The Alfarm Corporation processes raw milk up to the split-off point where two products, cream and liquid skim, are produced and sold. There was no beginning inventory. The following material was collected for the month of February:
| Direct materials processed: | 800,000 gallons (778,500 gallons of good product) |
| Production: | Cream | 443,500 gallons |
| Liquid skim | 335,000 gallons |
| Sales: | Cream | 424,500 at $130 per gallon |
| Liquid skim | 324,000 at $120 per gallon |
The cost of purchasing 800,000 gallons of direct materials and processing it up to the split-off point to yield a total of 778,500 gallons of good product was $2,350,000. Which of the following statements about Alfarm's joint production costs is true?
◦ The gross-margin percentage per gallon of Cream and Liquid skim are equal because joint costs are allocated based on the number of gallons.
◦ The gross-margin percentage per gallon of Cream is higher than gross margin percentage per gallon of Liquid skim because of Cream's higher production volume.
◦ The joint production cost per gallon of Cream and Liquid skim are equal because joint costs are allocated based on the number of gallons.
◦ The joint production cost per gallon of Cream is higher than joint production cost per gallon of Liquid skim because of Cream's higher production volume.
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