Farmer’ dairy purchases raw milk from individual farms and process it until the split-off point, when two products –cream and liquid skim – emerge. These two products are sold to an independent company, which markets and distributes them to supermarket and other retail outlets. Summary data for May 2004 are Raw milk processed, 110,000 gallons; 10,000 gallons are lost in the production process due to evaporation, spoilage, and the like, yielding 25,000 gallons of cream and 75,000 gallons of liquid skim. Production Sales Cream 25,000 gallons 20,000 gallons at $8 per gallon Liquid skim 75,000 gallons 30,000 gallons at $4 per gallon Begin. Inventory End. Inventory Raw milk 0 gallons 0 gallons Cream 0 gallons 5,000 gallons Liquid skim 0 gallons 45,000 gallons Cost of purchasing 110,000 gallons of raw milk and processing it until the split –off point to yield cream and liquid skim, $400,000. Required: How much of the $400,000 joint costs should be allocated to the cost of goods sold and ending inventory of each product?
Farmer’ dairy purchases raw milk from individual farms and process it until the split-off point, when two products –cream and liquid skim – emerge. These two products are sold to an independent company, which markets and distributes them to supermarket and other retail outlets.
Summary data for May 2004 are
- Raw milk processed, 110,000 gallons; 10,000 gallons are lost in the production process due to evaporation, spoilage, and the like, yielding 25,000 gallons of cream and 75,000 gallons of liquid skim.
Production Sales
Cream 25,000 gallons 20,000 gallons at $8 per gallon
Liquid skim 75,000 gallons 30,000 gallons at $4 per gallon
Begin. Inventory End. Inventory
Raw milk 0 gallons 0 gallons
Cream 0 gallons 5,000 gallons
Liquid skim 0 gallons 45,000 gallons
Cost of purchasing 110,000 gallons of raw milk and processing it until the split –off point to yield cream and liquid skim, $400,000.
- Required: How much of the $400,000 joint costs should be allocated to the cost of goods sold and ending inventory of each product?
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