The Green Company Processes Unprocessed Goat Milk Up to the Split-Off

question 102

Multiple Choice

The Green Company processes unprocessed goat milk up to the split-off point where two products,condensed goat milk and skim goat milk result.The following information was collected for the month of October:

The costs of purchasing the of unprocessed goat milk and processing it up to the split-off point to yield a total of 105,000 gallons of saleable product was $191,480.There were no inventory balances of either product.Condensed goat milk may be processed further to yield 45,000 gallons (the remainder is shrinkage) of a medicinal milk product,Xyla,for an additional processing cost of $5 per usable gallon.Xyla can be sold for $20 per gallon.
Skim goat milk can be processed further to yield 58,200 gallons of skim goat ice cream,for an additional processing cost per usable gallon of $5.The product can be sold for $12 per gallon.
There are no beginning and ending inventory balances.
Using the sales value at split-off method,what is the gross-margin percentage for skim goat milk at the split-off point? (Round intermediary percentages to the nearest hundredth. )

• A)46.25%
• B)50.00%
• C)56.75%
• D)53.75%

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Definitions:

Cost of Equity

The compensation that investors demand for bearing the risk of owning stock, usually reflected by earnings or dividend growth expectations.

Required Rate of Return

The minimum annual percentage earned by an investment that will induce individuals or companies to put money into a particular security or project.

M&M Proposition II

Part of the Modigliani-Miller theorem stating that a company's cost of equity increases as its level of debt increases, due to the higher risk of default.

Cost of Equity

The return that investors expect for investing in a company's equity, reflecting the risk of owning equity in the company.