Details of panel-1 are as follows:

Panel A:

Flowchart shows the joint costs and separable costs for example 2.

• Joint costs of $400,000 involve 110,000 gallons of raw milk being sent for processing before reaching the splitoff point.

• Separable costs involve the production of 25,000 gallons of cream and 75,000 gallons of liquid skim separated from raw milk after processing.

• Separable costs involve the further processing of 25,000 gallons of cream which costs $280,000, and the further processing of 75,000 gallons of liquid skim costs, $520,000.

• The further processing of products forms another set of joint products namely, 20,000 gallons of buttercream from 25,000 gallons of cream and 50,000 gallons of condensed milk from 75,000 gallons liquid skim.

Details of panel-2 are as follows:

Panel B:

Spreadsheet screenshot shows the data for example two and the flowchart explained above.

1. Joint costs (which is the costs of 110,000 gallons raw milk and processing to splitoff point): $400,000

2. Separable cost of processing 25,000 gallons cream into 20,000 gallons buttercream: $280,000

3. Separable cost of processing 75,000 gallons liquid skim into 50,000 gallons condensed milk: $520,000

4. Beginning inventory in gallons

   • Cream: 0

   • Liquid skim: 0

   • Buttercream: 0

   • Condensed milk: 0

5. Production in gallons

   • Cream: 25,000

   • Liquid skim: 75,000

   • Buttercream: 20,000

   • Condensed milk: 50,000

6. Transfer for further processing

   • Cream: 25,000

   • Liquid skim: 75,000

7. Sales in gallons

   • Buttercream: 12,000

   • Condensed milk: 45,000

8. Ending inventory in gallons

   • Cream: 0

   • Liquid skim: 0

   • Buttercream: 8,000

   • Condensed milk: 5,000

9. Selling price per gallon

   • Cream: $8

   • Liquid skim: $4

   • Buttercream: $25

   • Condensed milk: $22

The spreadsheet shows two panels depicting the data for the products buttercream and condensed milk.

1. Panel A: Allocation of joint costs using net realizable value method

   1. Final sales value of total production during accounting period

      • Buttercream (20,000 gallons multiplied by $25 per gallon): $500,000

      • Condensed milk (50,000 gallons multiplied by $22 per gallon): $1,100,000

      • Total: $1,600,000

   2. Deduct separable costs

      • Buttercream: 280,000

      • Condensed milk: 520,000

      • Total: $800,000

   3. Net realizable value at splitoff point

      • Buttercream: $220,000

      • Condensed milk: $580,000

      • Total: $800,000

   4. Weighting

      • Buttercream (220,000 divided by 800,000 gallons): 0.275

      • Condensed milk (580,000 divided by 800,000 gallons): 0. 725

   5. Joint costs allocated

      • Buttercream (0.275 multiplied by $400,000): $110,000

      • Condensed milk (0.725 multiplied by $400,000): $290,000

      • Total: $400,000

   6. Production cost per gallon

      • Buttercream (the sum of $110,000 and $280,000 divided by $20,000 gallons): $19.50

      • Condensed milk (the sum of $290,000 and $520,000 divided by 50,000 gallons): $16.20

2. Panel B: Product-line income statement using net realizable value method for May 2017

   1. Revenues

      • Buttercream (12,000 gallons multiplied by $25 per gallon): $300,000

      • Condensed milk (45,000 gallons multiplied by $22 per gallon): $990,000

      • Total: $1,290,000

   2. Joint costs of goods sold

      • Buttercream (0.275 multiplied by $400,000): $110,000

      • Condensed milk (0.725 multiplied by $400,000): $290,000

      • Total: $400,000

   3. Cost of goods sold: Separable costs

      • Buttercream (5,000 gallons multiplied by $4 per gallon): $280,000

      • Condensed milk (45,000 gallons multiplied by $4 per gallon): $520,000

      • Total: $800,000

   4. Cost of goods sold: Production costs

      • Buttercream: $390,000

      • Condensed milk: $810,000

      • Total: $1,200,000

   5. Cost of goods sold: Deduct ending inventory

      • Buttercream (8,000 gallons multiplied by $19.50 per gallon): $156,000

      • Condensed milk (5,000 gallons multiplied by $16.20 per gallon): $81,000

      • Total: $237,000

   6. Total cost of goods sold

      • Buttercream: $234,000

      • Condensed milk: $729,000

      • Total: $963,000

   7. Gross margin

      • Buttercream: $66,000

      • Condensed milk: $261,000

      • Total: $327,000

   8. Gross margin percentage

      • Buttercream ($66,000 divided by $300,000): 22.0%

      • Condensed milk ($261,000 divided by $990,000): 26.4%

      • Total ($327,000 divided by $1,290,000): 25.3%