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c) Firm XYZ purchases raw milk from individual farms and processes it up to the split-off point, where two products (cream and liquid skim) are
c) Firm XYZ purchases raw milk from individual farms and processes it up to the split-off point, where two products (cream and liquid skim) are obtained. These two products are sold to an independent company, which markets and distributes them to supermarkets and other retail outlets. Raw milk processed: 1.100 litres (1.100 litres of raw milk yield 900 litres of good product with a 200- litre shrinkage): Production Sales Cream 200 litres 180 litres at 3 per litre Liquid skim 700 litres 650 litres at 2 per litre Opening stock Closing stock Raw milk O litre O litre Cream O litre 20 litres Liquid skim O litre 50 litres Joint Costs: 850 >> Use one decimal point for your calculations i) Calculate the allocation of joint costs and the joint production costs per litre using the Sales Value At Split-Off Method? [10 marks] Page 3 of 5 ii) Assume the same situation as before except that both cream and liquid skim can be processed further (Cream and Liquid Skim are no longer produced): Cream Butter cream: The initial 200 litres of cream are further processed to yield 170 litres of butter cream at additional processing (separable) costs of 400. Butter cream is sold for 10.00 per litre. Liquid skim Condensed milk: 700 litres of liquid skim are further processed to yield 550 litres of condensed milk at additional processing costs of 800. Condensed milk is sold for 9.00 per litre. Calculate the allocation of joint costs and the production cost per litre using the Estimated Net Realisable Value (NRV) method. [20 marks]
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