itL[usr ffioNs

. sales: Product A - 100 kg at Rs.60 per kg, and product B - 120 kg at Rs.30 per kg.
o Total Costs: Marginal Cost Rs.4,400 and Fixed Cost Rs.3,g00
Solution: Note: Under the Contribution Margin Method, Variable Costs are apportioned using physical quantities
(since average unit cost or points are not given in the question). Fixed'Costs are
apportioned on the ratio
of Contribution, i.e. Sales Value Less Variable Costs.
Statement of and Profits
Pafticularc PrcduetA Product B Total
Sales 100 x 50 =6,Q00 120x30=3,600 9,600
Less: Variable Costs in the ratio 100: 120 2.000 2.40 4,400
LontnDuuon = Sales Less variable costs
+000 1,200 5,200
Less: Fixed Costs.in ratio of Contribution 40: lZ 3.000 900 3,900
Profit = Contribution Less Fixed Costs 1,000 300 1,300

iffiii dlf#,r0itrmt ,tri;,i:

From the tollowinq information on three Joint Costs of Rs.l,00.000 under different methods.
Particulars Product L Product M Product N
Number of unitsproduced 18,(XX) units 9,000 units 23,000 units
Output weight (in kgs) 600 kg 400 kg 1,000 kg
lmportance based on technical estimate 40Yo 30o/o 30Yo
Final Selling Price per unit Rs.l0 Rs.8 Rs.8
Solution:
Particularc Ptoduct L Product M Prcduct N Total
L Number of unib produced 18,000 units 9,000 units 23,000 units 50,000 units
2. Joint Costs appoftioned in AveragLe Unit Cost Method,
i.e. in the ratio (19 : g : 23) Rs.36,000 Rs.18,0OO Rs.46,OO0 Rs.1,0O,0OO
3. Output weisht (in kqs) 600 kq 400 kq 1,000 kq 2,000 kq
4. Joint Cosb apportioned in physical euantities Method,
i.e. in the ratio (6 : 4 : 10) Rs.30,000 Rs.20,0O0 Rs.50,OO0 Rs.1,0O,O0O
5. Importance (technical estimate) (oiven) 4oo/o 3Oo/o 30o/o
6. Impoftance x No. of units 7,200 2,700 6.900 16,800
7. Joint Cnsts apportioned in points Method Alternative 1,
i
___ ! in the ratio (72:27 : 69) Rs.42,857 Rs.16,071 Rs.41,072 Rs.1,OO,OOo
8. Impoftance x Qulpul weight 240 120 300 660
y. Jomr Lo$S,apportioned in points Meftod Alternative 2,
i.e. in the ratio (24: 12 : 30) Rs.36,364 Rs.18,182 Rs.45,454 Rs.1,OO.OOO
10. Final Selling Price per unit (Given) Rs.10 Rs.8 Rs.8
11. Sale Value (1 x 10) Rs.1.80.000 Rs.72,000 Rs.1.84.000 Rs.4.36.000
12. Joint Costs apportioned based on Sales Value, ie. in
_the ratio (180 :72 : LB4) Rs.41,284 Rs.15.514 Rs.42,2O2 Rs.1,00,000

Two products P and Q are obtained in a cruoe fo_rm ino require iyrtlei plocessing
at a cost oi'iis.s for p and Rs.a ,or
unit before sale. Assuming. a net margin ol 25Yo on cosi, their satE Prices aie fixed at Rs.13.75
oili
and Rs.g.75 peiunit
respectively. During this period, the Joint Cost was Rs.88,0fi) and the output were
8,000 units of p and 6,000 units oiO. Vou
arc rcquired to ascertain the Joint Cost per unit.
Students'Handbook on Cost Accounting and Financial Management

