The Gows Company processes unprocessed goat milk up to the splitoff point where two products, condensed goat milk and skim goat milk result. The following information was collected for the month of October:
Direct Materials processed: 130,000 gallons (shrinkage was 10%)
condensed goat milk 52,200 gallons
skim goat milk 64,800 gallons
condensed goat milk $3.50 per gallon
skim goat milk $2.50 per gallon
The costs of purchasing the 130,000 gallons of unprocessed goat milk and processing it up to the splitoff point to yield a total of 117,000 gallons of salable product was $144,480. There were no inventory balances of either product.
Condensed goat milk may be processed further to yield 39,000 gallons (the remainder is shrinkage) of a medicinal milk product, Xyla, for an additional processing cost of $3 per usable gallon. Xyla can be sold for $18 per gallon.
Skim goat milk can be processed further to yield 56,200 gallons of skim goat ice cream, for an additional processing cost per usable gallon of $2.50. The product can be sold for $9 per gallon.
There are no beginning and ending inventory balances.
Using the sales value at splitoff method, what is the gross-margin percentage for condensed goat milk at the splitoff point?
Sales Value at splitoff point:
Condensed: 52,200 x 3.5 = 182,700
Skim: 64,800 x 2.5 = 162,000
Weighting: 182,700 / (182,700+162,000) = 0.53
Joint Costs Allocated: 144,480 x 0.53 = 76,574
Revenues = 182,700
Less Production Costs = 76,574
Gross Margin: 106,126
106,126/182,700 = 58.1%