The Great Foods Company Processes Milk into Skim Milk and Butter

question 30

Multiple Choice

The Great Foods Company processes milk into skim milk and butter. This year 70,000 litres of milk will be processed, costing $40,000. If processed to the split-off point, this will yield 40,000 litres of skim milk and 10,000 kilograms of butter. Skim milk is sold to distributors for $1 per litre and butter is sold for $0.75 per kilogram. Great Foods has the option of processing the two products further. Skim milk can be processed into canned, sweetened and condensed skim milk and sold for $0.80 per can. One litre of skim milk makes 2 cans of condensed milk. To process 40,000 litres of skim milk it will cost $18,000. Butter can be processed into cake frosting and sold in containers for $2 each. One kilogram of butter goes into each container of frosting. The cost of processing 10,000 kilograms of butter into frosting costs $15,000.
What is the per-unit joint cost allocated to condensed milk and frosting if the net realizable value method is used?

• A) $1.64608 per can and $0.7157 per container
• B) $0.82304 per can and $0.7157 per container
• C) $0.90196 per can and $0.3922 per container
• D) $0.45098 per can and $0.3922 per container

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Definitions:

Pretransaction Costs

Expenses incurred before the actual purchase or transaction takes place, such as research, supplier evaluation, and negotiation costs.

Value Engineering

A systematic process aimed at increasing the value of a product, project, or service by examining its functions, improving performance, and ensuring cost efficiency.

Value Analysis

A systematic approach to assess the functionality of goods and services with the goal of reducing cost without compromising on quality.

Reducing Costs

A process aimed at lowering the overall expenses involved in running a business or producing goods and services.