Farmers Dairy purchases raw milk from individual farms and processes it until the split-off point, when two productscream and liquid skimemerge. These two products are sold to an independent company, which markets and distributes them to supermarkets and other retail outlets. In May 2012, Farmers Dairy processes 110,000 gallons of raw milk. During processing, 10,000 gallons are lost due to evaporation and spillage, yielding 25,000 gallons of cream and 75,000 gallons of liquid skim. Summary data follow:

Joint Costs Joint costs (costs of 110,000 gallons raw milk and processing to split-off point) $400,000

Cream Liquid Skim

Beginning inventory (gallons) 0 0

Production (gallons) 25000 75000

Sales (gallons) 20000 30000

Ending inventory (gallons) 5000 45000

Selling price per gallon ($) 8 4

How much of the $400,000 joint costs should be allocated to the cost of goods sold of 20,000 gallons of cream and 30,000 gallons of liquid skim, and how much should be allocated to the ending inventory of 5,000 gallons of cream and 45,000 gallons of liquid skim using the following methods of joint cost apportionment?

1) Sales value at Split-off point 5 marks

2) Physical method 5 marks

Total 10 marks