A dairy allocates the cost of unprocessed milk to the production of milk,cream,butter and cheese.For the current period,unprocessed milk was purchased for $240,000,and the following quantities of product and sales revenues were produced.
$\begin{array}{lrr}
&&\text {Price per}\
\text {Product}&\text {Pounds}&\text {Pound}\
\text { Milk } & 100,000 & \$ 0.90 \
\text { Cheese } & 50,000 & 2.20 \
\text { Butter } & 20,000 & 1.00 \
\text { Cream } & 10,000 & 3.00
\end{array}$
How much of the $240,000 cost should be allocated to milk?
A) $0
B) $86,400
C) $90,000
D) $133,333
E) $240,000

Question

Quizplus · Accepted Answer

The cost of unprocessed milk should be allocated to the products based on their sales revenue. The total sales revenue is $0.90 * 100,000 + $2.20 * 50,000 + $1.00 * 20,000 + $3.00 * 10,000 = $330,000. The sales revenue from milk is $0.90 * 100,000 = $90,000. Therefore, the cost of unprocessed milk that should be allocated to milk is $240,000 * $90,000 / $330,000 = $86,400.

A Dairy Allocates the Cost of Unprocessed Milk to the Production