Solution:
Product P o Total
Production / Sale Ouantity 8,000 units 6,000 units
8,000 x Rs.13.75 = 6,000 x Rs.8.75 =
Sales Values Rs.1,10,000 Rs.52,500 Rs.1,62,500
Less: Profit at 251725 of Sale Price Rs. 22.000 Rs.10,500 Rs. 32,500
Total Cost = Sales Less Profit Rs. 88,000 Rs.42,000 Rs.1,30,000
Less: Further Processino Costs 8,000x5=Rs. 40,000 6,000x4=Rs.24.000 Rs. 64.000
Estimated NRV at solit<ff Rs. 48.000 Rs.18,000 Rs. 66.000
loints Costs aooortioned in NRV ratio Rs,64,000 Rs.24,OOO Rs.88,000
So. loint Cost Per unit Rs.64,000 + 8,000= Rs.8.0O Rs. 24,000+6,000= Rs.4.0O

Illurffatior 4: Jdffi, Cos,t Apprtionment - NRVand Constar$GP Mugfintlsfiuk- SloelrA$tffinents t 00

ABC Ltd operatqs a simple chemical process to convert a single material into three separate items, relerred to here as X, Y and
Z. Allthree 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.

T[e Selling Prices quoted here are expected to remain the same in the coming year. During the year, the Selling Prices of the
items and the total quantities sold were -
X- 186 tons sold at Rs.l,500 per ton, Y -527 tons sold for Rs.l,125 per ton, Z-7g6tons sotd for Rs.750 per ton.

The Total Joint Manufacturing Costs lor the year were Rs.6,25,000. An additional Rs.3,10,000 was spent to linish Product Z.

There were no opening inventories of X, Y and Z. At the end of the year, the lollowing inventories ol complete units were on
hand - X ,- 180 tons, Y - 60 tons, Z - 25 tons. There was no Opening or Closing Work-in-Progress.

1. Compute the cost of inventories of X, Y and Z for Balance Sheet purposes, and Cost of Goods Sold for lncome Statement
purposes, using -
(a) Net Realisable Value (NRV) Method of Joint Cost Allocation.
(b) Constant Gross Margin Percentage NRV Method of Joint Cost Allocation.
2. Compare the Gross Margin Percentages for X, Y and Z, using the two methods given above.

Solution:
Pafticulars x Y z Total
1. Sale Ouantity 186 tons 527 tons 735 tons
2. Closinq Stock of Finished Goods Qtty 180 tons 60 tons 25 tons
3. Total Production Qtty (1 + 2) 366 tons 587 tons 751 tons
4. Sellinq Price Der ton (oiven) Rs.1,500 Rs.1.125 Rs.750
5. Sales Value of Production OtW (3x4) Rs.5,49,000 Rs.6,60,375 Rs.5,70,750 Rs.17,80,125
6. Fufther Processino Costs (oiven) NA NA Rs.3.10.000 Rs. 3,10.000
7. Estimated NRV at Split{ff (5 - 6) Rs.5.49.000 Rs.6,60.375 Rs.2.60.750 Rs.14.70.125
8. Joint Cost apportioned based on Rs.433,398 Rs.2r8or748 Rs.1,10,854 Rs.61251000
Estimated NRV, i.e. (ratio as per 7)
9. Averaqe loint Cost Der ton (8 + 3) Rs.637.70 Rs.478.28 Rs.145.57
10. Average Fufther Processing Cost per
Nil Nil Rs.407.35
ton (6 + 3)
11. Average Total Cost per ton under
Rs.637.70 Rs.478.28 Rs.553.03
Estimated NRV Method (9+ 10)
12. Cost of Inventory for B/s purposes
under Estimated NRV Method (2 x 11)
Rs.1,14,786 Rs.28,697 Rs.13,826 Rs. 1,57,309
13. Cost of Goods Sold for P&L purposes
under Estimated NRV Method (1 x 11) Rs.1,18,612 Rs.2,52,051 Rs.4,07,028 Rs. 7,77,691
or (Total Cost less Clq Sk) (6+8 -12)
14. Sales Revenue (for Sale OtW) (1x4) Rs.2,79,000 Rs.5,92.875 Rs.5,52.000 R.s.14.23.875
15. Gross Profit under Estimated NRV
Rs.11601388 Rs.3r40r824 Rs.1,44.r972 Rs.61461184
Method (Sales - COGS) (14 - 13)

