Answer the Following Questions Using the Information Below:
the Alfarm

question 69

Multiple Choice

Answer the following questions using the information below:
The Alfarm Corporation processes raw milk up to the splitoff 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:
$\begin{array}{lll}\text { Direct materials processed: } && 750,000 \text { gallons }(727,500 \text { gallons of good product) } \\\text { Production: } & \text { Cream } & 442,500 \text { gallons } \\& \text { Liquid skim } & 285,000 \text { gallons } \\\text { Sales: } & \text { Cream } & 421,500 \text { at } \$ 110 \text { per gallon } \\& \text { Liquid skm } & 273,000 \text { at } \$ 100 \text { per gallon }\end{array}$ The cost of purchasing 750,000 gallons of direct materials and processing it up to the splitoff point to yield a total of 727,500 gallons of good product was $2,280,000.
-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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