Question

QUESTION 1

1. 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 19600 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 26700 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.

   What is the gross margin percentage that each joint product would have if NRV with constant gross margin were used?

   (Put your answer in the following form: .xxxx )  

   For example 65.5% should be written as .6550 )

Answer 1

Gross Profit Ratio, If no further processing is done
Particulars	Unconsensed Goat Milk	Silk Goat Milk	Total
Quantity	26,100	32,400	58,500
Selling Price	4	3
Sales Value	91,350	81,000	172,350
Cost of unprocessed Goat Milk	(32,230)	(40,010)	(72,240)
(65,000 gallons, $72,240)
Gross Profit	59,120	40,990	100,110
Gross Profit Ratio	0.6472	0.5061	0.5809
Working Notes
Input	29,000	36,000	65,000
Output	26,100	32,400	58,500
Input-Output Ratio	0.90	0.90	0.90
Gross Profit Ratio, If further processing is done
Particulars	Xyla	Skim Goat Ice-cream	Total
Quantity	19,600	26,700	46,300
Selling Price	18	9
Sales Value	352,800	240,300	593,100
Quantity	26,100	32,400	58,500
Processing Per gallon	3	3
Further Processing Cost	(78,300)	(81,000)	(159,300)
Cost of unprocessed Goat Milk	(32,230)	(40,010)	(72,240)
(65,000 gallons, $72,240)
Gross Profit	242,270	119,290	361,560
Gross Profit Ratio	0.6867	0.4964	0.6096