Use the Following Information for the Next 5 Questions

question 23

Multiple Choice

Use the following information for the next 5 questions.
The Great Foods Company processes milk into skim milk and butter. This year 70,000 gallons of will be processed, costing $40,000. If processed to the split-off point, this will yield 40,000 gallons of skim milk and 10,000 pounds of butter. Skim milk is sold to distributors for $1 per gallon and butter is sold for $0.75 per pound. Great Foods has the option of processing the two products further. Skim milk can be processed into canned, sweetened, condensed skim milk and sold for $0.80 per can. One gallon of skim milk makes 2 cans of condensed milk. To process 40,000 gallons of skim milk will cost $18,000. Butter can be processed into cake frosting, sold in containers for $2 each. One pound of butter goes into each container of frosting. The cost of processing 10,000 pounds of butter into frosting costs $15,000.
-What is the per-unit joint cost allocated to condensed milk and frosting if the constant gross margin net realizable value method is used?

• A) $1.470248 per can and $0.2381 per container
• B) $0.94048 per can and $0.2311 per container
• C) $0.69524 per can and $1.7381 per container
• D) None of the above

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Definitions:

Capital Budgeting

The process of planning and managing a company's long-term investments in major projects or assets.

Mutually Exclusive Projects

Projects where acceptance of one automatically excludes the acceptance of the other due to competing resources.

IRR

Internal Rate of Return; a metric used in capital budgeting to estimate the profitability of potential investments, representing the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

NPV

Net Present Value, a method used in capital budgeting to assess the profitability of an investment or project by calculating the present value of expected future cash flows minus initial costs.