A company produces (i) skim milk and (ii) cream from whole milk in batches for sales. During a month of production with no beginning inventories, the company processed 820,000 gallons of direct materials (797,500 gallons of good products). The cost of purchasing the direct materials was Dh2,350,000. The good products were obtained from 354,500 gallons of skim milk and 443,000 gallons of cream. The company sold 344,500 gallons of skim milk at Dh115 per gallon, and 424,000 gallons of cream at Dh130 per gallon. Their respective separable processing costs are Dh50 per gallon for skim milk and Dh65 per gallon for cream.
Required:1. Calculate the respective joint costs per batch of skim milk and to cream based on the number of gallons at splitoff point.
2. Calculate the respective joint costs per batch of skim milk and to cream based on net realizable value at splitoff point.
3. "Managers must decide whether a product should be sold at splitoff or processed further. The sales value at splitoff method of joint-cost allocation is the best method for generating the information managers need for this decision." Do you agree? Assume you are a management accountant, explain.