7.6
 Pafticularc x Y z Total
16. Gross Profit / Margin Ratio under
57.49o/o 57.49o/o 26.260/o 45.38o/o
Estimated NRV Method (15 + 14)
17. Allocated GP at constant GP Margin of
47.48o/o of Sales (5 x 47.48o/o) [Refer Rs.2,60,641 Rs.3,13,517 Rs.2,70,967 Rs.8,45,125
WN below for constant GP Maroinl
18. Balance being Total Cost at 52.52o/o of
Sales ((5 x 52.52o/o) or (5 * 17)
Rs.2,88,359 Rs.3,46,858 Rs.2,99,783 Rs. 9,35,000
19. Fufther Processinq Costs (oiven) NA NA Rs.3.10.000 Rs. 3.10.000
20. Joint Costs allocated under constant
Rs.488,359 Rs.31461858 (Rs.10,217) Rs. 6,25,000
Grcss Maroin o/oaoe NRV Meftod (18-19)
21. Average Total Cost per ton under
(f8 + 3) Rs.787.87 Rs.590.90 Rs.393.93
constant GP Marqin Method
22. Cost of Inventory for B/s purposes in
constant GP Marqin Method (2 x 27)
Rs.1,41,817 Rs.35,454 Rs.9,848 Rs. 1,87,119
23. Cost of Goods Sold for P&L purposes in
constant GP Margin Method (1 x 21) Rs.L,46,542 Rs.3,11,404 Rs.2,89,935 Rs. 7,47,881
or (Total Cost less Clq'Sk) 08 - 22\
24. Sales Revenue (for Sale Ottv) (1x4) Rs.2.79.000 Rs.5,92,875 Rs.5,52,000 Rs.14,23,875
25. Gross Profit under constant GP Margin
Rs.1,32458 Rs.2r811471 Rs.21621065 Rs.61751994
Method (Sales - COGS) (24 - 23)
26. Gross - Profit / Margin Ratio under
47,48o/o 47.48o/o 47.48o/o 47.48o/o
constant GP Marqin Method (25 + 24)
Note:ThenegativeJointCostAl!ocationtoProductZisoneofthepeculiarfeituresorwnv
Method of loint Cost Allocation.

WN: of Constant
Sale Value of Production Quantity (as per 5 above) Rs.17,80,125
Less: Total Costs (loint CosE Rs.6,25,000 + Further Processinq Costs Rs.3.10.000) Rs. 9,35,000
Overall Grcss Profit Rs.8r45r125
overall Grcss Profit / Margin Ratio
- = Rs.L7,80,125
-Rs'9'45'125 47.48o/o

.*iii*{r- 8..{ t,8! iiii+;fif"l*f#ilii,iijiiiii;i*i,*1ffiffl{iEi#*

Ganesh & Co. processes a raw material in its Department I to produce three products, viz, A, B and X at thC same split-otf
i{ ffi}Iijjiiriij r

stage. During a period 1,80,000 Kgs of raw materials were processed in Department I at a total cost of Rs.12,88,000. The
resultant output ol A, B and X were 18,000, 10,000 and 54,000 Kgs respectively. A and B were lurther processed in
Department llat a cost of Rs.1,80,000 and Rs.l50,000 respectively.

X was further processed in Department tll at a cost of Rs.l,08,0fi). There is no waste in further processang. The details ol sates
effected the wer€ as under -
Product A B x
Quantity Sold in kgs 17,000 5,000 44,000
Sales Value Rs.l2.24.(X)0 Rs.2.50.flX! Rs.7.92.0fi1

Therc were no opening stocks. lf these products were sold at split off point, the Selling Prices of A, B and X would have been
Rs.50, Rs.40 and Rs.10 per kg respectively.

Prepare a statement showing product-wise and total profit for the period.

Solution: Note: Joint Costs are to based on Sales Value at

Pafticularc A B x Total
1. Production Quantity at split off 18,000 kqs 10.000 kos 54,000 kqs
2. Sellinq Price per ko (at solit off) Rs.50 Rs.40 Rs.10
3. Sales Value at split off (1 x 2) Rs.9,00,000 Rs.4.00.000 Rs.5..+0.000 Rs.18.40.000
4. Joint Cost appoftioned in 9: 4t 5.4 Rs.6,30,000 Rs.2,80,000 Rs.3.78.000 Rs.12.88.000
5. Joint Cost per ko (4 + 1) Rs.35 Rs.28 Rs.7

