Fraser Valley Products (FVP) buys raw whole milk from local dairies and processes it into skim milk and heavy cream. 1,000 litres of raw milk is processed at a cost of $1,250 into two products:

750 litres of bulk skim milk which can be sold for $1.20 per litre

250 litres of bulk heavy cream which can be sold for $2.40 per litre

Details about further processing are as follows:

The 750 litres of bulk skim milk can be processed into 750 one litre cartons of skim milk at an additional cost of $150. Each one litre carton of skim milk can be sold for $1.30.

The 250 litres of bulk heavy cream can be processed into 1,000 cartons of whipping cream at an additional cost of $500. The whipping cream sells for $1.50/carton.

a) Allocate the joint costs to the 750 one litre cartons of skim milk and 1,000 cartons of whipping cream using:

1. Sales value at split off method

2. NRV method

b) Should FVP process the bulk skim milk further? Why or why not?

c) Should FVP process the bulk heavy cream further? Why or why not?

d) Does the joint cost allocation method used in part a) have an impact on the decisions made in parts b) and c) regarding processing further ? Explain.