The Morton Company processes unprocessed goat milk up to the splitoff point where two products, condensed goat milk and skim goat milk result. The following information was collected for the month of October:
Direct Materials processed: 65,000 gallons (shrinkage was 10%)
Production: condensed goat milk 26,100 gallons
skim goat milk 32,400 gallons
Sales: condensed goat milk $3.50 per gallon
skim goat milk $2.50 per gallon
The costs of purchasing the 65,000 gallons of unprocessed goat milk and processing it up to the split off point to yield a total of 58,500 gallons of salable product was $72,240. There were no inventory balances of either product.
Condensed goat milk may be processed further to yield 19,500 gallons (the remainder is shrinkage) of a medicinal milk product, Xyla, for an additional processing cost of $3 per usable gallon. Xyla can be sold for $18 per gallon.
Skim goat milk can be processed further to yield 28,100 gallons of skim goat ice cream, for an additional processing cost per usable gallon of $2.50. The product can be sold for $9 per gallon.
There are no beginning and ending inventory balances.
1
What is the estimated net realizable value of Xyla at the splitoff point?
- $182,650
- $252,900
- $292,500
- $351,000
2.
What is the estimated net realizable value of the skim goat ice cream at the splitoff point.
- $182,650
- $252,900
- $110,200
- $85,450
3
Using estimated net realizable value, what amount of the $72,240 of joint costs would be allocated Xyla and the skim goat ice cream?
- $41,971 and $30,269
- $44,471 and $27,769
- $32,796 and $39,444
- $36,120 and $36,120
4
Using the sales value at splitoff method, what is the gross-margin percentage for condensed goat milk at the splitoff point?
- 21.1%
- 55.1%
- 58.1%
- 38.2%
5
using the sales value at splitoff method, what is the gross-margin percentage for skim goat milk at the splitoff point?
- 21.1%
- 55.1%
- 58.1%
- 38.2%
- How much (if any) extra income would Morton earn if it produced and sold all of the Xyla from the condensed goat milk? Allocate joint processing costs based upon relative sales value on the splitoff. (Extra income means income in excess of what Morton would have earned from selling condensed goat milk.)
- $53,063
- $254,213
- $201,150
- $96,787
Answer: c Difficulty: 3 Objective: 4
See computations at #57.
- How much (if any) extra income would Morton earn if it produced and sold skim milk ice cream from goats rather than goat skim milk? Allocate joint processing costs based upon the relative sales value at the splitoff point.
- $47,047
- $117,297
- $101,650
- $70,250
1
What is the estimated net realizable value of Xyla at the splitoff point?
Answer: c
See computations at #3.
2
What is the estimated net realizable value of the skim goat ice cream at the splitoff point
Answer: a
See computations at #3.
3
Using estimated net realizable value, what amount of the $72,240 of joint costs would be allocated Xyla and the skim goat ice cream
Answer: b
4
Using the sales value at splitoff method, what is the gross-margin percentage for condensed goat milk at the splitoff point?
- 21.1%
- 55.1%
- 58.1%
- 38.2%
Answer: c
See computations at #5.
5
Using the sales value at splitoff method, what is the gross-margin percentage for skim goat milk at the splitoff point?
Answer: c
| Condensed Goat Milk | Skim Goat Milk | Total | |
| Revenues | 26,100 x $3.50 = $91,350 | 32,400 x $2.50 = $81,000 | $172,350 |
| Percentage | $91,350/$172,350 = 0.53 | $81,000/$172,350 = 0.47 | |
| Separable costs | $72,240 x .53 = $38,287 | $72,240 x .47 = $33,953 | |
| Gross margin | $53,063 | $47,047 | |
| GM percentage | $53,063/$91,350 = 0.581 | $47,047/$81,000 = 0.581 |
6
How much (if any) extra income would Morton earn if it produced and sold all of the Xyla from the condensed goat milk? Allocate joint processing costs based upon relative sales value on the splitoff. (Extra income means income in excess of what Morton would have earned from selling condensed goat milk.)
Answer: c
See computations at #7.
7
How much (if any) extra income would Morton earn if it produced and sold skim milk ice cream from goats rather than goat skim milk? Allocate joint processing costs based upon the relative sales value at the splitoff point.
Answer: c
| Condensed Goat Milk | Skim Goat Milk | |
| Revenue | $351,000 | $252,900 |
| Joint costs (see #55) | (38,287) | (33,953) |
| Process costs | ($3 x 19,500) = (58,500) | ($2.50 x 28,100) = (70,250) |
| Revenue (net) | 254,213 | 148,697 |
| Gross margin (see #55) | (53,063) | (47,047) |
| Difference | $201,150 | $101,650 |
