Physical measure joint cost allocation) Lakeside Dairy began operations at the start of May. The company was founded by local dairy farmers to en¬ hance competition in the market for milk products produced by the farmers. 35. (Journal entries) Desirable Inc. uses a joint process to make two main prod¬ ucts: Forever perfume and Fantasy lotion. Production is organized in two se¬ quential departments: Combining and Heating. The products do not become separate until they have been through the heating process. After heating, the perfume is removed from the vats and bottled without further processing. The residue remaining in the vats is then blended with aloe and lanolin to become the lotion.

The following costs were incurred in the Combining Department during October 2006: direct material, $28,000; direct labor, $7,560; and applied manufacturing overhead, $4,250. Prior to separation of the joint products, costs in the Heating Department for the month were direct material, $6,100; direct labor, $2,150; and applied manufacturing overhead, $3,240. After split- off, the Heating Department incurred separate costs for each product line as follows: bottle for Forever perfume, $2,120; and direct material, direct labor, and applied manufacturing overhead of $1,960, $3,120, and $4,130, respec¬ tively, for Fantasy lotion.

Neither department had beginning Work in Process Inventory balances, and all work that started in October was completed in that month. Joint costs are allocated to perfume and lotion using approximated net realizable values at split-off. For October, the approximated net realizable values at split-off were $158,910 for perfume and $52,970 for lotion.

a. Prepare journal entries for the Combining and Heating Departments for October 2006.

b. Determine the joint cost allocated to and the total cost of Forever per¬ fume and Fantasy lotion.

c. Diagram the flow of costs for these two company products.

36. hysical measure joint cost allocation) Lakeside Dairy began operations at the start of May. The company was founded by local dairy farmers to en¬ hance competition in the market for milk products produced by the farmers.

The firm processed 1,000,000 pounds of whole milk and produced 80,000 pounds of cream and 840,000 pounds of skim milk during May. The balance of the whole milk purchased was lost during processing. There were no raw material or work in process inventories at the end of May. Of the products produced, 60,000 pounds of cream were sold for $54,000 and 625,000 pounds of milk were sold for $181,000.

a. Lakeside uses a physical measure (pounds) to allocate joint costs. Allo¬ cate the joint cost to production.

b. Calculate the cost of goods sold, cost of ending finished goods inven¬ tory, and the gross margin for the month.
C. One farmer who serves on the board of directors at Lakeside noted that the milk fat content of whole milk can vary greatly from farmer to farmer. Because milk fat content determines the relative yields of skim milk and cream from whole milk, the ratio of joint products can be partly determined based on the milk fat content of purchased whole milk. How could Lakeside Dairy exploit information about milk fat con¬ tent in the whole milk it purchases to optimize the profit realized on its joint products? LO1.

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Whole milk purchase cost Direct labor costs Overhead costs Total product cost $200,000 40,000 80,000 $320,000