Question

The Morton 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: 65,000 litres (shrinkage was 10%)
Production: condensed goat milk 26,100 litres
skim goat milk 32,400 litres
Sales: condensed goat milk $3.50 per litre
skim goat milk $2.50 per litre
The costs of purchasing the 65,000 litres of unprocessed goat milk and processing it up to the split-off
point to yield a total of 58,500 litres of salable product was $72,240. There were no inventory balances
of either product.
Condensed goat milk may be processed further to yield 19,500 litres (the remainder is shrinkage) of a
medicinal milk product, Xyla, for an additional processing cost of $3 per usable litre. Xyla can be sold
for $18 per litre.
Skim goat milk can be processed further to yield 28,100 litres of skim goat ice cream, for an additional
processing cost per usable litre of $2.50. The product can be sold for $9 per litre.
There are no beginning and ending inventory balances.
Using the sales value at split-off method, what is the gross margin percentage for condensed goat
milk at the split-off point?

38.2%
21.1%
41.9%
55.1%
*58.1%

Answer 1

	Condensed Goat Milk	Skim Goat Milk	Total
Sales Value at split off	$           91,350	$            81,000	$        172,350
Allocation Basis	53.0%	47.0%
Joint Cost Allocation	$           38,289	$            33,951
Gross Profit at split off	$           53,061
Gross Profit Ratio	58.1%

Answer is e. 58.1%