The Kenton Company processes unprocessed milk to produce two products, Butter Cream and Condensed Milk. The following information was collected for the month of June:
| Direct Materials processed: | 23,000 gallons (after shrinkage) |
| Production: | Butter Cream | 7500 | gallons |
| | Condensed Milk | 15,500 | gallons |
| Sales: | Butter Cream | 7000 | gallons |
| | Condensed Milk | 15,000 | gallons |
| Sales Price: | Butter Cream | $5.50 | per gallon |
| | Condensed Milk | $10.00 | per gallon |
| Separable costs in total: | Butter Cream | $15,500 | |
| | Condensed Milk | $35,800 | |
The cost of purchasing the of unprocessed milk and processing it up to the split-off point to yield a total of 23,000 gallons of saleable product was $48,000.
The company uses constant gross-margin percentage NRV method to allocate the joint costs of production. Which of the following statements is true of Kenton's joint cost allocations?
◦ The gross margin is same for both products because constant gross margin percentage NRV method ignores profits earned before the split-off point.
◦ One product can receive negative joint costs allocations to bring the other unprofitable product to the overall average gross margin.
◦ Kenton has chosen the easiest method for allocating its joint costs of production.
◦ The gross profit percent of condensed milk is lower than the gross profit of butter cream.
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