Major Foods, Inc. produces a cereal from oat grain. The company buys unprocessed oats for $400 per ton. It costs $60 per ton to send the oats through a processor, which produces 1,900 kilograms of pure oats and 100 kilograms of oat shells. The oat shells are ground and packaged at a cost of $100 per hundred kilograms. They are sold to a poultry feed company for $3 per kilogram. The pure oats are cooked and packaged into 4-kilogram containers at a cost of $350. The packaged oats are sold for $2 per 4-kilogram container.
If Major uses the net realizable value method, the gross profit from the oat shells is:

Question

Quizplus · Accepted Answer

To calculate the gross profit from the oat shells, we first need to calculate the net realizable value (NRV) which is the estimated selling price (3 dollars per kilogram) minus the cost of completion (100 dollars for every 100 kilograms):
NRV = (3 dollars per kg - 1 dollar per kg) x 1000 kg = 2000 dollars
Gross profit = NRV - cost of completion = 2000 dollars - 1910 dollars = 90 dollars
However, we need to remember that the gross profit is calculated using the NRV of the final product (oat shells), not the total cost of producing the oat shells. Therefore, we just need to subtract the cost of completing the oat shells from the NRV to get the gross profit. So the correct answer is C) $85.