Joint Products & by Products

11
Joint Products & By Products
Question 1 How would you account for by-product in cost accounting: (i) When they are of small total value. (ii) When value. (iii) they are of considerable total (2 marks) (4 marks) (May, 1997, 4 marks)
When they require further processing.
Answer Treatment of By-product in Cost Accounting: (i) When they are of small total value: If the amount realised from the sale of by-product is small, it may be dealt in any one of the following two ways: (1) The sale value of the by-product may be credited to the Profit and Loss Account and no credit be given in the cost accounts. The credit to the Profit and Loss Account here is treated either as miscellaneous income or as additional sales revenue. (2) The sale proceeds of the by-product may be treated as deductions from the total costs. The sale proceeds in fact should be deducted either from the production cost or from the cost of sales. (ii) When they are of considerable total value: In this case byproducts may be regarded as joint products. To determine exact cost of by-products the costs incurred upto the point of separation, should be apportioned over by-products and joint products by using a logical basis. In this case, the joint costs may be divided over joint products and by-products by using physical unit method (at the point of split off) or ultimate selling price (if sold).
11.2
Cost Accounting
(iii) When they require further processing: In this case, the net realisable value of the by-product at the split-off point may be arrived at by subtracting the further processing cost from the realisable value of by-products. Question 2 Distinguish between Joint Product and By Product Answer Joint-product and By-product: Joint products and by-products arise from many industrial processes wherein, from a set of common inputs, two or more products of varying importance are obtained. For example, when hydrogenated oil is processed, along with oil, oxygen gas is also produced molasses is produced along with sugar automatically. Some of the products are not of much importance from the sales-value point of view, like molasses in the case of sugar, but in some cases the products are all of importance. Usually, the term by-product is used in the former case and joint products in the other case. One can see that distinction between joint products and by-products turns on their relative importance which sometimes makes it difficult to make a distinction. However, one point to keep note of it is that, usually, in the case of joint products further processing is required, after initial common process, before the products are sold. Thus joint products represent two or more products separated in the course of the same processing operations, usually requiring further processing, each product being in such proportion that no single product can be designated as a major product. By-products may be defined as any saleable or usual value incidentally produced in addition to the product. Sometimes the word wastage or even loss is used to denote what is really a byproduct. For example, in a thermal power plant, ash will remain when coal is used up. In a place where good deal of construction activity is going on, the ash will have a market-it is a case of byproduct even if it is termed as wastage. Question 3 In the course of manufacture of the main product P, by products A and B also emerge. The joint expenses of manufacture amount to Rs. 1,19, 550. All the three products are processed further after separation and sold as per details given below: Main products By-products
11.3
Sales Costs incurred after separation Profit as percentage on sales
Rs . Rs . %
P 90,000 6,000 25
A 60,000 5,000 20
B 40,000 4,000 15
Total fixed selling expenses are 10% of total cost of sales which are apportioned to the three products in the ratio of 20 : 40 : 40. (i) Prepare a statement showing the apportionment of joint costs to the main product and the two-by-products. (ii) If the by-product A is not subjected to further processing and is sold at the point of separation for which there is a market, at Rs. 58,500 without incurring and selling expenses, would you advise its disposal at this stage? Show the workings.
11.4
Cost Accounting
Answer (i) Costs Statement Showing Apportionment of Joint to Main Product and two By-Products Main Product Rs. 90,000 22,500 67,500 2,990 64,510 6,000 58,510 By-products A Rs. 60,000 12,000 48,000 5,980 42,020 5,000 37,020 B Rs. 40,000 6,000 34,000 5,980 28,020 4,000 24,020 Total
Sales Less: Profit Cost of sales Less: Selling expenses Cost of production Less: Costs after separation Value at the stage of separation Working note: Total Cost of sales Selling expenses are 10% of Rs. 1,49,500 i.e. Rs. 14,950 (ii)
1,90,00 0 40,500 1,49,50 0 14,950 1,34,55 0 15,000 1,19,55 0
Rs. 1,49,500
Economics of By-product A Sales at split Off stage Rs. 58,500 37,020 21,480 Sales after further processing Rs. 60,000 42,020 17,980
Sales Costs Profit
Since the profit earned is more if the by product is not processed further, it is advisable to sell the same before processing. Working note: Selling expense has not been taken into consideration, as without that the choice is apparent.
11.5
Question 4 In an Oil Mill four products emerge from a refining process. The total cost of input during the quarter ending March, 1983 in Rs. 1,48,000. The output, sales and additional processing costs are as under: Product Output In Litres Additional Processing Costs after Split off point Rs. 43,000 9,000 1,500 Sales value
AOXE BOXE COXE DOXE
Rs. 8,000 4,000 2,000 4,000
Rs. 1,72,500 15,000 6,000 45,000
In case these products were disposed of at the split off point that is before further processing the selling price would have been: AOXE Rs. 15.00 BOXE Rs.6.00 COXE Rs. 3.00 DOXE Rs. 7.50
Prepare a statement of profitability based on: (1) If the products are sold after further processing is carried out in the mills. (2) If they are sold at the split off point. Answer (1) Mill Statement of Profitability of an Oil (after Carrying out further processing) (for the quarter ending March 1983) Products name Sales Value after further processin g (b) Share of joint cost Further processin g cost (d) Total cost after split off Profit (Loss)
(a)
(c)
(e) = (c)
(f = (b)
11.6
Cost Accounting
AOXE BOXE COXE DOXE Total
Rs. 1,72,500 15,000 6,000 45,000 2,38,500
Rs. 98,667 19,733 4,933 24,667 1,48,000
Rs. 43,000 9,000 1,500 53,500
+ (d) Rs. 1,41,667 28,733 4,933 26,167 2,02,500
(c) Rs. 30,833 (13,733) 1,067 18,833 37,000
Working Notes 1. Sales Value at split off point for: AOXE = 8,000 x Rs. 16 = 1,20,000 BOXE = 4 ,000 x Rs. 6 = 24,000 COXE = 2,000 x Rs. 3 = 6,000 DOXE = 4,000 x Rs. 7.50 = 30,000 The ratio between the sale values of AOXE : BOXE : COXE : DOXE : 20 : 4 : 1 : 5. 2. Share of joint cost of AOXE, BOXE, COXE and DOXE has been determined by dividing the total joint cost viz Rs. 1,48,000 in the ratio 20 : 4 : 1 : 5 AOXE = Rs. 1,48,000 x 20 = Rs. 98,667 30 BOXE = Rs. 1,48,000 x 4 = Rs. 19,733 30 COXE = Rs. 1,48,000 x 1 = Rs. 4,933 30 DOXE = Rs. 1,48,000 x 5 = Rs. 24,657 30 (2) Oil Mill Statement of Profitability of an (At the split off point) (for the quarter ending March 1983) Products name Selling price at split off point Output In units Sales value at split off point Share of joint cost Profit at split off point
11.7
(0)
(1) Rs. 15 6 3 7.50 Total
(2) Rs. 8,000 4,000 2,000 4,000
