The Organic Milk Company Produces Three Products from a Joint

Essay

The Organic Milk Company produces three products from a joint processes using whole milk: butter, cheese, and cream.The joint costs amount to $24,000 per batch of output.Each batch totals 50,000 litres: 25% butter, 25% cheese, 50% cream.All products are processed further without gain or loss in volume.Separable costs are butter, $0.50 per litre; cheese, $2.00 per litre; cream, $0.25 per litre.The selling prices per litre are respectively: $3.50, $6.00, $4.00.Required:
1.How much joint cost per batch should be allocated to cream, assuming that joint costs are allocated on a physical measure basis?
2.If joint costs are assigned on a net realizable value basis, how much joint cost should be allocated to cheese?
3.An organic grocer has offered to buy all of the cheese produced at $5.50 per litre.Traditionally 90% of the cheese production is sold.How much better or worse off financially is the company from accepting this offer?