7.7
Students'Handbook on Cost Accounting and Financial Management

Pafticularc A B x Total
6. Further Processinq Costs (qiven) Rs.1,80,000 Rs.1.50.000 Rs.1.08.000
7. Further Proc. Cost oer kq (6 + 1 Rs.10 Rs.15 Rs.2
8. Total Costs per kq = (4 + 7) Rs.45 Rs.43 Rs.9
9. Sales Value (oiven) Rs.12,24,000 Rs.2.50.000 Rs.7,92,000
10. Sale Ouantitv (oiven) 17.000 kos 5,000 kqs 44.000 kos
11. Sale Price oer ko = (9 + 10) Rs.72 Rs.50 Rs.18
12. Profit oer kq = (11 - 8) Rs.27 Rs.7 Rs.9
13. Total Profit = (10 x 12) Rs.4,59,000 Rs,35,000 Rs.3,96,000 Rs.8,9O,O0O

gtirsr$ffi0i'dtlnt:Costs, *.F frodking tlecision : ':,!l'fl$

The Sunshine Oil Company purchases crude vegetable oil. !t does refining of the same. The refining process results in four
products produced at the split off point - M, N,O and P.

Product O is fully processed at the split off point. Products M, N and P can be individually further relined into "Super il',
N" and "Suoer P". ln lhe most recent month (October). the outout at the split off ooint was -
. Product M N o P

Output in gallons 3,00,000 1,00,000 50,000 50,000

The Joint Cost of purchasing the crude vegetable oil and processing it were Rs.40 Lakhs.

Sunshine had no beginning or ending inventories. Sales of Product 0 in October were Rs.20 Lakhs. Total output of M, N and P
was further refined and then sold. Data relating to sales in October were as under -
Product Further Processinq Cost to make Super Products Sales Value
Super M Rs.80 Lakhs Rs.l20 Lakhs
Super N Rs.32 Lakhs Rs.40 Lakhs
Super P Rs.36 Lakhs Rs.4S Lakhs

Sunshlne had ttre option of selling products M, N and P at the split ofl point. This would have yielded sale revenues ol Rs.20
Lakhs, Rs.12 Lakhs and Rs.28 lakhs for M, N and P respectively for October production.

1. How the Joint Costs of Rs.40 Lakhs would be allocated between the products under each of the following methods -
(a) Sales Value at split-otf, (b) Physical output (gallons) and (c) Estimated Net Realisable Value.
2. Could Sunshine have increased its October profits by making diflerent decisions about the further refining of Product M, N
or P? Show the etfect ol the change you recommend on operating profits.

Solution: 1. Ioint Costs Statement

Particulans M N o P Total
Method l: Sales Value at Split Off 20.00 12.00 20.00 28.00 80.00
Joint Costs aooortioned as above 10.00 6.00 10.00 14.00 +t.oo
Method 2: Physical Quantity (gallons) 3 1 0.5 0.5 5-
Joint Costs aooortioned as above 24,OO 8.00 4.00 4.00 40.00
Method 3: Final Sales Value 120.00 40.00 20.00 48.00 228.00
' Less: Fufther Processino Cost 80.00 32.00 36.00 148.00
Estimated NRV 40.00 8.00 20.00 12.00 80.00
loint Cost aoDortioned on NRV 20.oo 4.OO 10.o0 5.OO 40.00

2, on Fufther
Particularc M N o P Tota!
(a) Final Sales Value 120.00 u10.00 20.00 48.00 228.00
(b) Sales Value at split off 20.00 12.00 20.00 28.00 80.00

7.8
 Joint Products and By Products

Pafticularc M N o P Total
(c) Additional Benefit in further processing 100.00 28.00 20.00 1z+8.00
(d) Additional Processinq Costs 80.00 32.00 36.00 148.00
(e) Additiona! Net Benefit = (c) - (d) 20.00 (4.00) (16.00) Nat
(f) Decision (based on e) Process Sell at split NA Sell at split
further off off
Obseruation: The Company's profits are maximised if M is processed fudher into Super M. All other products be
sold at the split off point. Additional Profits of this decision will be Rs.20 Lakhs.

