The Alfarm Corporation processes raw milk up to the split-off point where two products, cream and liquid skim, are produced and sold. There was no beginning inventory. The following material was collected for the month of February:

The cost of purchasing 760,000 gallons of direct materials and processing it up to the split-off point to yield a total of 738,000 gallons of good product was $2,350,000. When using the physical-volume method, what is Cream's approximate production cost per gallon? (Round intermediary percentages to the nearest hundredth.)
A) $2.64
B) $3.09
C) $3.18
D) $3.33

Question

The Alfarm Corporation processes raw milk up to the split-off point where two products, cream and liquid skim, are produced and sold. There was no beginning inventory. The following material was collected for the month of February:

The cost of purchasing 760,000 gallons of direct materials and processing it up to the split-off point to yield a total of 738,000 gallons of good product was $2,350,000. When using the physical-volume method, what is Cream's approximate production cost per gallon? (Round intermediary percentages to the nearest hundredth.)
A) $2.64 
B) $3.09 
C) $3.18 
D) $3.33

Quizplus · Accepted Answer

Cream: 445,000 / 738,000 = 60.3%
Joint costs allocated to Cream = $2,350,000 × 60.3% = $1,417,050
Production cost per gallon for Cream = $1,417,050 / 445,000 = $3.18

The Alfarm Corporation Processes Raw Milk Up to the Split-Off