ELSIE Darily products corp buys one input, full cream milk and refine Joint-cost allocation. Elsie Dairy Products Corp. buys one
input, full-cream milk, and refines it in a churning process.
From each gallon of milk Elsie produces three cups of
butter and nine cups of buttermilk. During May 2010, Elsie
bought 12,000 gallons of milk for $22,250. Elsie spent
another $9,430 on the churning process to separate the
milk into butter and buttermilk. Butter could be sold
immediately for $2.20 per pound and buttermilk could be
sold immediately for $1.20 per quart (note: two cups = one
pound; four cups = one quart).
Elsie chooses to process the butter further into spreadable
butter by mixing it with canola oil, incurring an additional
cost of $1.60 per pound. This process results in two tubs of
spreadable butter for each pound of butter processed. Each
tub of spreadable butter sells for $2.30.
1. Allocate the $31,680 joint cost to the spreadable butter
and the buttermilk using the following:
a. Physical-measure method (using cups) of joint cost
b. Sales value at splitoff method of joint cost allocation
c. NRV method of joint cost allocation
d. Constant gross margin percentage NRV method of joint
What are the advantages and disadvantages of each
Neha Sethi answered this
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