Answer the following questions using the information below:
The Gows 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:
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.
-Using estimated net realizable value, what amount of the $72,240 of joint costs would be allocated Xyla and the skim goat ice cream?
A)$83,942 and $60,538
B)$88,942 and $55,538
C)$65,592 and $78,888
D)$144,480 and $72,140

Question

Answer the following questions using the information below:
The Gows 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:
    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.
-Using estimated net realizable value, what amount of the $72,240 of joint costs would be allocated Xyla and the skim goat ice cream?
A)$83,942 and $60,538 
B)$88,942 and $55,538 
C)$65,592 and $78,888 
D)$144,480 and $72,140

Quizplus · Accepted Answer

To allocate the joint costs using estimated net realizable value, we need to calculate the net realizable value (NRV) for each final product.

For Xyla: 
NRV = selling price - additional processing cost
NRV = $18 - $3 = $15 per usable gallon
Allocated joint cost = NRV * usable gallons of Xyla
Allocated joint cost = $15 * 39,000 = $585,000

For Skim goat ice cream: 
NRV = selling price - additional processing cost
NRV = $9 - $2.50 = $6.50 per usable gallon
Allocated joint cost = NRV * usable gallons of skim goat ice cream
Allocated joint cost = $6.50 * 56,200 = $365,300

Total allocated joint cost = $585,000 + $365,300 = $950,300
To find the allocation of the joint cost to each product: 
Xyla = $585,000 / ($585,000 + $365,300) * $72,240 = $88,942
Skim goat ice cream = $365,300 / ($585,000 + $365,300) * $72,240 = $55,538

Therefore, the best choice is B, which has the correct allocation amount for Xyla and skim goat ice cream.

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