The Gows Company processes unprocessed goat milk up to the splitoff point where two products, condensed goat milk and skim goat milk result. The following information was collected for the month of October:
Direct Materials processed: Production:
Sales:
130,000 gallons (shrinkage was 10%)
condensed goat milk skim goat milk
condensed goat milk skim goat milk
52,200 gallons 64,800 gallons
$3.50 per gallon $2.50 per gallon
The costs of purchasing the 130,000 gallons of unprocessed goat milk and processing it up to the splitoff point to yield a total of 117,000 gallons of salable product was $144,480. There were no inventory balances of either product.
Condensed goat milk may be processed further to yield 39,000 gallons (the remainder is shrinkage) of a medicinal milk product, Xyla, for an additional processing cost of $3 per usable gallon. Xyla can be sold for $18 per gallon.
Skim goat milk can be processed further to yield 56,200 gallons of skim goat ice cream, for an additional processing cost per usable gallon of $2.50. The product can be sold for $9 per gallon.
There are no beginning and ending inventory balances.
Assume Sales value at splitoff method is used for allocating joint cost, calculate the gross margin of Xyla and skim goat ice cream respectively.
Assume NRV method is used for allocating joint cost, calculate the gross margin of Xyla and skim goat ice cream respectively
The Gows Company processes unprocessed goat milk up to the splitoff point where two products, condensed goat milk and skim goat milk result. The following information was collected for the month of October:
Direct Materials processed: Production:
Sales:
130,000 gallons (shrinkage was 10%)
condensed goat milk skim goat milk
condensed goat milk skim goat milk
52,200 gallons 64,800 gallons
$3.50 per gallon $2.50 per gallon
The costs of purchasing the 130,000 gallons of unprocessed goat milk and processing it up to the splitoff point to yield a total of 117,000 gallons of salable product was $144,480. There were no inventory balances of either product.
Condensed goat milk may be processed further to yield 39,000 gallons (the remainder is shrinkage) of a medicinal milk product, Xyla, for an additional processing cost of $3 per usable gallon. Xyla can be sold for $18 per gallon.
Skim goat milk can be processed further to yield 56,200 gallons of skim goat ice cream, for an additional processing cost per usable gallon of $2.50. The product can be sold for $9 per gallon.
There are no beginning and ending inventory balances.
Assume Sales value at splitoff method is used for allocating joint cost, calculate the gross margin of Xyla and skim goat ice cream respectively.
Assume NRV method is used for allocating joint cost, calculate the gross margin of Xyla and skim goat ice cream respectively
Related questions
Dorsey Company manufactures three products from a common inputin a joint processing operation. Joint processing costs up to thesplit-off point total $91,000 per quarter. The company allocatesthese costs to the joint products on the basis of their relativesales value at the split-off point. Unit selling prices and totaloutput at the split-off point are as follows:
| Product | Selling Price | Quarterly Output |
| A | $3 per pound | 19,000 pounds |
| B | $4 per pound | 24,000 pounds |
| C | $11 per gallon | 6,000 gallons |
Each product can be processed further after thesplit-off point. Additional processing requires no specialfacilities. The additional processing costs (per quarter) and unitselling prices after further processing are given below:
| Product | Additional Processing Costs | Selling Price |
| A | $40,000 | $4 per pound |
| B | $38,000 | $7 per pound |
| C | $14,250 | $14 per gallon |
Required:
Compute the incremental profit (loss) for each product.
Product A | Product B | Product C | |
Selling price after further processing | |||
Selling price at the split-off point | |||
Incremental revenue per pound or gallon | |||
Total quarterly output in pounds or gallons | |||
Total incremental revenue | |||
Total incremental processing costs | |||
Total incremental profit or loss |
Which product or products should be sold at the split-offpoint?
Product A
Product B
Product C
Which product or products should be processed further? (You mayselect more than one answer.
Product A
Product B
Product C
| Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $97,000 per quarter. The company allocates these costs to the joint products on the basis of their relative sales value at the split-off point. Unit selling prices and total output at the split-off point are as follows: |
| Product | Selling Price | Quarterly Output | ||||
| A | $ | 5 | per pound | 10,000 | pounds | |
| B | $ | 6 | per pound | 15,000 | pounds | |
| C | $ | 16 | per gallon | 4,000 | gallons | |
| Each product can be processed further after the split-off point. Additional processing requires no special facilities. The additional processing costs (per quarter) and unit selling prices after further processing are given below: |
| Product | Additional Processing Costs | Selling Price | ||||||||||
| A | $ | 45,000 | $ | 8 | per pound | |||||||
| B | $ | 36,000 | $ | 11 | per pound | |||||||
| C | $ | 14,000 | $ | 20 | per gallon | |||||||
| ||||||||||||
Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $335,000 per quarter. For financial reporting purposes, the company allocates these costs to the joint products on the basis of their relative sales value at the split-off point. Unit selling prices and total output at the split-off point are as follows:
| Product | Selling Price | Quarterly Output | ||||
| A | $ | 17.00 | per pound | 12,400 | pounds | |
| B | $ | 11.00 | per pound | 19,400 | pounds | |
| C | $ | 23.00 | per gallon | 3,600 | gallons | |
Each product can be processed further after the split-off point. Additional processing requires no special facilities. The additional processing costs (per quarter) and unit selling prices after further processing are given below:
| Product | Additional Processing Costs | Selling Price | |||
| A | $ | 63,720 | $ | 21.80 | per pound |
| B | $ | 91,120 | $ | 16.80 | per pound |
| C | $ | 37,360 | $ | 30.80 | per gallon |
Required:
1. What is the financial advantage (disadvantage) of further processing each of the three products beyond the split-off point?
2. Based on your analysis in requirement 1, which product or products should be sold at the split-off point and which product or products should be processed further?