AOXE BOXE COXE DOXE
(3) = (1) x (2) Rs. 1,20,000 24,000 6,000 30,000 1,80,000
(4) Rs. 98,667 19,733 4,933 24,667 1,48,000
(5) = (3) (4) Rs. 21,333 4,267 1,067 5,333 32,000
Note : For share of joint cost refer to working notes of part (1) Question 5 Pokemon Chocolates manufactures and distributes chocolate products. It purchases Cocoa beans and processes them into two intermediate products: Chocolate powder liquor base Milk-chocolate liquor base
These two intermediate products become separately identifiable at a single split off point. Every 500 pounds of cocoa beans yields 20 gallons of chocolate powder liquor base and 30 gallons of milkchocolate liquor base. The chocolate powder liquor base is further processed into chocolate powder. Every 20 gallons of chocolate-powder liquor base yields 200 pounds of chocolate powder. The milk-chocolate liquor base is further processed into milk-chocolate. Every 30 gallons of milk-chocolate liquor base yields 340 pounds of milk chocolate. Production and sales data for October, 2004 are: * Cocoa beans processed Costs of processing Cocoa beans to split off point (including purchase of beans) Chocolate powder Milk chocolate Production 3,000 pounds 5,100 Sales 3,000 pounds 5,100 7,500 pounds Rs. 7,12,500
Selling price Rs. 190 per pound Rs. 237.50 per pound
11.8
Cost Accounting
The October, 2004 separable costs of processing chocolatepowder liquor into chocolate powder are Rs. 3,02,812.50. The October 2004 separable costs of processing milk-chocolate liquor base into milk-chocolate are Rs. 6,23,437.50. Pokemon full processes both of its intermediate products into chocolate powder or milk-chocolate. There is an active market for these intermediate products. In October, 2004, Pokemon could have sold the chocolate powder liquor base for Rs. 997.50 a gallon and the milk-chocolate liquor base for Rs. 1,235 a gallon. Required: (i) Calculate how the joint cost of Rs. 7,12,500 would be allocated between the chocolate powder and milkchocolate liquor bases under the following methods: (a) Sales value at split off point (b) Physical measure (gallons) (c) Estimated net realisable value, (NRV) and (d) Constant gross-margin percentage NRV. (ii) What is the gross-margin percentage of the chocolate powder and milk-chocolate liquor bases under each of the methods in requirements (i) ? (iii) Could Pokemon have increased its operating income by a change in its decision to fully process both of its intermediate products? Show your computations. (Nov, 2004, 8 + 2 + 3 = 13 marks) Answer (i) allocation methods Comparison of alternative joint-cost
Sales value at split-off point method Chocolate powder liquor base Rs. 2,99,250 0.35 Rs. 7,12,500 x 0.35 Milk chocolate liquor base Rs. 5,55,750 0.65 Rs. 7,12,,500 x Total
Sales value of products at split off Weights Joint cost allocated
Rs. 8,55,000 1.00
11.9
= Rs. 2,49,375 300 x 997.50 = Rs. 2,99,250 450 x 1235 = Rs. 5,55,750
0.65 = Rs. 4,63,125
Physical measure method Chocolate powder liquor base 300 gallons 300/750 = 0.40 Rs. 7,12,500 x 0.40 =Rs. 2,85,000 Milk chocolate liquor base 450 gallons 450/750 = 0.60 Rs. 7,12,500 x 0.60 = Rs. 4.27, 500 Total
Output Weight Joint cost allocated
750 gallons 1.00 Rs. 7,12,500
Net realisable value method Chocolate Milk chocolate powder liquor base liquor base Final sales value of 3,000 lbs x Rs. 5.100 lbs x Rs. production 190 237.50 = Rs.12,11,250 = Rs. 5,70,000 Less: separable Rs. 3,02,812.50 Rs. 6,23,437.50 costs Net realisable value Rs. 2,67,187,50 Rs. 5,87,812.50 at split off point Weight 2,67,187.50/8,5 5,87,812.5/8,55 5.000 ,000 = 0.3125 = 0.6875 Joint cost allocated Rs. 7,12,500 x Rs. 7,12,500 x 0.3125 0.6875 = Rs. = Rs. 2,22,656.25 4,89,843.75
Total
Rs. 17,81,250 Rs. 9,26,250 Rs. 8,55,000
Rs. 7,12,500
11.10 Cost Accounting
Constant + gross margin % NRV method Chocolate powder Liquor base Rs. 5,70,000 (Chocolate Powder) Rs. 45,600 Rs. 5,24,400 Rs. 3,02,812.50 Rs. 2,21,587.50 Milk chocolate liquor base Rs. 12,11,250 (Milk Chocolate) Rs. 96,900 Rs. 11,14,350 Rs. 6,23,437.50 Rs. 4,90,912.50 Total
Final sales value of production
Rs. 17,81,250
*Less: Gross margin 8% Cost of goods available for sale Less Separable costs Joint cost allocated
Rs 1,42,500 Rs. 16,38,750 Rs. 9,26,250 Rs. 7,12,500
*Final sales value of total production Deduct joint and separable cost Gross Margin Gross margin % (ii) Rs)
= = = = =
Rs. 17,81,250 Rs. 712500 + Rs. 926250 Rs. 16,38,750 Rs. 1,42,500 Rs 1,42,500 = 8% Rs.17,81,250
Chocolate powder liquor base (calculations in Sales value at Split off Physical Measure Estimated net Realisable Value Constant gross Margin NRV 5,70,000 3,02,812. 50 2,21,587. 50 45,600
Final sale value of Chocolate powder Less: separable costs Less: Joint costs Gross Margin
5,70,000 3,02,812. 50 2,49,375 17,812.50
5,70,000 3,02,812 .50 2,85,000 (17,812. 50)
5,70,000 3,02,812.5 0 2,22,656.2 5 44,531.25
Joint Products & By Products 11.11
Gross Margin %
3.125%
(3.125%)
7.8125%
8%
Milk chocolate liquor base (calculations in Rs.) Sales Physical Estimated Constant value at net split off measure realisable Gross margin NRV 12,11,25 0 6,23,437. 50 4,90,912 96,900.5 0 8%
Final sale value of milk chocolate Less: costs separable
12,11,250 6,23,437. 50 4,63,125 1,24,687. 50 10.29%
12,11,25 0 6,23,437 .50 4,27,500 1,60,312 .50 13.23%
12,11,250 6,23,437.5 0 4,89,843.7 5 97,968.75 8.08%
Less: Joint costs Gross Margin Gross Margin % (iii) powder liquor
Further processing of Chocolate
base into Chocolate powder (calculations in Rs) Incremental revenue (5,70,000 (997.50 x 300) Incremental costs Incremental operating income Further processing of Milk chocolate liquor base into milk chocolate (calculations in Rs) Incremental revenue ((12,11,250 5,55,750) Incremental cost Incremental operating income 2,70,750 3,02,812.5 0 (32,062.50)
6,55,500 6,23,437.5 0 32,062.50
The above computations show that Pokemon Chocolates could increase operating income by Rs 32,062.50 if chocolate liquor base is sold at split off point and milk chocolate liquor base is processed further. Question 6 A company processes a raw material in its Department 1 to produce three products, viz. B and X at the same split-off stage.
During a period 1,80,000 kgs of raw materials were processed in Department 1 at a total cost of Rs. 12,88,000 and the resultant output of A, B and X were 18,000 kgs, 10,000 kgs and 54,000 kgs respectively. A and B were further processed in Department 2 at a cost of Rs. 1,80,000 and Rs. 1,50,000 respectively. X was further processed in Department 3 at a cost of Rs 1,08,000. There is no waste in further processing. The details of sales effected during the period were as under: Quantity Sold Sales Value (kgs.) (Rs.) A 17,000 12,24,000 B 5,000 2,50,000 X 44,000 7,92,000
There were no opening stocks. If these products were sold at split-off stage, the selling prices of A, B and X would have been Rs. 50, Rs. 40 and Rs. 10 per kg respectively. Required: (i) Prepare a statement showing the apportionment of joint costs to A, B and X. (ii) Present a statement showing the cost per kg of each product indicating joint cost and further processing cost and total cost separately. (iii) Prepare a statement showing the productwise and total profit for the period. (iv) State with supporting calculations as to whether any or all the products should be further processed or not (Nov, 1996, 12 marks)
Answer (i) Statement showing the apportionment of joint costs to A, B and X