ffirs&dion 7: Joint Coat Appottionmeff and Furtlrerfuceseing lhcision ': .-iii.:" " :,
EIP
A Pharmaceutical Company purchases a Raw Material, which is then processed to yield three chemicals: Anarcl, Estyl and
Betry!. ln October the Company purchased 10,fi[ gallons of the raw material at a cost ol Rs.12,50,M and incurred additional
conversion costs of Rs.7.50.000. The sales and follows -
information for the month are as lollows
Product Gallons oroduced Price at solit off (oer Gallon) Further Processino Cost EventualSales Price
Anarol 2,000 Rs.350
Estyl 3,000 Rs.240
Betrvl 5,000 Rs.2fi) Rs.30 Hs.360

Anarol and Estyl are sold to other pharmaceutical companies at the split otl point. Betryl can be sold at the split-otf point or
proeessed further and packaged for sale as an asthma medication.
Required:
l. Allocate the Joint Cost to the three products using - (a) Physical Units Method, (b) Sales-Value at Split{ff iilethod, and
(c) Net Realizabld Value method
2. Suppose that half of October production of Estyl could be purified and mixed with all of the Anarol to produce a Veterinary
Grade Anaesthetic. All further processing costs amount to Rs.2,25,000. The Selling Price ol the Veterinary Grade Anarol is
8s.650 per gallon. Should the pharmaceutical Company further process the Anarol into Anaesthetic? Assume that the
resultant quantity of Veterinary Grade Anarol produced is 2,000 gallons only.

Solution: Note: Total loint Cost to be apportioned = Rs.12,50,000 + Rs.7,50,000 = Rs.20,00,000

1. Joint Cost Statement
Particulars Anarol EsUl Betryl Total
(a) Gallons Produced 2,000 3,000 5,000 10,000
(b) Joint Cost Allocation based on (a Rs.4.OO,OOO Rs.6,0O,0OO Rs.1O,OO00O Rs.2O.OO,flXl
(c) Sales Price per unit at split<ff Rs.350 Rs.2zl0 Rs.200
(d) Sales Value at Split off = (a x c) Rs.7,00,000 Rs.7,20,000 Rs.10,00,000 Rs.24,20,000
(e) Joint Cost Allocation based on (d) Rs.5,78,512 Rs.5,95,O41 Rs.8,25,446 Rs.2O,O0.OOO
(f) NRV at split-off per unit Rs.350 Rs.240 Rs.330
(g) NRV at split e6 = 1a x f) Rs.7,00,000 Rs.7,20,000 Rs.16,50,000 Rs.30,70,000
(h) loint Cost Allocation based on (q) Rs.4,56,025 Rs.4,69,055 Rs.10,74,919 Rs.20.OO,OOO

2. Furt!rcfEqcessing Decision:
Product Production Issued for further Dnocess After fufther processing
Anarol 2,000 gallons 2,000 gallons
,500 gallons of input qtty -+
2,000 gallons of Output
Estyl 3,000 gallons 1,500 gallons
Betrvl 5.000 oallons Loss in Processing: 1,500 gallons
Note: Only Further Processing Costs and the Opportunity Cost of lost contribution margin on the Estyl diverted to Anarol
purification must be considered. loint costs are irrelevant for this decision.

Pafticularc Rs.
Sales Value after further processing = 2,000 gallons of anaesthetic x Rs.650 Rs.13,00,000
Less: Sales Value at split off (2,000 Anarol x Rs.350) + (1,500 Estyl x Rs.240) Rs.10,60,000
Additional Sale Revenue due to further processing Rs,2,4OrOOO
Less: Additional Processinq Costs Rs. 2,25,000
Net Benefit in fufther orocessinq Rs. 15,OOO
Conclusion: The Company may fufther process the Anarol into Anaesthetic.

