Question
PT Milky processes raw goat milk to the splitoff point which produces 2 products namely Cream and Skim which can be sold directly or can
PT Milky processes raw goat milk to the splitoff point which produces 2 products namely Cream and Skim which can be sold directly or can also be further processed will produce Ponds face cream and Walls ice cream. The data for October are as follows:
Direct Materials processed: 98,000 gallons
Production: Cream 42,500 gallons Skim 55,500 gallons
Sales: Cream $ 3.50 per gallon Skim $ 2.50 per gallon
The cost of buying raw goat's milk and processing it to the splitoff point yields 42,500 gallons of Cream + 55,500 Skim is $ 184,480. Cream products can be further processed to produce Ponds face cream. 42,500 gallon Cream processed at a cost of $ 4 per gallon. After processing it produces 42,000 gallons of Ponds with selling price $ 20 per gallon (number of gallons of Ponds is reduced due to evaporation). Skim products can be further processed to produce Walls ice cream. 55,500 gallons of processed skim at a cost of $ 4 per gallon.
After processing, it produces 54,200 gallons of Walls ice cream with
selling price $ 9 per gallon (the number of gallons of Walls is reduced due to evaporation). There is no opening balance and ending balance for the inventory of the two products. Question: a. If using the percentage of Sales value at splitting, how much is the share of the join cost? $ 184,480 for Cream and Skim? b. What will the profit of Cream and Skim be? c. What is the net realizable value of Cream and Skim? Net realixable value = Sales - Cost further processing (separable cost) d. If using the percentage of Net Realizable value, what is the share of the join cost $ 184,480 for Ponds and Walls? e. If it is processed into Ponds and Walls with an additional cost, how much is the separable cost the profit each of Ponds and Walls? With the above calculations which one is better sold directly as Cream and Skim or further processed and sold as Ponds and Walls?
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