A 18,000 9,00,000 (Rs. 50 x 18,000) B 10,000 4,00,000 (Rs. 40x10,000) X 54,000 5,40,000 (Rs. 10 x 54,000) 18,40,0 00 Total
Products Output (kg) Sales value at the point of split off (Rs.) Joint cost apportionm ent on the basis of sales value at the point of split off (Rs.)
6,30,000
R s12,88 0 0 . ,0 x . ,0 R s18 0 0R s9,0 0 0 0 . ,4 ,00
2,80,000
3,78,000
R s1 2 8 0 0 . ,8 ,0 x . ,0 R s18,4 0 0 0R s4,0 0 0 0 . ,0
R s12,8 8 0 0 . ,0 x . ,0 R s1 8 0 0 0R s5,4 0 00 . ,4 ,0
12,88,0 00
(ii) each product
Statement showing the cost per kg. Of
(indicating joint cost; further processing cost and total cost separately) Products Joint costs apportioned (Rs.) : (I) [Refer to a(i)] Production (kg) : (II) Joint cost per kg (Rs.): (I/II) Further processing Cost per kg. (Rs) A B X
6,30,000 18,000 35 10 Rs180000 ., , 18000 , kg
2,80,000 10,000 28 15 Rs150 . , ,000 10000 , kg 43
3,78,000 54,000 7 2 Rs108 . , ,000 54000 , kg 9
Total cost per kg (Rs.) (iii)
45
Statement showing the productwise and total profit for the period A 12,24,00 B 2,50,000 X 7,92,00 Total
Products Sales value (Rs.)
0 Add: Closing stock value (Rs.) (Refer to Working note 2) (I) Value (Rs.) of production 12,69,00 0 6,30,000 1,80,000 8,10,000 4,59,000 4,65,000 2,80,000 1,50,000 4,30,000 35,000 45,000 2,15,000
0 90,000
8,82,00 26,16,0 0 00 3,78,00 0 1,08,00 0 4,86,00 17,26,0 0 00 3,96,00 8,90,00 0 0
Apportionment of joint cost (Rs.) [Refer to a(i)] Add: Further cost (Rs.) processing
(II) Total cost (Rs.) Profit (Rs.) : (I II) Working Notes 1. Products Sales value (Rs.) Quantity sold (Kgs.) Selling price Rs./kg
A 12,24,000 17,000 72 Rs12 ,000 . ,24 17 kg ,000
B 2,50,000 5,000 50 Rs2,50000 . , 5,000 kg
X 7,92,000 44,000 18 Rs7,92000 . , 44000 , kg
Total
2.
Valuation of closing stock:
Since the selling price per kg of products A, B and X is more than their total costs, therefore closing stock will be valued at cost.
Products Closing stock (kgs.) Cost per kg (Rs.) Closing stock value (Rs.) A 1,000 45 45,000 (Rs. 45 x 1,000 kg) B 5,000 43 2,15,000 (Rs. 43 x 5,000 kg) X 10,000 9 90,000 (Rs. 9 x 10,000 kg) Total
3,50,0 00
(iv)
Calculations for processing decision A 50 72 B 40 50 X 10 18
Products Selling price per kg at the point of split off (Rs.) Selling price per kg after further processing (Rs.) (Refer to working Note I) Incremental selling price per kg (Rs.) Less: Further processing cost per kg (Rs.) Incremental profit (loss) per kg (Rs)
22 10 12
10 15 (- 5)
8 2 6
Since product B does not give any profit on further processing; it should not be further processed. Question 7 Inorganic Chemical purchases salt and processes it into morerefined products such as caustic soda, chlorine, and PVC (Polyvinyl chloride). During the month of April, 2000, Inorganic Chemicals purchased salt for Rs. 10,00,000. Conversion cost of Rs. 15,00,000 were incurred upto the split-off point, at which time two saleable products wee produced: Caustic soda and chlorine. Chlorine can be further processed into PVC. The April production and sales information are as follows: Production Caustic Soda Chlorine PVC 1,200 tons 800 tons 500 tons Sales 1,200 tons 500 tons Sales Price per Ton Rs. 1,250 Rs. 5,000
All 800 tons of chlorine were further processed, at an incremental cost of Rs. 5,00,000 to yield 500 tons of PVC. There were no byproducts or scrap from this further processing of chlorine. There were no beginning or ending inventories of caustic soda, chlorine or PVC in April. There is an active market for chlorine. Inorganic Chemicals could have sold all its April production of chlorine at Rs. 1,875 a ton. Required: (i) Calculate, how the joint costs of Rs. 25,00,000 would be allocated between Caustic soda and Chlorine under each of the following methods:
(1) sales value at split off; (2) physical measure (tone); and (3) estimated net realizable value. (ii) (iii) What is the gross margin percentage of Caustic soda and PVC under the three methods cited in requirement (i)? Lifetime Swimming Pool Products offer to purchase 800 tons of Chlorine in May, 2000 at Rs. 1,875 a ton. This sale would mean that no PVC would be produced in May. How would accepting the offer affect May Operating Income? (May, 2000, 12 marks) Statement of Joint Costs allocation between Caustic soda and Chlorine by using sales value method at split off Products Sales value at split off (Rs.) Caustic soda 15,00,000
(1,200 tons x Rs. 1,250)
Answer (i) (1)
Chlorine 15,00,000
(800 tons x Rs. 1,875)
Total 30,00,000
Weightage Joint costs allocated (Rs.)
0.5 12,50,000
(Rs. 25,00,000 x 0.5)
0.5 12,50,000
(Rs. 25,00,000 x 0.5)
25,00,000
(2) Statement of Joint Costs allocation between Caustic soda and Chlorine by using physical measure (tons) method Products Caustic soda Chlorine Total Physical measure 1,200 800 2,000 (tons) Weightage 0.6 0.4 Joint costs allocated 15,00,000 10,000,000 25,00,00 (Rs.) 0 (Rs. 25,00,000 x (Rs. 25,00,000 0.6) x 0.4)
(3) Statement of Joint Costs allocation between Caustic soda and Chlorine by using estimated net realizable value method Products Caustic soda Chlorine Total Expected sales 15,00,000 25,00,000 40,00,0 value of production (1,200 tons x Rs. 00 (500 tons x Rs. (Rs.) 1,250) 5,000) Less: Further -5,00,000 5,00,00 processing cost 0 _________ _________ (Rs.) ________ _ Estimated net 15,00,000 20,00,000 35,00,0 realisable value a 00 spit off point (Rs.) Weightage 3/7 4/7 Joint cost allocated 10,71,429 14,28,571 25,00,0 (Rs.) 00 3 4 . , , . , , x Rs 2500000 x Rs 2500000 7 7 (ii) Statement of gross margin percentage of Caustic soda and PVC under sales value, physical measure and estimated net realizable value methods Sales value Physical Estimated net Measure realizable (at split off) value Caustic soda: Sales (Rs.) 15,00,000 15,00,000 15,00,000 Less: Joint costs 12,50,000 15,00,000 10,71,429 allocated (Rs.) Gross margin (Rs.) 2,50,000 0 4,28,571 Gross margin (in %) 16.67 0 28.57 . , Rs2,50000 x 100 Rs1500000 . , , PVC: Sales (Rs.) (500 tons . , Rs4,28571 x 100 Rs1500000 . , ,
25,00,000 x
25,00,000
25,00,000
Rs.5,000) Less: Joint cost alocated (Rs.) Less: Further processing cost (Rs.) Gross margin (Rs.) Gross margin (in %)
12,50,000
10,00,000
14,28,571
5,00,000 7,50,000 30
5,00,000 10,00,000 40
5,00,000 5,71,429 22.86
. , Rs7,50000 x 100 . , , Rs2500000 (iii) PVC
. , , . ,429 Rs1000000 Rs5,71 x 100 x 100 . , , . , , Rs2500000 Rs2500000
Incremental revenue from further processing of Chlorine into
500 tons x Rs. 5,000 800 tons x Rs. 1,875: (A) Rs. 10,00,000 Incremental costs of further processing of chlorine into PVC (B) Rs. 5,00,000 Incremental operating income from further processing: {(A) (B)} Rs. 5,00,000 Decision: The operating income of Inorganic Chemicals which converts chlorine into PVC after further processing will be reduced by Rs. 5,00,000 in May, if it accepts the offer of Lifetime Swimming Pool Products, of selling to them 800 tons of Chlorine at Rs. 1875 per ton. Question 8 Two products P and Q are obtained in a crude form and require further processing at a cost of Rs. 5 for P and Rs. 4 for Q per unit before sale. Assuming a net margin of 25 percent on cost, their sale prices are fixed at Rs. 13,75 and Rs. 8.75 per unit respectively. During the period, the joint cost was Rs. 88,000 and the outputs were: P Q 8,000 units 6,000 units (May,
Ascertain the joint cost per unit 1998, 15 marks) Answer Statement for ascertaining joint cost per unit
Output (units) Products Selling price (p.u) Less: Margin @ 25% on cost or 20 % on sales Cost of sales Less: Post split off cost Pre-split off net joint cost pre unit Share in joint cost of units of Pand Q can be obtained by apportioning it in the ratio of 8:3 (Refer to working Note) Ascertained joint cost per unit
8,000 P Rs. 13.75 2.75 11.00 5.00 6.00 64,000
6,000 Q Rs. 8.75 1.75 7.00 4.00 3.00 24,000
8.00
4.00 (Rs. 24,000/6,000 units)
(Rs. 64,000/8,000 units) Working Note: Products Units Total output cost (Rs.) Ratio between total output cost of two type of products: Question 9 P 8,000 48,000 (8,000 x Rs. 6) 8
Q 6,000 18,000 (6,000 x Rs. 3) 3
The Sunshine Oil Company purchases crude vegetable oil. It does refining of the same. The refining process results in four products at the split off point: M, N, O and P. Product O is fully processed at the split off point. Product M, N and P can be individually further refined into Super M, Super N and Super P. In the most recent month (October, 1999), the output at split off point was: Product M Product N Product O 3,00,000 gallons 1,00,000 gallons 50,000 gallons
Product P
50,000 gallons
The joint cost of purchasing the crude vegetable oil and processing it were Rs. 40,00,000. Sunshine had no beginning or ending inventories. Sales of Product O in October were Rs. 20,00,000. Total output of products M, N and P was further refined and then sold. Data related to October, 1999 are as follows: Further Processing Costs to Make Super Products Rs. 80,00,000 Rs. 32,00,000 Rs. 36,00,000 Sales
Super M Super N Super P
Rs. 1,20,00,000 Rs. 40,00,000 Rs. 48,00,000
Sunshine had the option of selling products M, N and P at the split off point. This alternative would have yielded the following sales for the October, 1999 production: Product M Product N Product P You are required to answer: (i) How the joint cost of Rs. 40,00,000 would be allocated between each product under each of the following methods (a) sales value at split off; (b) physical output (gallons); and (c) estimated net realizable value? (ii) Could Sunshine have increased its October, 1999 operating profits by making different decisions about the further refining of product M, N or P? Show the effect of any change you recommend on operating profits. (Nov, 1999, 12 marks) Answer (i) (a) between Produc ts Statement of joint cost allocated Rs. 20,00,000 Rs. 12,00,000 Rs. 28,00,000
each product by using sales value at split off method Sales value of the point of split off Joint cost allocated
(Rs.) M 20,00,000
(Rs.) 10,00,000 . , Rs40000 . , , xRs2000000 . , Rs80000
12,00,000
6,00,000 . , Rs40000 . , , xRs1200000 . , Rs80000
20,00,000
10,00,000 . , Rs40000 . , , xRs2000000 . , Rs80000
28,00,000
14,00,000 . , Rs40000 . , , xRs2800000 . , Rs80000
Total (b)
80,00,000
40,00,000
Statement of joint cost allocated between each product by using physical output (gallons) method Physical output (in gallons) 3,00,000 Joint cost allocated (Rs.) 24,00,000 Rs4000000 . , , x.3,00000 , 5,00000 , gallons
Produc ts M
1,00,000
8,00,000 Rs4000000 . , , x.100000 5,00000 , , , gallons
50,000
4,00,000 Rs4000000 . , , x.50000 , 5,00000 , gallons
50,000
4,00,000 Rs4000000 . , , x.50000 , 5,00000 , gallons
Total (c) each
5,00,000
40,00,000
Statement of joint cost allocated between product by using estimated net realizable value method
Produc ts
Sales revenue after further processin g (Rs.)
Sales revenue at the point of split off (Rs.) (c)
Further processi ng costs
Net realiza ble value
Joint cost allocated
(Rs.) (d)
(Rs.) (e)=[(b ) (d)] or (c) 40,00,0 00
(Rs.)
(a)
(b)
Super M
1,20,00,0 00
80,00,0 00
20,00,000
. , , Rs4000000 . , , xRs4000000 . , , Rs8000000