7.9
Students' Handbook on Cost Accpunting and Financial Management

Wio*CJolnt0mtAp@imrrmmaMFqntrerPrucffiryIhchion : q.i:. "": Hfi

A Company's PIant processes 1,50,000 kgs of Raw Material in a month to produce two products,'P'and'Q'. The cost of raw
material is Rs.l2 The costs month are -
Particulars Rs.
Direct Material 90,000
Dircct Wages 1,20,000
Variable Overheads 1,00,000
Fixed Overheads 1.00.000

The loss in process is 57o of input and the output ratio of P and Q which emerge simultaneously is 1:2. The Selling
Prices ol the twb products at the point ol split otf 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
lurther to obtain a new product 'S'. Thg price per kg. of S is Rs.15 and each kg ol output of S will require one kilogram of
input P. The cost ol processing ol P into S (including other materials) is Rs.l,85,000 per month.

You are requircd to prepare a statement showing the monthly profitability based both on the existing manufacturing operations
and on further processing. Willyou recommend lurther processing?

1. and
Pafticularc otw
Input Quantity RM Input = 1,50,000 kg
Less: Normal Loss 5o/o = 7,500 kq
Balance Outout Ouantitv 1.42.500 ko
Break up of Output Ouantity Product P lld = 47,500 kg, and Product QzBd = 95,000 kg

2. Comoutation of Joint Costs and thereof (based on Sales Value at solit-ofi

Pafticularc Rs.
Basic Raw Material Crst (1,50,000 kg x Rs.12) 18,00,000
Direct Material 90,000
Direct Wages 1,20,000
Variable Overheads 1,00,000
Fixed Overheads 1.00.000
Total Ioint Costs 22,LO,OOO
Product P o
" Sale Value at Split Off Point (47,500 kgxRs.12 & 95,000 kg x Rs.20) Rs.5,70,000 Rs.19,00,000
loint Costs apoortioned in ratio of Sales Value at split-off (57 : 190) Rs.5,10,000 Rs.17,OO,OOO

Stat€ment
For existing mfry operations For orocessino of P into S
Pafticularc P o Total s a Total
(a) Sales Ouantitv (Kos.) 47.500 95,000 1.42.s00 47.500 95,000 L.42.500
(b) Sales Price per kg Rs.12 Rs.20 Rs.15 Rs.20
(c) Sales Revenue (a x b) Rs.5.70.000 Rs.19,00,000 Rs.24.70.000 Rs.7.12.500 Rs.19,00,000 Rs.25.12.500
(d) Proessinq Cost (Note 1) Rs.5.10.000 Rs.17,00,000 Rs.22.10.000 Rs.6,95,000 Rs.17.00,000 Rs.15.95.000
(e) Profit (c - d) Rs.60,000 Rs.e00,000 Rs.Z60,000 Rs.17,5OO Rs.2,O0,OO0 Rs,2,17,500
Conclusion: Fufther processing of P is not recommended as it results in a lower profit of P.

Note:
1. CostofProductS = JointCostofP + CostofProcessing PintoS = 5,10,000 + 1,85,000 = Rs.6,95,000.
2. Alternatively, further processing decision can also be derived as under -
Additional Revenue from making P into S (Rs.15 - Rs.12) x 47,500 kg = Rs.1,42,500
Less: Additional Processing Costs = Rs.1.85.000
loss in fufther processing = M2Egg

7.L0
llffirgffitn$fiG** fiiiif :li::i,ji:i;f;:t1, lii:+ili:.i:rr] i+i ;#;;:11i:i.,... r,,,,,.:i:gg1f,
A Company produces two Joint Products P and Q in 70:30 tatio from Oa-sic naw Materials in Department fne input-outpui I
ratio ol Department A is 100 : 85. Product P can be sold at the split-off stage or can be proceised further in Department B
and sold as product AR, The input-output ratio of Department B is 100 : 90. Department B is qeated to process product p
only and to make it Product AR.
o Selling Prices per kg. are - Product P Rs.85, Product Q Hs.290 and Product AR Rs.115.
o Production will be taken up in the next month.
o Raw Materials 8,00,000 kgs, Purchase Price Rs.80 per kg.
of the are below-
Particulars Department A Department B
Direct Materidl 35.00 5.00
Direct Labour 30.00 9.00
Variable Overheads 45.00 18.00
Fixed Overheads 40.00 32.00
Total 150.00 64.00
. Selling Expenses for Product P Rs.24.60 Lakhs, Product Q Rs.21.60 Lakhs and Product AR Rs.16.80 Lakhs.
Required:
1. Prepare a statement showing the apportionment of Joint Costs.
2. State whether it is advisable to produce Product AR or not.

