Question:
Farms Dairy began operations at the start of May 2010. Powisett Farms operates a fleet of trucks to gather whole milk from local farmers. The whole milk is then separated into two joint products: skim milk and cream. Both products are sold at the split-off point to dairy wholesalers. For May, the firm incurred the following joint costs:
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Whole milk purchase cost
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$400,000
|
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Direct labor costs
|
180,000
|
|
Overhead costs
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292,000
|
|
Total product cost
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$872,000
|
During May, the firm processed 2,000,000 gallons of whole milk, producing 1,555,500 gallons of skim milk and 274,500 gallons of cream. The remaining gallons of the whole milk were lost during processing. There was no Raw Material or Work in Process Inventory at the end of May.
After the joint process, the skim milk and cream were separately processed at costs, respectively, of $67,660 and $83,310. Of the products produced, Powisett Farms Dairy sold 1,550,000 gallons of skim milk for $1,472,500 and 274,000 gallons of cream for $282,220 to wholesalers.
a. Calculate the sales price per gallon for skim milk and cream.
b. Using relative sales value, allocate the joint cost to the joint production.
c. Calculate ending Finished Goods Inventory cost, Cost of Goods Sold, and the gross margin for the month.