Super N 40,00,00 0 32,00,0 00 8,00,00 0 4,00,000
. , , Rs4000000 . , xRs8,00000 . , , Rs8000000

O -20,00,0 00 -20,00,0 00 10,00,000
. , , Rs4000000 . , , xRs2000000 . , , Rs8000000
Super P
48,00,00 0
36,00,0 00
12,00,0 00
6,00,000
. , , Rs4000000 . , , xRs1200000 . , , Rs8000000
Joint Products & By Products 11.23 Total 80,00,0 00 40,00,000
(ii)
Decision about the further refining of Product M, N or P. M Rs. 1,20,00,0 00 20,00,000 1,00,00,0 00 80,00,000 20,00,000 N Rs. 40,00,00 0 12,00,00 0 28,00,00 0 32,00,00 0 (4,00,000 ) P Rs. 48,00,00 0 28,00,00 0 20,00,00 0 36,00,00 0 (16,00,0 00)
Products Sales revenue after further processing: (A) Sales revenue at the point of split off: (B) Incremental sales revenue: (C)={(A)-(B)} Further processing cost: (D) Profit (Loss) arising due to further processing: {(C) (D)} Decision
It is apparent from above that further processing of products N and P results in the decrease of the operating profit by Rs. 20,00,000. Hence M/s. Sunshine should not resort to further processing of its N and P products. This decision on adoption would increase the operating profits of the company for the month of October 1999 by Rs. 20,00,000. Question 10 ABC Ltd. operates a simple chemical process to convert a single material into three separate items, referred to here as X, Y and Z. All three end products are separated simultaneously at a single split-off point. Product X and Y are ready for sale immediately upon split off without further processing or any other additional costs. Product Z, however, is processed further before being sold. There is no available market price for Z at the split-off point. The selling prices quoted here are expected to remain the same in the coming year. During 2002-03, the selling prices of the items and the total amounts sold were: X 186 tons sold for Rs. 1,500 per ton Y 527 tons sold for Rs. 1,125 per ton Z 736 tons sold for Rs. 750 per ton
The total joint manufacturing costs for the year were Rs. 6,25,000. An additional Rs. 3,10,000 was spent to finish product Z. There were no opening inventories of X, Y or Z at the end of the year, the following inventories of complete units were on hand: X Y Z 180 tons 60 Tons 25 tons
There was no opening or closing work-in-progress. Required: (i) Compute the cost of inventories of X, Y and Z for Balance Sheet purposes and cost of goods sold for income statement purpose as of March 31, 2003, using: (a) Net realizable value (NRV) method of joint cost allocation (b) Constant gross-margin percentage NRV method of jointcost allocation. (ii) Compare the gross-margin percentages for X, Y and Z using two methods given in requirement (i) (May, 2003, 4 + 4 + 2 = 10 marks) Answer (i) (a) Statement of Joint Cost allocation of inventories of X, Y and Z for Balance Sheet purposes (By using net realisable value method) X Rs. 5,49,000 (366 tons x Rs. 1,500) 5,49,000 Products Y Rs. 6,60,375 Z Rs. 5,70,750 Total Rs. 17,80,1 25
Final sales value of total production (Refer to working note 1) Less: Additional cost
Net realisable value
(587 (761 tons x tons x Rs. Rs. 750) 1,125) 3,10,000 6,60,375 2,60,750
3,10,00 0
14,70,1 25
(at split-off point) Joint cost allocated (Refer to working note 2)
2,33,398
2,80,748
1,10,854
6,25,00 0
Cost of goods sold for income statement purpose as of March 31,2003 (By using net realisable value method) Products X Y Z Total Rs. Rs. Rs. Rs. Allocated joint cost 2,33,378 2,80,748 1,10,85 6,25,00 4 0 Additional costs 3,10,00 3,10,00 0 0 Cost of goods available for 2,33,398 2,80,748 4,20,85 9,35,00 sale (CGAS) 4 0 Less: Cost of ending 1,14,785 inventory X : 49.18% Y : 10.22% x (CGAS) Z : 3.29% (Refer to working note) Cost of goods sold 1,18,613 28,692 13,846 (1,57,32 3)
2,52,056
4,07008
7,77,67 7
Income Statement (Showing gross margin and gross margin percentage) (By using net realisable value method) Products X Y Z Total Sales revenue (Rs.) 2,79,000 5,92,875 5,52,00 14,23,8 0 75 (186 (527 (736 tons x tons x tons x Rs. Rs. Rs. 1,500) 1,125) 750) Less: Cost of goods sold 1,18,613 2,52,056 4,07,00 7,77,67 (Rs.) 8 7 Gross margin (Rs.) 1,60,387 3,40,819 1,44,99 6,46,19
Gross margin (%)
57.49%
57.49%
2 26.26%
(b) Statement of joint cost allocation of inventories of X, Y and Z for Balance sheet purposes (By using constant gross margin percentage net-realisable value method) Product X Y Z Total Rs. Rs. Rs. Rs Final sales value of total 5,49,000 6,60,375 5,70,75 17,80,1 production 0 25 Less: Gross margin 2,60,641 3,13,517 2,70,96 8,45,12 7 5 (Refer to working note 3) 2,88,359 3,46,958 2,99,78 9,35,00 3 0 Less: Additional Cost _______ _______ 3,10,00 3,10,00 0 0 Joint cost allocated 2,88,359 3,46,858 (10,217 6,25,00 ) 0 Note: The negative joint cost allocation to product Z illustrates one unusual feature of the constant gross margin NRV method. Cost of goods sold for income statement purpose (By using constant gross margin percentage net-realisable value method) Products X Y 2,88,359 3,46,858 Z (10,217 ) 3,10,00 0 2,99,78 3 9,863 Total 6,25,00 0 3,10,00 0 9,35,00 0 1,87,12 7
Allocated joint cost Joint Cost Cost of goods available for sale (CGAS) Less: Cost of ending inventory X: 49.18% Y: 10.22% x CCGS Z: 3.29%
2,88,359 1,41,815
3,46,858 35,449
Cost of goods sold
1,46,544
3,11,409
2,89,92 0
7,47,87 3
Income Statement (Showing gross margin and gross margin percentage by using constant gross margin percentage NRV method) Product X Y Z Total Sales revenue (Rs.) 2,79,000 5,92,875 5,52,00 14,23,8 0 75 Less: Cost of goods sold 1,46,544 3,11,409 2,89,92 7,47,87 (Rs.) 0 3 Gross margin (Rs.) 1,32,456 2,81,466 2,62,08 6,76,00 0 2 Gross margin (%) 47.475% 47.475% 47.478 47.478 % % (ii) Comparative statement of gross percentage for X, Y and Z (Using net realisable value and Constant gross margin percentage NRV methods) Method Product gross margin percentage X Y Z Net realisable 57.49 57.49 26.26 Constant gross margin 47.48 47.48 47.48 percentage NRV Working notes 1. 2002-2003: Items/Produ cts Total production of three products for the year Quantity sold in tones (2) 186 527 736 Quantity of ending inentory in tons (3) 180 60 25 Total producion Ending inventory percentage (5) = (3)/ (4) 49.18 10.22 3.29
(1) X Y Z
(4) = [(2) + (3)} 366 587 761
2. Joint cost apportioned to each product:
Total cost joint xNet realisable ofeach value product Total realisable net value = Total ofproduct= cost X Rs625000 ., , x Rs549000 ., , Rs1470 . , ,125
Similarly, the joint cost of inventories of products Y and Z comes to Rs. 2,80,748 and Rs 1,10,854 respectively. 3. Gross margin percentage Rs. Final sales value production Less: Joint cost and additional costs (Rs. 6,25,000 + Rs. 3,10,000) Gross margin Gross margin percentage (Rs. 8,45,125/Rs. 17,80,125) x 100 Question 11 SUNMOON Ltd. produces 2,00,000; 30,000; 25,000; 20,000 and 75,000 units of its five products A, B, C and E respectively in a manufacturing process and sells them at Rs. 17, Rs. 13, Rs. 8, Rs 10 and Rs. 14 per unit. Except product D remaining products can be further processed and then can be sold at Rs. 25, Rs. 17, Rs. 12 and Rs. 20 per unit in case of A, B, C and E respectively. Raw material costs Rs. 35,90,000 and other manufacturing expenses cost Rs. 5,47,000 in the manufacturing process which are absorbed on the products on the basis of their. Net realisable value. The further processing costs of A, B, C and E are Rs, 12,50,000, Rs. 1,50,000; Rs. 50,000 and Rs. 1,50,000 respectively. Fixed costs are Rs. 4,73,000. You are required to prepare the following in respect of the coming year. (a) Statement showing income forecast of the company assuming that none of its products are to be further processed. 47.4756 % 8,45,125 17,80,12 5 9,35,000
(b) Statement showing income forecast of the company assuming that products A, B, C and E are to be processed further. Can you suggest any other production plan whereby the company can maximise its profits. If yes, then submit a statement showing income forecast arising out of adoption of that plan. (Nov, 1997, 16 marks)
Answer Working Note: Statement showing apportionment of joint costs on net realisable value basis Products Sales Value Post separati on cost (2) Rs. 12,50,00 0 Net reaisable Value (1) (2) = (3) Rs. 37,50,000 Apportio ned joint costs (4) Rs. 26,25,00 0
(1) Rs. 50,00,000 (2,00,000 units x Rs. 25) 3,00,000 (25,000 units x Rs. 12) 2,00,000 (20,000 units x Rs. 10) 15,00,000 (75,000 units x Rs. 20)
C D E
50,000 -1,50,000
2,50,000 2,00,000 13,50,000 ________ 59,10,000
1,75,000 1,40,000 9,45,000 ________ 41,37,00 0
Total joint cost = Raw materials costs + Manufacturing expenses = Rs. 35,90,000 + Rs. 5,47,000 = Rs. 41,37,000 Apportioned joint cost realisable value product Apportioned joint cost for Rs 41 ,000 . ,37 xRs3750000 Rs 2625000 . , , = . , , Rs 59 ,000 . ,10 product A = = Total joint cost x Net
Total net realisable value
of each
Similarly, the apportioned joint cost for products B, C, D and E are Rs.2,52,000, Rs.1,75,000, Rs.1,40,000 and Rs.9,45,000 respectively (a) the company Statement showing income forecast of
assuming that none of its products are further processed Product

