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The Morton Company processes unprocessed goat milk up to the splitoff point where two products, condensed...

The Morton 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:	65,000 gallons
Production:	condensed goat milk	26,100 gallons
	skim goat milk	32,400 gallons
Sales:	condensed goat milk	$3.50 per gallon
	skim goat milk	$2.50 per gallon

The costs of purchasing the 65,000 gallons of unprocessed goat milk and processing it up to the splitoff point to yield a total of 58,500 gallons of salable product was $72,240.

Condensed goat milk may be processed further to yield 18400 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 29700 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.

How much joint cost is given to condensed goats milk using constant gross margin method?

Expert Solution

Constant Gross Margin Percentage Method allocates joint costs in such a way that the gross margin % is the same for each product. It is based on the assumption that the further processing yields identical profit % across all products.The joint cost allocation steps include the following calculations:

1st calculate Grand gross margin percentage :

Then, Joint product gross margin:

>>Market price × Grand gross margin

Finally,Joint cost allocated to product :

>>Market value -Gross margin- Separable costs

Total revenue =(18400*18)+(29700*9)=598,500

Total cost =$72,240+(18400 *3)+(29700*2.5)=201,690

Grand gross margin %=(598500-201690)/598500=66.3%

Total revenue from Xyla(18400*18)	331,200
Less. Gross margin (331200*66.3%)	(219,586)
Total cost	111,614
Separable cost (18400*3)	(55,200)
Joint cost allocated to condensed goats milk	56,414

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ekkarill92 answered 1 year ago

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