Question
18) ABC Corporation processes raw milk up to the split-off point where two products, cream and liquid skim, are produced and sold. There was no
18) ABC Corporation processes raw milk up to the split-off point where two products, cream and liquid skim, are produced and sold. There was no beginning inventory. The following material was collected for the month of February:
Direct materials processed: 800,000 gallons (778,500 gallons of good product)
Production: Cream 443,500 gallons
Liquid skim 335,000 gallons
Sales: Cream 424,500 at $130 per gallon
Liquid skim 324,000 at $120 per gallon
The cost of purchasing 800,000 gallons of direct materials and processing it up to the split-off point to yield a total of 778,500 gallons of good product was $2,350,000. Which of the following statements about ABC's joint production costs is true?
A) The gross-margin percentage per gallon of Cream and Liquid skim are equal because joint costs are allocated based on the number of gallons.
B) The gross-margin percentage per gallon of Cream is higher than gross margin percentage per gallon of Liquid skim because of Cream's higher production volume.
C) The joint production cost per gallon of Cream and Liquid skim are equal because joint costs are allocated based on the number of gallons.
D) The joint production cost per gallon of Cream is higher than joint production cost per gallon of Liquid skim because of Cream's higher production volume.
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