A Rs. Sales revenue 34,00,0 00 (2,00,0 00 units x Rs. 17) 26,25,0 00 B Rs. 3,90,0 00 30,000 units x Rs 13) 2,52,0 00 C Rs. 2,00,0 00 (25,00 0 units x Rs. 8) 1,75,0 00 D Rs. 2,00,0 00 (20,00 0 units x Rs. 10) 1,40,0 00 E Rs. 10,50,0 00 (75,00 0 units x Rs. 14) 9,45,00 0 Total Rs. 52,40,0 00
Less: Apportioned joint cost (Refer to working note) Excess of revenue over joint cost of manufacturing Less: Fixed cost Profit
41,37,0 00
7,75,00 0
1,38,0 00
25,000
60,000
1,05,00 0
11,03,0 00 4,73,00 0 6,30,00 0
(b) Statement showing income forecast of the company; assuming that products A, B, C and E are further processed (Refer to working note) Products
A Rs. Sales revenue: (X) Apportioned joint cost: (Y) Further processing cost: (Z) Total manufacturing cost 50,00,0 00 26,25,0 00 12,50,0 00 38,75,0 00 B Rs. 5,10,0 00 2,52,0 00 1,50,0 00 4,02,0 00 C Rs. 3,00,0 00 1,75,0 00 50,000 -2,25,0 00 D Rs. 2,00,0 00 1,40,0 00 -1,40,0 00 E Rs. 15,00,0 00 9,45,00 0 1,50,00 0 10,95,0 00 Total Rs. 75,10,0 00 41,37,0 00 16,00,0 00 57,37,0 00
11.32 Cost Accounting (K)=(Y) + (Z) Excess of sales revenue over total manufacturing Cost: [(X) (K)] Less: Fixed cost Profit
11,25,0 00
1,08,0 00
75,000
60,000
4,05,00 0
17,73,0 00
4,73,00 0 13,00,0 00
Suggested production plan for maximising profits On comparing the figures of excess of revenue over cost of manufacturing in the above statements one observes that the concern is earning more after further processing of A, C and E products but is loosing a sum of Rs 30,000 in the case of product B (if it is processed further). Hence the best production plan will be to sell A, C and E after further processing and B, D at the point of split off. The profit statement based on this suggested production plan is as below: Profit statement based on suggested production plan Products
A Rs. Sales revenue (X) Apportioned joint Cost: (Y) Further processing Cost: (Z) Total manufacturing cost: (K) = (Y) + (Z) Excess of sales revenue over manufacturing cost {(X)-(K)} Less: Fixed cost Profit 50,00,0 00 26,25,0 00 12,50,0 00 38,75,0 00 11,25,0 00 B Rs. 3,90,0 00 2,52,0 00 -2,52,0 00 1,38,0 00 C Rs. 3,00,0 00 1,75,0 00 50,000 2,25,0 00 75,000 D Rs. 2,00,0 00 1,40,0 00 -1,40,0 00 60,000 E Rs. 15,00,0 00 9,45,00 0 1,50,00 0 10,95,0 00 4,05,00 0 Total Rs. 73,90,0 00 41,37,0 00 14,50,0 00 55,87,0 00 18,03,0 00
4,73,00 0 13,30,0 00
Hence the profit of the company has increased by Rs. 30,000 Question 12 In a chemical manufacturing company, three products A, B and C emerge at a single split off stage in department P. Product A is further processed in department Q, product B in department R and product R and product C in department S. There is no loss in further Processing of any of the three products. The cost data for a month are as under: Cost of raw materials introduced in department P Direct Wages Department P Q R S Rs. 12,68,800 Rs. 3,84,000 96,000 64,000 36,000
Factory overheads of Rs 4,64,000 are to be apportioned to the departments on direct wage basis. During the month under reference, the company sold all three products after processing them further as under: Products Output sold kg. Selling Price per kg. Rs. A 44,000 32 B 40,000 24 C 20,000 16
There are no Opening or Closing Stocks If these products were sold at the split off stage, that is, without further processing, the selling prices would have been Rs. 20,, Rs 22 and Rs. 10 each per kg respectively for A, B and C. Required: (i) Prepare a statement showing the apportionment of joint costs to joint products: (ii) Present a statement showing product-wise and total profit for the month under reference as per the companys current processing policy. (iii) What processing decision should have been improve the profitability of the company. taken to
(iv) Calculate the product-wise and total profit arising from your recommendation in (iii) above. (May, 2002, 12 marks) Answer (i) Statement showing the apportionment of joint costs to joint products Products A B C 44,000 40,000 20,000 20 22 10 8,80,0 00 8,80,0 00 8,80,0 00 8,80,0 00 Total
Output sold Kgs.: (I) Selling price per kg. at split off (Rs.): (II) Sales value at split off (Rs.): (I) x (II) Joint costs (costs incurred in department P (Rs.) (apportioned on the basis of sales value at the point of split off) i.e. (22:22:5) (ii)
2,00,00 19,60,0 0 00 2,00,00 19,60,0 0 00
Statement showing product-wise and total profit for the month under reference (as per the companys current processing policy) Products A B 44,000 40,000 32 24 14,08,0 00 8,80,00 0 9,60,0 00 8,80,0 00 C 20,000 16 Total
Output Kgs.: (a) Selling price per kg. after further processing (Rs.): (b) Sales value after further processing (Rs).: (c) = {(a) x (b)} Joint costs (Rs.): (d) (Refer to b (i) working notes & 2(i) Further processing costs (Rs.): (e) (Refer to working note 2 (ii) Total costs (Rs.): (f) = [(d) + (e)}
3,20,00 26,88,0 0 00 2,00,00 19,60,0 0 00
1,72,80 0 10,52,8 00
1,15,2 00 9,95,2 00
64,800 3,52,80 0 2,64,80 23,12,8 0 00
Profit/ (Loss) (Rs.): [(c)) (f)} Alternatively: Incremental sales revenue (Rs.) Less: Further processing costs (Rs.): [Refer to working note 2 (ii)] Incremental net profit / (loss)
3,55,20 0
(35,20 0) 80,000
55,200 3,75,20 0 1,20,000

