Reference no: EM133146301

Question - Homestead Farming is a dairy farm. Each gallon of milk that the farm produces have a processing cost of $900 and can be converted into cream and skim milk.

Separable production costs of cream are a total of $510 and $490 for the skim milk.

During the period, the farm sold 800 gallons of cream and 500 gallons of skim milk. Ending inventory was 130 gallons of cream and 30 gallons of skim milk. The farm had no beginning inventories.

Selling price per gallon is as follows:

Cream - $4.00

Skim milk - $1.50

Required -

1. Allocate the joint costs of the cream and skim milk using the NRV method.

2. The cream can be further processed into butter. Additional processing costs would be $2,500. Further processing would result in a loss of 100 gallons of cream. Butter could be sold for $8.00 a gallon. Determine if the cream should be further processed into butter.