Direct materials prossed: 130,000 gallons(shrinkage was 10%) Production: condens

Question

Direct materials prossed: 130,000 gallons(shrinkage was 10%)

Production: condensed goat milk 52,200 gallons skim goat milk 64,800 gallons

Sales: Condensed goat milk $3.50 per gallon Skim goat milk $2.50 per gallon

The costs of purchasing the 130,000 gallons of unprocessed goat milk and processing it up to the splitoff point to yield a total of 117,000 gallons of salable product was $144,480. There were no inventory balances of either product.

Condensed goat milk may be processed further to yield 39,000 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 56,200 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.

There are no beginning and ending inventory balances.


What is the estimated net realizable value of Xyla at the splitoff point?

Explanation / Answer

Final Sales Value of total production: 39,000 x 18 = 702,000 Deduct Seperable costs: 39,000 x 3 = 117,000 702,000 - 117,000 = 585,000

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