(20,000 units x Rs. 6)
5,28,000
(44,000 units x Rs. 12
1,72,800
(40,000 units x Rs. 2)
1,15,200
64,800
3,55,200
(35,200)
55,200
(iii) Processing decision to improve the profitability of the company. 44,000 units of product A and 20,000 units of product C should be further processed because the incremental sales revenue generated after further processing is more than the further processing costs incurred. 40,000 units of product B should be sold at the point of-split off because the incremental revenue generated after further processing is less than the further processing costs. (iv) The product wise and total profit arising from the recommendation in (iii) above is as follows: Product Profit (Rs.) Working notes: 1. costs A 3,55,20 0 B -C 55,200 Total 4,10,40 0
Statement of department-wise P Rs. 12,68,8 00 3,84,00 0 3,07,20 0 Q Rs. R Rs. S Rs.
Raw materials Wages Overheads (Apportioned on the basis of departmental direct wages i.e. 96:24:16:9) Total Cost
96,000 76,800
64,000 51,200
36,000 28,800
19,60,0 00
1,72,80 0
1,15,2 00
64,800
2. Joint costs and further processing costs (i) Costs incurred in the department P are joint costs of products A, B and C and are equal to Rs. 19,60,000. (ii) Costs incurred in the departments Q, R and S are further processing costs of products A, B and C respectively. Further processing costs of products A, B and C thus are Rs. 1,72, 800; Rs. 1,15,200 and Rs. 64,800 respectively. Question 13
J B Limited produces four joint products A, B, C and D, all of which emerge from the processing of one raw material. The following are the relevant data: Production for the period: Joint Product A B C D Number of units 500 900 400 200 Selling price per unit Rs. 18.00 8.00 4.00 11.00
The company budgets for a profit of 10% of sales value. The other estimated costs are: Carriage inwards Direct wages Manufacturing overhead Administration overhead You are required to: (a) Calculate the maximum price that may be paid for the raw material. (b) Prepare a comprehensive cost statement for each of the products allocating the materials and other costs based upon (i) (ii) Answer Working Notes (i) Total Sales Value: Joint Products No of Units Selling price per unit Rs. 18 8 4 11 Total Sales value Rs. 9,000 7,200 1,600 2,200 20,000 Number of units Sales value. Rs. 1,000 3,000 2,000 10% of sales value
A B C D
500 900 400 200
(ii) Joint Products Cost: = Total Sales Value Budgeted profit (10% of sales value) = Rs. 20,000 Rs. 2,000 = Rs. 18,000 (a) Maximum Price for the Raw Material Rs. Joint products cost (Refer to Working Notes (I) & (ii) Less: Other Costs Carriage inwards Direct Wages Manufacturing Overhead Administration Overhead Maximum price to be paid for the raw material (b) (i) on Units) Rs. 18,000
1,000 3,000 2,000 2,000
8,000 10,000
Comprehensive Cost Statement (Based Joint products:
Units: Raw Material Carriage Direct wages Manufacturing Overhead Administration Overhead Total Cost
A 500 Rs. 2,500 250 750 500 500 4,500
B 900 Rs. 4,500 450 1,350 900 900 8,100
C 400 Rs. 2,00 0 200 600 400 400 3,60 0
D Total 200 Rs. Rs. 1,000 10,000 100 1,000 300 3,000 200 2,000 200 2,000 1,800 18,000
(ii) Comprehensive Cost Statement (Based on Sales Value) Joint products: A Rs. 9,000 4,500 450 1,350 B Rs. 7,200 3,600 360 1,080 C Rs. 1,60 0 800 80 240 D Total Rs. Rs. 2,200 20,000 1,100 10,000 110 1,000 330 3,000
Sales Value Raw Material Carriage Direct wages
Manufacturing Overhead Administrative Overhead Total Cost Question 14
900 900 8,100
720 720 6,480
160 160 1,44 0
220 2,000 220 2,000 1,980 18,000
A companys plant processes 1,50,000 kgs. of raw material in a month to produce two products, viz, P and Q. The cost of raw material is Rs. 12 per kg. The process costs month are: Rs. Direct Materials Direct Wages Variable Overheads Fixed Overheads 90,000 1,20,000 1,00,000 1,00,000
The loss in process is 5% of input and the output ratio of P and Q which emerge simultaneously is 1:2. The selling prices of the two products at the point of split off are: P Rs. 12 per kg. And Q Rs.20 Per kg. A proposal is available to process P further by mixing it with other purchased materials. The entire current output of the plant can be so processed further to obtain a new product S. The price per kg. of S is Rs. 15 and each kg of output of S will require one kilogram of input P. The cost of processing of P into S (including other materials) is Rs. 1,85,000 per month. You are required to prepare a statement showing the monthly profitability based both on the existing manufacturing operations and on further processing. Will you recommend further processing? Answer Working Notes: 1. Material input Less: Loss of Material in process (5% of 1,50,000) Total output P = 1,42,500 x 1 = 47,500 kg. 3 Kgs. 1,50,000 7,500 1,42,500
2. Output of P and Q are in the ratio of 1 : 2 of the total output:
Q = 1,42,500 x 2 = 95,000 kg. 3 3. Joint Costs: Material (input) (1,50,000 kg. X Rs. 12) Direct materials Direct Wages Variable overheads Fixed overheads 4. Sales Revenue of P, Q and S P = 47,500 x Rs. 12 = Rs. 5,70,000 Q = 95,000 x Rs. 20 = Rs. 19,00,000 S = 47,500 x Rs. 15 = Rs 7,12,500. 5. Apportionment of joint costs viz. Rs. 22,10,000 over P and Q in proportion of their sales value i.e. Rs. 5,70,000 and Rs. 19,00,000, i.e., 3 : 10 is: Total Rs 22,10,000 P Rs. 5,10,000 . ,10 x Rs22 ,000 3 13 Q Rs. 17,00,000 . ,10 x Rs 22 ,000 10 13 Rs. 18,00,000 90,000 1,20,000 1,00,000 1,00,000 22,10,000
Joint cost apportionment In the ratio of 3 : 10
6. Total Cost of 47,500 kg. of S = Joint Cost of P + Cost of Processing P into S. = Rs. 5,10,000 + Rs. 1,85,000 = Rs. 6,85,000. Statement showing the Monthly Profitability
Based on existing Based on further processing manufacturing operations of P into S Products Products P Q Total S Q Total 47,500 95,000 1,42,50 47,500 95,000 1,42,50 0 0 Rs. Rs. Rs. Rs. Rs. Rs. 5,70,00 19,00,00 24,70,0 7,12,50 19,00,0 26,12,5 0 0 00 0 00 00
Sales quantity (kgs.)
Sales Revenue (Refer to working
note 4) Less: Joint Costs (Refer to working note 5) Profit
5,10,00 0 ______ 60,000
17,00,00 0 _______ 2,00,000
22,10,0 00 _______ 2,60,00 0
6,95,00 0 _______ 17,500
17,00,0 00 _______ 2,00,00 0
15,95,0 00 _______ 2,17,50 0
Refer to working note 6 Recommendation: Further processing of P is not recommended as it results in a lower profit of P Question 15 A company operates a chemical process which produces four products: K, L M and N from a basic raw material. The companys budget for a month is as under: Raw materials consumption Initial processing wages Initial processing overheads Product Production Kgs. 16,000 200 2,000 360 Sales Rs. 1,09,600 5,600 30,000 21,600 Rs. 17,520 16,240 16,240 Additional Processing Costs after split-off Rs. 28,800 16,000 6,600
K L M N
The company presently intends to sell product L at the point of split-off without further processing. The remaining products, K, M and N are to be further processed and sold. However, the management has been advised that it would be possible to sell all the four products at the split-off point without further processing and if this course was adopted, the selling prices would be as under: Product Selling Price Per kg. Rs. K 4.00 L 28.00 M 8.00 N 40.00
The joint costs are to be apportioned on the basis of the sales value realisation at the point of split-off. Required:
(i) Prepare the statement showing the apportionment of joint costs. (ii) Present a statement showing the productwise and total budgeted profit or loss based on the proposal to sell product L at the split-off point and products K, M and N after further processing. (iii) Prepare a statement to show the productwise and total profit or loss if the alternative strategy to sell all the products at split-off stage was adopted. (iv) Recommend any other alternative which in your opinion can increase the total profit further. Calculate the total profit as also the poductwise profit or loss, based on your recommendation. Answer (i) Costs Products Production (Kgs.): (A) Selling Price at split off point (Rs./Kg.): (B) Sales value at split off point (Rs.): (C) = (A X B) Joint Cost apportionment (Refer to Working Note) 32,000 2,800 8,000 7,200 50,000 64,000 5,600 16,00 0 14,40 0 1,00,0 00 K 16,000 4 L 200 28 M 2,000 8 N 360 40 Total (Rs.) Statement showing Apportionment of Joint
(ii)
Statement of Total Budgeted Profit or Loss (Based on the proposal to sell L at the split off point and products K, M and N after further processing) Products K L M N Total Rs. Rs Rs. Rs Rs. Sales Revenue: (A) 1,09,6 5,600 30,00 21,60 1,66,8
Joint Cost: (B) (Refer to Working Note) Addl. Processing Cost: (C) (after split off) Total Cost: (D) = (B + C) Profit: (A D) (iii)
00 32,000 28,800
2,800 --
0 8,000 16,00 0 24,00 0 6,000
0 00 7,200 50,000 6,600 51,400
60,800 48,800
2,800 2,800
13,80 1,01,4 0 00 7,800 65,400
Statement of Profit or Loss (When all the products are sold at split-off stage) Products K L M N Total Rs. Rs. Rs. Rs. Rs. Sales revenue 64,000 5,600 16,00 14,40 1,00,0 0 0 00 Less: Joint Cost 32,000 2,800 8,000 7,200 50,000 (Refer to Working Note) _____ _____ _____ _____ _____ Profit 32,000 2,800 8,000 7,200 50,000 (iv) Statement of Profit or Loss (On the basis of another alternative) Products K L M N Tot al Rs. Rs. Rs. Rs. Rs. Incremental sales 45,600 14,000 7,200 revenue on further processing (Rs. (Rs. (Rs. 1,09,60030,00021,600Rs. 64,000) Rs. Rs.14,40 16,000) 0) Less: Additional 28,800 16,000 6,600 processing Cost Profit (Loss) 16,800 (2,000) 600 Since further processing of K and N adds to profit, therefore the recommended mix that would increase total profit is to process products K and N further and sell products L and M at the split - off point.
Profit and Loss statement based on recommended alternative Products K L M N Process Sell at Sell at Process further split off split off further & & sell sell Rs Rs. Rs. Rs. 32,000 2,800 8,000 7,200 16,800 _____ 48,800 -_____ 2,800 -_____ 8,000 600 _____ 7,800 Total
Rs.
Profit at split off point: (A) Incremental profit on sale after further processing: (B) Total: (C) = (A + B) Working Note: Joint Cost
_____ 67,4 00
= Raw material consumption + Initial processing wages + Initial processing overheads = R. 17,520 + Rs. 16,240 + Rs. 16,240 = Rs. 50,000 Joint Cost apportionment (On the basis of sales value at split off point) = Jo int Cost xSales ofthe value product Total sales value Joint Cost apportionment Rs50000 . , xRs64000 Rs 32000 . , = . , Rs100000 ., , Rs50000 . , xRs 5600 Rs 2800 . , = . , Rs100000 ., , Rs50000 . , xRs16000 Rs 8000 . , = . , Rs100000 ., , Rs50000 . , xRs14000 Rs 7200 . , = ., Rs100000 ., ,
Products K L M N Question 16
Three joint products are produced by passing chemicals through two consecutive processes. Output from process 1 is transferred to
process 2 from which the three joint products are produced and immediately sold. The data regarding the processes for April, 1990 is given below:
Direct material 2,500 kilos at Rs. 4 per kilo Direct labour Overheads Normal Loss Scrap value of loss Output
Process 1 Rs. 10,000 Rs. 6,250 Rs. 4,500 10% of input Rs. 2 per kilo 2,300 kilos
