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Balley, Inc. produces three milk products (all are main products) from a joint process costing $200,000....

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                  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 Lucerne produces and sells the best mix, what is the total gross margin?

A. $195,000

B. $210,000

C. $180,000

D. $164,000

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Expert Solution

Solution

Determination of the gross margin –

Gross margin at best mix is as follows,

Computations:

Regular –

Sale value at split-off = 5,000 units x $5 = $25,000

Total revenue after further processing = $40,000

Less: separable costs = $10,000

Net revenue after further processing = $30,000

The highest among sales value at split-off and net revenue after further processing is $30,000 the net revenue after further processing.

Fat-Free –

Sale value at split-off = 15,000 units x $7 = $105,000

Total revenue after further processing = $120,000

Less: separable costs = $16,000

Net revenue after further processing = $100,000

The highest among sales value at split-off and net revenue after further processing is $105,000 the sales value at split-off.

2% -

Sale value at split-off = 30,000 units x $8 = $240,000

Total revenue after further processing = $250,000

Less: separable costs = $5,000

Net revenue after further processing = $245,000

The highest among sales value at split-off and net revenue after further processing is $245,000 the net revenue after further processing.

ekkarill92 answered 1 year ago
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