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 800,000 gallons of direct materials and processing it up to the split-off point to yield a total of 778,500 gallons of good product was $2,350,000.Which of the following statements about Alfarm's joint production costs is true?
A)The gross-margin percentage per gallon of Cream and Liquid skim are equal because joint costs are allocated based on the number of gallons.
B)The gross-margin percentage per gallon of Cream is higher than gross margin percentage per gallon of Liquid skim because of Cream's higher production volume.
C)The joint production cost per gallon of Cream and Liquid skim are equal because joint costs are allocated based on the number of gallons.
D)The joint production cost per gallon of Cream is higher than joint production cost per gallon of Liquid skim because of Cream's higher production volume.

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 800,000 gallons of direct materials and processing it up to the split-off point to yield a total of 778,500 gallons of good product was $2,350,000.Which of the following statements about Alfarm's joint production costs is true?
A)The gross-margin percentage per gallon of Cream and Liquid skim are equal because joint costs are allocated based on the number of gallons. 
B)The gross-margin percentage per gallon of Cream is higher than gross margin percentage per gallon of Liquid skim because of Cream's higher production volume. 
C)The joint production cost per gallon of Cream and Liquid skim are equal because joint costs are allocated based on the number of gallons. 
D)The joint production cost per gallon of Cream is higher than joint production cost per gallon of Liquid skim because of Cream's higher production volume.

Quizplus · Accepted Answer

According to the information given, the joint production cost (total cost up to the split-off point) of producing both Cream and Liquid skim is $2,350,000 for a total of 778,500 gallons. Therefore, the joint production cost per gallon of both products is the same, and option C is the correct choice. The other options are not supported by the information given.

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