Question

The Dubai Milko Company processes unprocessed camel milk up to the split-off point where two products, condensed camel milk and skim camel milk result. The following information was collected for the month of October: Direct Materials processed: 200,000 gallons (shrinkage was 15%) Production: condensed camel milk 90,000 gallons skim camel milk 80,000 gallons Sales-value at Split-off: condensed camel milk $4.00 per gallon skim camel milk $4.50 per gallon The costs of purchasing the 200,000 gallons of unprocessed camel milk and processing it up to the split-off point to yield the two saleable products was $600,000. There were no inventory balances of either product. Condensed camel milk may be processed further to yield 60,000 gallons (the remainder is shrinkage) of a medicinal milk product, Cyla, for an additional processing cost $60,000. Cyla can be sold for $12 per gallon. Skim camel milk can be processed further to yield 80,000 gallons of ice cream, for an additional processing cost of $100,000. The ice cream can be sold for $8 per gallon. There are no beginning and ending inventory balances.

1. Using sales-value at split-off point method of allocation, what amount of the joint costs would be allocated to Cyla and the ice cream product lines?

2. Using estimated net realizable value method, what amount of the joint costs would be allocated to Cyla and the ice cream product lines?

Answer 1

1.

Joint cost = 600000

Using sale value at split off Point			.
Particulars	Condensed camel Milk	Skim camel Milk	Total
Sales value at split off point per unit	4	4.5
Quantity	90,000	80000	170000
Sales value	360000	360000	720000
Weight	0.5	0.5	1
Joint Cost allocation in the above ratio	300000 (600000*0.50)	300000 (600000*0.50)	600000

2.

Using estimated Net realizable value			.
Particulars	Cyla	Skim camel Milk	Total
Sales value After further processing	12	8
Quantity	60,000	80000	140000
Sales value	720000	640000	1360000
Less: Separable cost	60000	100000
NRV	660000	540000	1200000
Weight	0.55	0.45	1
Joint Cost allocation in the above ratio	330000	270000	600000
(600000*0.55)	(600000*0.45)