The Kenton Company Processes Unprocessed Milk to Produce Two Products

question 151

Multiple Choice

The Kenton Company processes unprocessed milk to produce two products, Butter Cream and Condensed Milk. The following information was collected for the month of June:
Direct Materials processed:23,000 gallons (after shrinkage)

The cost of purchasing the of unprocessed milk and processing it up to the split-off point to yield a total of 23,000 gallons of saleable product was $48,000.
The company uses constant gross-margin percentage NRV method to allocate the joint costs of production. Which of the following statements is true of Kenton's joint cost allocations?

• A) The gross margin is same for both products because constant gross margin percentage NRV method ignores profits earned before the split-off point.
• B) One product can receive negative joint costs allocations to bring the other unprofitable product to the overall average gross margin.
• C) Kenton has chosen the easiest method for allocating its joint costs of production.
• D) The gross profit percent of condensed milk is lower than the gross profit of butter cream.

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Definitions:

Depreciation Expense

An accounting method for allocating the cost of a tangible asset over its useful life, representing the asset's consumption, wear and tear, or obsolescence.

Straight-Line Method

The straight-line method is a depreciation technique that allocates an equal amount of depreciation expense for a fixed asset to each year of its useful life.

Salvage Value

The estimated market valuation of an asset following the end of its useful duration.

Depreciation Expense

The charge to the income statement for a particular period that represents the allocation of the cost of tangible assets over their useful lives.