How much (if any)extra income would Morton earn if it produced and sold all of the Xyla from the condensed goat milk? Allocate joint processing costs based upon relative sales value on the splitoff. (Extra income means income in excess of what Morton would have earned from selling condensed goat milk.)
A)$106,126
B)$508,426
C)$402,300
D)$193,574

Question

Quizplus · Accepted Answer

To calculate how much extra income Morton would earn from producing and selling all of the Xyla from condensed goat milk, we need to allocate the joint processing costs based on relative sales value at the splitoff point.

First, we need to calculate the total sales value of the three products at the splitoff point. 
Condensed goat milk: 200,000 gallons x $5/gallon = $1,000,000 
Casein: 20,000 pounds x $2.50/pound = $50,000 
Xyla: 2,000 pounds x $150/pound = $300,000

Total sales value at splitoff point: $1,350,000

To allocate the joint processing costs, we need to find the percentage of total sales value that each product represents at the splitoff point. 
Condensed goat milk: $1,000,000 ÷ $1,350,000 = 0.74 
Casein: $50,000 ÷ $1,350,000 = 0.04 
Xyla: $300,000 ÷ $1,350,000 = 0.22

Now we can apply those percentages to the total joint processing costs of $500,000. 
Condensed goat milk: 0.74 x $500,000 = $370,000 
Casein: 0.04 x $500,000 = $20,000 
Xyla: 0.22 x $500,000 = $110,000

If Morton produces and sells all of the Xyla from the condensed goat milk, they would receive an additional $300,000 in revenue from Xyla sales. However, they would also incur an additional $110,000 in joint processing costs allocated to Xyla.

Thus, the extra income that Morton would earn from producing and selling all of the Xyla from condensed goat milk would be: 
$300,000 - $110,000 = $190,000

Therefore, choice C is correct, and Morton would earn an extra $190,000 in income if it produced and sold all of the Xyla from the condensed goat milk.

How Much (If Any)extra Income Would Morton Earn If It