Question

The Green Company processes unprocessed goat milk up to the split-off 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: 105,000 gallons (after shrinkage)

Production: Condensed goat milk 45,500 gallons

Skim goat milk 59,500 gallons

Sales: Condensed goat milk $4.50 per gallon

Skim goat milk $4.00 per gallon

The costs of purchasing the of unprocessed goat milk and processing it up to the split-off point to yield a total of 105,000 gallons of saleable product was $191,480. There were no inventory balances of either product. Condensed goat milk may be processed further to yield 45,000 gallons (the remainder is shrinkage) of a medicinal milk product, Xyla, for an additional processing cost of $5 per usable gallon. Xyla can be sold for $20 per gallon.

Skim goat milk can be processed further to yield 58,200 gallons of skim goat ice cream, for an additional processing cost per usable gallon of $5. The product can be sold for $12 per gallon.

There are no beginning and ending inventory balances.

Using the sales value at split-off method, what is the gross-margin percentage for skim goat milk at the split-off point? (Round intermediary percentages to the nearest hundredth.)

A. 46.25%

B. 50.00%

C. 56.75%

D. 53.75%

Answer 1

To calculate the gross-margin percentage for skim goat milk, the sales value at split-off point is used to allocate a proportion of the total costs to skim goat milk. The calculated gross-margin percentage is 56.79%, which when rounded is closest to option C, 56.75%.

Step-by-step explanation:

To find the gross-margin percentage for skim goat milk at the split-off point using the sales value at split-off method, we need to determine the proportion of the total costs that should be allocated to skim goat milk based on the sales value.

First, we calculate the total sales value at the split-off point for both products:

Total sales value at split-off = $204,750 (Condensed) + $238,000 (Skim) = $442,750

The cost allocated to skim goat milk is a fraction of the total cost, calculated using the sales value:

Cost allocated to Skim goat milk = ($238,000 / $442,750) × Total costs = ($238,000 / $442,750) × $191,480 ≈ $102,751.68

Now, we calculate the gross-margin percentage:

Gross Margin for Skim Goat Milk = (Sales - Cost allocated to Skim Goat Milk) / Sales

Gross Margin for Skim Goat Milk = ($238,000 - $102,751.68) / $238,000

Gross Margin for Skim Goat Milk ≈ 0.5679 or 56.79%

The closest answer to the calculated gross-margin percentage is option C, 56.75%.