Question

Cow milk dairy is trying to decide whether it should sell the milk that it processes as is or further process it into butter. management has collected the following data pertaining to milk: wholesale selling price ($6.65 per 4 litres) $ 6.65 less: joint costs incurred up to the split-off point where milk can be identified as a separate product 5.15 profit per 4 litres $ 1.50 a 4-litre container of milk, when further processed, can yield 0.5 kilogram of butter. the cost of further processing is $26.00 per kilogram of butter. one kilogram of butter can be sold at a price of $42.00.

required: determine the profit per 1/2 kilogram from processing the milk further into butter.

Answer 1

The profit per half kilogram of butter is calculated by subtracting production and joint costs from the selling price; with given values, profit calculation includes selling price, processing cost, and allocated joint cost.

Step-by-step explanation:

To find the profit per half kilogram of butter, one must consider the additional processing cost and the selling price. The profit per half kilogram of butter would be the selling price ($21.00 for half a kilogram because $42.00 is the price per kilogram) minus the processing cost ($13.00, which is half of the $26.00 processing cost per kilogram), and then subtract the joint cost allocated to the half kilogram of butter (which is half of the $5.15 joint cost incurred to produce 4 liters of milk). Therefore, the calculation would be $21.00 (selling price) - $13.00 (processing cost) - $2.575 (half of the joint cost) to find the profit per half kilogram of butter.