McBride's Dairy Has 200 Gallons of Heavy Cream and 600

question 131

Multiple Choice

McBride's Dairy has 200 gallons of heavy cream and 600 gallons of skimmed milk and has incurred $1,000 of joint costs at the split-off point. It can sell each product at the split-off point or process it further in relatively similar processes, so management has decided that the most appropriate method for allocating joint costs is the market value at split-off point. One gallon of cream sells for $15, while one gallon of milk sells for $4. How much of the joint cost is allocated to cream? Round percentage calculations to the nearest whole percent.

• A)$1,000
• B)$560
• C)$440
• D)$0

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Definitions:

Par Value

The face value of a bond or stock, as stated on the certificate, which is the minimum stated value.

Convertible Debentures

Bonds that can be converted into a predetermined amount of the issuing company's equity at certain times during their life, usually at the discretion of the bondholder.

Conversion Price

The predetermined price at which convertible security, such as a bond or preferred stock, can be converted into a specified number of shares of common stock.

Common Stock

A form of corporate equity ownership, a type of security that represents ownership in a corporation and a claim on part of the company’s profits.