Use the following information for the next 5 questions.
The Great Foods Company processes milk into skim milk and butter. This year 70,000 gallons of will be processed, costing $40,000. If processed to the split-off point, this will yield 40,000 gallons of skim milk and 10,000 pounds of butter. Skim milk is sold to distributors for $1 per gallon and butter is sold for $0.75 per pound. Great Foods has the option of processing the two products further. Skim milk can be processed into canned, sweetened, condensed skim milk and sold for $0.80 per can. One gallon of skim milk makes 2 cans of condensed milk. To process 40,000 gallons of skim milk will cost $18,000. Butter can be processed into cake frosting, sold in containers for $2 each. One pound of butter goes into each container of frosting. The cost of processing 10,000 pounds of butter into frosting costs $15,000.
-What is the per-unit joint cost allocated to condensed milk and frosting if the sales value at split-off method is used?
A) $0.8421 per can and $0.6316 per container
B) $0.42105 per can and $0.6316 per container
C) $0.381 per can and $0.9524 per container
D) $0.7619 per can and $0.9524 per container

Question

Quizplus · Accepted Answer

The sales value at split-off for skim milk is $40,000 (40,000 gallons x $1) and for butter is $7,500 (10,000 pounds x $0.75). The total sales value at split-off is $47,500. The joint cost of $40,000 is allocated based on these proportions. For skim milk: ($40,000 / $47,500) x $40,000 = $33,684.21. For butter: ($7,500 / $47,500) x $40,000 = $6,315.79. The per-unit joint cost for condensed milk is $33,684.21 / 80,000 cans = $0.42105 per can. The per-unit joint cost for frosting is $6,315.79 / 10,000 containers = $0.6316 per container.

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