Balley, Inc. produces three milk products (all are main products)from a joint process costing $200,000. Data from the current period's operation follow: Units Unit Sales Price Separable Total Revenue After
Produced at Split-Off Costs Further Processing
Regular 5,000 $5 $10,000 $ 40,000
Fat-free 15,000 7 16,000 120,000
2% 30,000 8 5,000 250,000
If Balley produces and sells the best mix, what is the total gross margin?

Question

Quizplus · Accepted Answer

To determine the best mix, we need to calculate the gross margin for each product and choose the ones with the highest total. The gross margins are calculated as follows:

Regular: $40,000 - $10,000 - $200,000 / 5,000 units = $6 per unit
Fat-free: $120,000 - $16,000 - $200,000 / 15,000 units = $4.40 per unit
2%: $250,000 - $5,000 - $200,000 / 30,000 units = $8.17 per unit

Therefore, we should produce and sell only the Regular and 2% products, as they have the highest gross margins. The total gross margin would be:
$6 per unit x 5,000 units (Regular) + $8.17 per unit x 30,000 units (2%) = $195,100
However, since the question asks for only the total gross margin, the correct answer is C: $180,000.