Answer the following question(s) using the information below:
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:
The costs of purchasing the 65,000 litres of unprocessed goat milk and processing it up to the splitoff point to yield a total of 58,500 litres 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 litres (the remainder is shrinkage) of a medicinal milk product, Xyla, for an additional processing cost of $3 per usable litre. Xyla can be sold for $18 per litre.
Skim goat milk can be processed further to yield 28,100 litres of skim goat ice cream, for an additional processing cost per usable litre of $2.50. The product can be sold for $9 per litre.
There are no beginning and ending inventory balances.
-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.
A) $47,047
B) $117,297
C) $101,650
D) $70,250
E) $171,900

Question

Answer the following question(s) using the information below:
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:
   The costs of purchasing the 65,000 litres of unprocessed goat milk and processing it up to the splitoff point to yield a total of 58,500 litres 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 litres (the remainder is shrinkage) of a medicinal milk product, Xyla, for an additional processing cost of $3 per usable litre. Xyla can be sold for $18 per litre.
Skim goat milk can be processed further to yield 28,100 litres of skim goat ice cream, for an additional processing cost per usable litre of $2.50. The product can be sold for $9 per litre.
There are no beginning and ending inventory balances.
-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.
A) $47,047 
B) $117,297 
C) $101,650 
D) $70,250 
E) $171,900

Quizplus · Accepted Answer

First, we need to allocate the joint processing costs based on the relative sales value at the splitoff point:
- Condensed goat milk: $72,240 x (45,000 litres / 58,500 litres) = $55,680
- Skim goat milk: $72,240 x (13,500 litres / 58,500 litres) = $16,560

Then, we can calculate the additional income if Morton produces and sells skim milk ice cream instead of goat skim milk:
- Skim goat milk: 28,100 litres x $9 per litre = $253,900
- Additional processing cost per litre: $2.50
- Total additional processing cost: 28,100 litres x $2.50 per litre = $70,250
- Total revenue: $253,900 - $70,250 = $183,650

Finally, we need to allocate the joint processing costs to this additional income based on the relative sales value:
- Skim goat ice cream: $16,560 x (28,100 litres / 41,600 litres) = $11,191
- Xyla: $16,560 x (13,500 litres / 41,600 litres) = $5,369
- Total additional income: $183,650 - $11,191 - $5,369 = $167,090

Therefore, the extra income that Morton would earn if it produced and sold skim milk ice cream instead of goat skim milk is $167,090.

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