Question

11) The Great Foods Company processes milk into skim milk and butter. This year 70,000 litres of milk will be processed, costing $40,000. If processed to the split-off point, this will yield 40,000 litres of skim milk and 10,000 kilograms of butter. Skim milk is sold to distributors for $1 per litre and butter is sold for $0.75 per kilogram. Great Foods has the option of processing the two products further. Skim milk can be processed into canned, sweetened and cor milk and sold for $0.80 per can. One litre of skim milk makes 2 cans of condensed milk. To process 40,000 litres of skim milk it will cost $18,000. Butter can be processed into cake frosting and sold in containers for $2 each. One kilogram of butter goes into each container of frosting. The cost of processing 10,000 kilograms of butter into frosting costs $15,000. What is the per-unit joint cost allocated to skim milk and butter if the sales value at split-off method is used? *a) $0.8421 per litre and $0.6316 per kilogram b) $1 per litre and $0.75 per kilogram c) $0.381 per litre and $0.9524 per kilogram d) $0.7619 per litre and $0.9524 per kilogram

Answer 1

Answer

a) $ 0.8421 per lire and $ 0.6316 per kilogram

Calculation:

Sales Value of Skim milk = 40,000 * $ 1 = $ 40,000

Sales value of Butter = 10,000 * 0.75 = $ 7,500

Joint Cost = $ 40,000

Distributing $ 40,000 in ratio of 40,000 and 7500

Cost of Skim milk = $ 40,000 * 40,000 / 47,500 = $ 33,684.21

Cost of Skim milk per litre = $ 33,684.21 / 40,000 = $ 0.84210

Cost of Butter = $ 40,000 * 7,500 / 47,500 = $ 6315.789

Cost of Butter per kg = $ 6315.789 /10,000 = 0.6316

In case of any doubt, please comment.