Process 2 Rs. 6,900 Rs. 6,900 Joint products A 900 Kilos B 800 Kilos C 600 Kilos
There were no opening or closing stocks in either process and the selling prices of the output from process 2 were: Joint product A Rs. 24 per kilo Joint product B Rs. 18 per kilo Joint product C Rs. 12 per kilo Required: (a) Prepare an account for process 1 together with any Loss or Gain Accounts you consider necessary to record the months activities. (b) Calculate the profit attributable to each of the joint products by apportioning the total costs from process 2 (i) According to weight of output; (ii) By the market value of production. Answer Working Notes: (1) Joint Cost of three products under Process 2 By Transfer of output from Rs. 20,700
process-I Direct Labour Overhead Total (2) Joint Products A Output in Kg. 900
6,900 6,900 34,500 Apportionment of joint cost on the basis of weight of output Rs. 34,500 x 9 = Rs. 13,500 23 Rs. 34,500 x 8 = Rs 12,000 23 Rs. 34,500 x 6 = Rs. 9,000 23 Sales Revenue Rs. 21,600 14,400 7,200 ______ 43,200 Apportionment of Joint Cost on the basis of market value of production Rs. 34,500 x 3 6 Rs. 34,500 x 2 6 Rs. 34,500 x 1 6 = Rs. 17,250 = Rs. 11,500 = Rs. 5,750 _______ 34,500
B C (3) Joint Produc ts A B C Output In Kg.
800 600
S.P. (p.u.) Rs. 24 18 12
900 800 600
(a)
Kg. Rate per kg. (Rs. ) 4 --9 Amo unt Rs. 10,00 0 6,250 4,500 450
Process 1 Account
Kg. Rate per kg. (Rs.) 9 Amou nt Rs. 20,70 0 500 ___
To Direct material To Direct labour To Overhead To Abnormal gain
2,50 0 --50
By Process 2 (Refer to Note 1) By Normal Loss (10% of input)
2,3 00 250 ___
2,55 0
21,20 0 Normal Loss Account Rate Amo per unt kg. (Rs.) Rs. 2 500 By Sales ___ By Abnormal gain 500 Abnormal Gain Account Rate Amo per unt kg. (Rs.) Rs. 2 100 By Process I
2,5 50
21,20 0
Kg.
Kg.
To Process I
250 ___ 250 Kg.
200 50 250 Kg.
Rate per kg. (Rs.) 2 2
Amou nt Rs. 400 100 500 Amou nt Rs. 450
To Normal Loss A/c To Costing Profit and Loss Account
50
50
Rate per kg. (Rs.) 9
___ 50
350 450
___ 50
___ 450
Note: Normal output = 2,500 kg. 250 kg. = 2,250 kg Total Cost = Direct material cost + Direct labour cost + Overheads Recovery from scrap sales = Rs.10,000 + Rs.6,250 + Rs.4,500 Rs.500 = Rs.20,250 Normal cost (p.u.) = (b) Rs20250 . , = Rs 9 . 2250 , kg
Statement of Profit (attributable to each of the Joint Products according to weight of output and market value of production)
Outpu t S.P. (p.u.) Sales value Joint cost apportionment according to Weight of output Market value of producti on Rs. Profit (Loss) Profit
Joint produc ts
Rs.
Kg.
Rs.
Rs.
Rs.
Rs.
Rs.
11.48 Cost Accounting 1 A B C 2 900 800 600 2,300 3 24 18 12 2x3=4 21,60 0 14,40 0 7,200 43,20 0 5 13,500* 12,000 9,000 34,500 6 17,250* * 11,500 5,750 34,500 4-5=7 8,100 2,400 (1,800 ) 8,700 4-6=8 4,350 2,900 1,450 8,700
* Refer to working note 2 ** Refer to working note 3 Question 17 The yield of a certain process is 80% as to the main product, 15% as to the by-product and 5% as to the process loss. The material put in process (5,000 units) cost Rs. 23,75 per unit and all other charges 1 are Rs. 14,250, of which power cost accounted for 33 %. It is 3 ascertained that power is chargeable as to the main product and byproduct in the ratio of 10 : 9. Draw up a statement showing the cost of the by-product.
Answer Working Note Yield per 5,000 input units Main product By product Process loss Yield in Percentage 80% 15% 5% Yield in Units 4,000 750 250 Rs. 18,750 750 4,750 1,500
Statement Showing the Cost of the By-Product Cost of Material (5,000 x Rs. 23.75) x
Other Charges (except power) 2 750 x (Rs. 14,250 x 66 %) 3 4,750 Power 1 9 x (Rs. 14,250 x 33 %) 3 19 Total Cost Question 18
2,250 _____ 22,500
A factory is engaged in the production of a chemical BOMEX and in the course of its manufacture, a by-product BRUCIL is produced, which after further processing has a commercial value. For the month of April 1990, the following are the summarised cost data: Joint Expenses Rs. 1,00,000 50,000 30,000 Separate BOMEX Rs. 6,000 20,000 10,000 98 98 Units Expenses BRUCIL Rs. 4,000 18,000 6,000 34 34 Units
Materials Labour Overheads Selling Price per unit Estimated profit per unit on sale of BRUCIL
No. of units produced
2,000
2,000
The factory uses reverse cost method of accounting for byproducts whereby the sales value of by-products after deduction of the estimated, profit, post separation costs and selling and distribution expenses relating to the by products is credited to the joint process cost account. You are required to prepare statements showing: (i) The joint cost allocable to BOMEX. (ii) The product-wise and overall profitability of the factory for April 1990. Answer Working Notes: Computation of the share of Joint expenses allocable to the by-product BRUCIL. BRUCIL 1. By-product Units produced Selling price per unit (Rs.) Sales Revenue (Rs.) (2,000 x Rs. 34) Less: Profit (2,000 x Rs.4) Cost of Sales Less: Selling and Distribution Exp. Less: Expenses after separation (Rs. 4,000 + Rs. 18,000 + Rs. 6,000) Cost of production at the point of separation (i) BOMEX Total Joint Expenses Material Labour Overhead Less: Joint Cost allocable to the production of 2,000 units of BRUCIL at the point of separation (See Working Note 1) Rs. 1,00,000 50,000 30,000 Rs. 2,000 34 68,000 8,000 60,000 Nil 28,000 _____ 32,000
Statement of Joint Cost Allocable to
1,80,000 32,000
_______
Cost of production of 2,000 units of BOMEX
1,48,000
(ii)
Productwise and Overall profitability Statement of the month of April, 1990 Products BOMEX BRUCIL 2,000 34 68,000 32,00 0 Total Rs.
Sales (units) Selling price (Rs.) Sales Revenue (Rs.) Less: Cost of production at the point of separation Less: Post separation cost Profit (Rs.) Question 19 1,48,0 00
2,000 98 1,96,0 00
36,000
1,84,0 00 12,000
28,00 0
60,000 8,000 20,000
Distinguish between Joint products and By-products. Answer Joint products and By-products: Joint Products are defined as the products which are produced simultaneously from same basic raw materials by a common process or processes but none of the products is relatively of more importance or value as compared with the other. For example spirit, kerosene oil, fuel oil, lubricating oil, wax, tar and asphalt are the examples of joint products. By products, on the other hand, are the products of minor importance jointly produced with other products of relatively more importance or value by the common process and using the same basic materials. These products remain inseparable upto the point of split off. For example in Dairy industries, batter or cheese is the main product, but butter milk is the by-product. Points of Distinction: (1) Joint product are the products of equal economic importance, while the by-products are of lesser importance. (2) Joint products are produced in the same process, whereas byproducts are produced from the scrap or the discarded materials of the main product.
(3) Joint products are not produced incidentally, but by-products emerge incidentally also. Question 20 A company produces two joint product X and Y, from the same basic materials. The processing is completed in three departments. Materials are mixed in department I. At the end of this process X and Y get separated. After separation X is completed in the department II and Y is finished in department III. During a period 2,00,000 kgs of raw material were processed in department I, at a total cost of Rs. 8,75,000, and the resultant 60% becomes X and 30% becomes Y and 10% normally lost in processing. In department II 1/6 of the quantity received from department I is lost in processing. X is further processed in department II at a cost of Rs. 1,80,000. In department III further new material added to the material received from department I and weight mixture is doubled, there is no quantity loss in the department and further processing cost (with material cost) is Rs. 1,50,000. The details of sales during the year: Product X Quantity sold (kgs) 90,000 Product Y 1,15,000
Sales price per kg 10 4 (Rs.) There were no opening stocks. If these products sold at split-offpoint, the selling price of X and Y would be Rs. 8 and Rs. 4 per kg respectively. Required: (i) Prepare a statement showing the apportionment of joint cost to X and Y in proportion of sales value at split off point. (ii) Prepare a statement showing the cost per kg of each product indicating joint cost, processing cost and total cost separately. (iii) Prepare a statement showing the product wise profit for the year. (iv) On the basis of profits before and after further processing of product X and Y, give your comment that products should be
further processed or not.(2+3+2+2= 9 marks) Answer Calculation of quantity produced Input (kg) Weight lost added Production of X Production of Y (i) Dept I 2,00,000 (20,000) Dept II 1,20,000 (20,000) Dept III 60,000 60,000
or
1,80,000 1,00,000 1,20,000 1,20,000 1,00,000 60,000 1,20,000 Statement of apportionment of joint cost (Joint cost Rs. 8,75,000) Product X Product Y 1,20,000 60,000 8 4 9,60,000 7,00,000 Statement of cost per kg Product X Product Y 1,75,000 1,20,000 1.458 1.250 2.708 Product Y 1,20,000 1,15,000 5,000 Rs. 4,60,000 2,40,000 1,75,000
Out put (kg) Selling price per kg (Rs.) Sales value (Rs.) Share in Joint cost (4:1) (ii)
Share in joint cost (Rs.) Out put (kg) Cost per kg (Rs.) (Joint cost) Further processing cost per kg (Rs.) Total cost per kg (Rs.) (iii) Out put (kg) Sales (kg) Closing stock
7,00,000 1,00,000 7.00 1.80
8.80 Statement of profit Product X 1,00,000 90,000 10,000 Rs.
Sales @ Rs. 10, 4(for product X
9,00,000
and Y) Add: closing stock (kg) (at full cost) Value of production Less: Share in joint cost Further processing Profit (iv) after processing Profitability 88,000 9,88,000 7,00,000 1,80,000 1,08,000 statement, Produc tY Before (Rs,) 2,40,00 0 1,75,00 0 13,540 4,73,540 1,75,000 1,50,000 1,48,540 before and Product Y After (Rs)
Produ ct X Before (Rs.) Sales Value Share in joint costs Profit 9,60,0 00 7,00,0 00 2,60,0 00
Product X After (Rs.)
1,08,000 65,000 1,48,540 (as per iii (as per iii above) above) Product X should be sold at split off point and product Y after processing because of higher profitability. Question 21 Discuss the treatment of by-product Cost in Cost Accounting. (November 2007, 3 Marks) Answer Treatment of by-product cost in Cost Accounting: (i) When they are of small total value, the amount realized from their sale may be dealt as follows: Sales value of the by-product may be credited to Profit and Loss Account and no credit be given in Cost Accounting. The credit to Profit and Loss Account here is treated either as a miscellaneous income or as additional sales revenue. The sale proceeds of the by product may be treated as
deduction from the total costs. The sales proceeds should be deducted either from production cost or cost of sales. (ii) When they require further processing: In this case, the net realizable value of the by product at the split-off point may be arrived at by subtracting the further processing cost from realizable value of by products. If the value is small, it may be treated as discussed in (i) above.

