Anatase Agriculture Company (AAC) manufactures wildly popular dairy products in Ontario. It produces a variety of dairy items from the same basic product milk. At split-off, AAC can sell pure milk or it can further process it to produce two other products. Anatase Chocolate a chocolate drink or Anatase Chill a high end decadent ice cream.

Following are sales and selling prices from this year:

Product Price per Ton Tons Sold

Milk 2,000 200

Chocolate Drink 3,000 105

Ice Cream 5,500 85

Joint manufacturing costs incurred were $500,000. A further processing cost of the Chocolate Drink was $150,000 and for the Ice Cream it was $250,000

There were no beginning inventories but ending inventories were:

Product Tons

Milk 55

Chocolate Drink 35

Ice Cream 26

REQUIRED:

1) Calculate the value of ending inventory and cost of goods sold for each product using the Net Realizable Value Method (Sales Value). (11 marks)

2) If we could produce only the Ice Cream, we could make 250 tons at a further processing cost of $350,000. Would this be more profitable than our current product mix by how much?

(3 marks)

Show calculations to support your decision