The Alfarm Corporation Processes Raw Milk Up to the Split-Off

question 98

Multiple Choice

The Alfarm Corporation processes raw milk up to the split-off point where two products, cream and liquid skim, are produced and sold. There was no beginning inventory. The following material was collected for the month of February:

The cost of purchasing 800,000 gallons of direct materials and processing it up to the split-off point to yield a total of 778,500 gallons of good product was $2,350,000. Which of the following statements about Alfarm's joint production costs is true?

• A) The gross-margin percentage per gallon of Cream and Liquid skim are equal because joint costs are allocated based on the number of gallons.
• B) The gross-margin percentage per gallon of Cream is higher than gross margin percentage per gallon of Liquid skim because of Cream's higher production volume.
• C) The joint production cost per gallon of Cream and Liquid skim are equal because joint costs are allocated based on the number of gallons.
• D) The joint production cost per gallon of Cream is higher than joint production cost per gallon of Liquid skim because of Cream's higher production volume.

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Definitions:

Empirical Demonstration

The use of observed or measured data to provide evidence for a theory or hypothesis.

Skepticism

An attitude of doubting the truth of something, such as claims, statements, or the authenticity of an event.

Natural Science Inquiry

A methodological approach to investigating phenomena in the natural world through observation, experimentation, and hypothesis testing.

Empirical Reasoning

The process of reasoning based on observed and measured phenomena, used to form conclusions that are based on empirical evidence.