MAA262 – Management Accounting Assessment Task 2

Question 2

Division B at Geunhye-Park Foods (GPF) manufactures dairy products. Specifically, Division B processes raw milk collected from farmers into concentrated milk, skimmed milk, and butter. As part of the cost planning and cost control of operations and activities, GPF is currently reviewing the gross-margin percentage of each of its products at Division B, using the estimated net realisable value (NRV) method for allocating joint costs. The Division processes raw milk through the Separation Stage, out of which come three products:
concentrated milk, skimmed milk, and milk fat. The milk fat will be further processed into butter to be sold to customers. Processing 750,000 pounds of raw milk in Separation Stage results in 60,000 pounds of concentrated milk, 400,000 pounds of skimmed milk and 10,000 pounds of milk fat, and the costs in Separation Department are $800,000 in total.
Skimmed milk is sold without further processing. Concentrated milk is processed further and the further processing cost is $100,000. Milk fact is considered a by-product and is processed further through Purification Stage to be turned into butter and the further processing costs are $20,000. These further processing stages for concentrated milk and milk fat (butter) do not change the quantity/weight of these two products. Concentrated milk sells for $5 per pound, skimmed milk sells for $2 per pound, and butter sells for $7 per pound.

Required

a) Calculate the product cost per pound for concentrated milk and skimmed milk, treating butter (milk fat) as a by-product. Deduct the estimated NRV of the by-product produced from the joint cost of concentrated milk and skimmed milk. (Chapter 6, 15 marks)

b) Calculate the product cost per pound (unit product cost) for concentrated milk, skimmed milk, and butter, treating all three as joint products. (Chapter 6, 10 marks)