore makes 4 pies from each bushel of apples. Joint costs for the apple orchard are $180,000. Additional information is as follows:

Required:

A. Determine the net income for Apples Galore if all of the apples are sold at the split-off point.

B. Allocate the joint cost using the following methods:

1. Sales value at split-off point

2. Physical output

3. Net realizable value

C. What qualitative factors must be considered when deciding whether to sell seconds or make apple pies?

D. Historical records indicate that demand for pies at the local farmers€™ markets totals 10,000 pies. Should Apples Galore sell seconds or make apple pies?

E. The local grocery stores are willing to sell Apples Galore pies for $15; however, they want a $2.50 commission per pie. Should Apples Galore sell pies through the grocery stores? What other factors must Apples Galore consider when making this decision?

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Allocation Base Bushels of Apples Animal Feed 5,000 Eating 27,000 Seconds Pies 8,000 Sales value per bushel at harvest $ 2 $8 $5 $10/pie Additional processing costs Net Realizable Value $2 per bushel $8 per bushel $5 per bushel $15 per pie