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Joint Products & By Products

When they require further processing.

Joint Products & By Products

Sales Costs incurred after separation Profit as percentage on sales

1,90,00 0 40,500 1,49,50 0 14,950 1,34,55 0 15,000 1,19,55 0

Sales Costs Profit

Joint Products & By Products

AOXE BOXE COXE DOXE

Rs. 8,000 4,000 2,000 4,000

Rs. 1,72,500 15,000 6,000 45,000

AOXE BOXE COXE DOXE Total

Rs. 1,72,500 15,000 6,000 45,000 2,38,500

Rs. 98,667 19,733 4,933 24,667 1,48,000

Rs. 43,000 9,000 1,500 53,500

+ (d) Rs. 1,41,667 28,733 4,933 26,167 2,02,500

(c) Rs. 30,833 (13,733) 1,067 18,833 37,000

Joint Products & By Products

(1) Rs. 15 6 3 7.50 Total

(2) Rs. 8,000 4,000 2,000 4,000

AOXE BOXE COXE DOXE

(3) = (1) x (2) Rs. 1,20,000 24,000 6,000 30,000 1,80,000

(4) Rs. 98,667 19,733 4,933 24,667 1,48,000

(5) = (3) (4) Rs. 21,333 4,267 1,067 5,333 32,000

Sales value of products at split off Weights Joint cost allocated

Rs. 8,55,000 1.00

Joint Products & By Products

0.65 = Rs. 4,63,125

Output Weight Joint cost allocated

750 gallons 1.00 Rs. 7,12,500

Rs. 17,81,250 Rs. 9,26,250 Rs. 8,55,000

11.10 Cost Accounting

Final sales value of production

Rs 1,42,500 Rs. 16,38,750 Rs. 9,26,250 Rs. 7,12,500

5,70,000 3,02,812. 50 2,49,375 17,812.50

5,70,000 3,02,812 .50 2,85,000 (17,812. 50)

5,70,000 3,02,812.5 0 2,22,656.2 5 44,531.25

Joint Products & By Products 11.11

Final sale value of milk chocolate Less: costs separable

12,11,250 6,23,437. 50 4,63,125 1,24,687. 50 10.29%

12,11,25 0 6,23,437 .50 4,27,500 1,60,312 .50 13.23%

12,11,250 6,23,437.5 0 4,89,843.7 5 97,968.75 8.08%

Further processing of Chocolate

6,55,500 6,23,437.5 0 32,062.50

11.12 Cost Accounting

Joint Products & By Products 11.13

Answer (i) Statement showing the apportionment of joint costs to A, B and X

(ii) each product

Statement showing the cost per kg. Of

6,30,000 18,000 35 10 Rs180000 ., , 18000 , kg

2,80,000 10,000 28 15 Rs150 . , ,000 10000 , kg 43

3,78,000 54,000 7 2 Rs108 . , ,000 54000 , kg 9

Total cost per kg (Rs.) (iii)

Products Sales value (Rs.)

11.14 Cost Accounting

8,82,00 26,16,0 0 00 3,78,00 0 1,08,00 0 4,86,00 17,26,0 0 00 3,96,00 8,90,00 0 0

A 12,24,000 17,000 72 Rs12 ,000 . ,24 17 kg ,000

B 2,50,000 5,000 50 Rs2,50000 . , 5,000 kg

X 7,92,000 44,000 18 Rs7,92000 . , 44000 , kg

Valuation of closing stock:

Joint Products & By Products 11.15

Calculations for processing decision A 50 72 B 40 50 X 10 18

11.16 Cost Accounting

Joint Products & by Products

Joint Products & by Products