Solution: 1. and
Pafticularc DeoaftmentA Deoartment B
Input Quantity RM Input = 8,00,000 kg ProductP=4,76,000k9
Less: Normal Loss l5o/o = 1.20.000 ko l0o/o = 47.600 ko
Balance Output OuantiU 6.80.000 ko 4.28.400 ko
Break up of Output Quantity Product P 7Oo/o = 4,76,000 kg Product AR = 4,28,400 kg
Product Q 30olo = 2,04,000 ko

2. of Costs to be
(a) Basic Raw Material (8,00,000 kg at Rs.80 per kg) Rs.6,40,00,000
(b) Direct Materials (Department A) Rs. 35,00,000
(c) Direct Labour (Department A) Rs. 30,00,000
(d) Variable OH (Department A) Rs. 45,00,000
(e) Fixed OH (Department A) Rs. 40.00.000
Total Joint Costs Rs.7,9O,O0.OOO

3. .e. Product P into Product AR

Pafticularc Computation Rs.
Sale Value of AR 4,28,400 kg x Rs.115 4,92,66,000
Less: Sale Value of P 4,76,000 kq x Rs.85 4.04.50-000
Additional Revenue from Sale of product AR gg,06,ooo
Add: Savings in Selling Expenses, i.e. Benefit (Rs.24,60.000 - Rs. 16.80.000) 7.80.000
Total Benefit 951861000
Less: Additional Production Costs of AR in Deot B Total Costs of Deoaftment B 64.00.000
Net Additional Benefit in further orocessino 31,86,000
Conclusion: It is advisable to fufther process product p into product AR.

4. Joint Costs under methods

Pafticularc P o Total
(a) Output QuantiW (WN 1) 4,76,000 ko 2,04,000 kg 6,80,000 ko
(b) Joint Costs apportioned in Physical euantities
Method, i.e. in ratio of (a) 476 :204 Rs.5153r00r00O Rs.2"37,00,000 Rs.7r90r00rOO0
(c) Sale Price per ks at Split-Off Point Rs.85 oer ko Rs.290 oer ko
(d) Sale Value at Solit Off (a x c'l Rs.4,04,60,000 Rs.5,91,60,000 Rs.9,96,20,000

7.lL
Students' Handbook on Cost Accounting and Financial Management

'Pafticularc P a Total
(e) Joint Costs apportioned in Sale Value basis, i.e. Rs.7,90r00r000
Rs.312Or851000 Rs.469,15,000
ratio of (e) (40460 : 59160)
(D Sale Price p.u, after fufther processing Rs.115 oer ko Rs.290 oer kq
(g) Sale Value after further processing as per Rs.4,92,66,000 Rs.5,91,60,000
Optimal Decision in WN 3 above [See Note] (4,76,000 x gQo/o x 1.!!L (2.04.000 x 290)
(h) Sellinq Exoenses (qiven) Rs.16,80,000 Rs.21.60.000
(i) Fufther Processinq Costs Rs.tr.00.000
(i) Estimated NRV at Solit-Off (q - h - i Rs.,1,11,86,000 Rs.5.70.00.000 Rs.9,81,86,000
(k) Joint Costs apportioned based on Estimated
Rs.3,31,38,000 Rs.+58,52,000 Rs.7,90,00,000
NRV at split-off, (i.e. 41186 : 57000)
@theoptimaldecisionistoprocessProductPintoProductAR'Hence,thecorrespondin9Sale
Value of iroduct AR has been considered for Joint Cost Apportionment. However, if this decision is ignored for Joint Cost
ApportionmenL the NRV of Product P will be [Sales Value (4,76,000 kg x Rs.85) less SOH Rs.24,60,000] = Rs.3,80,00,000.

mffi:
A Company produces two Joint Products X and Y, from the same basic materials. The processing is completed in thrce
Departments I, lland lll.

Materials are mixed in Department l. At the end of this process, X and Y get separated. Atter separation, X is completed in the
Department !land Y is finished in Department ll!. During a period, 2,00,000 kgs of Raw Materials were processed in Department
l, at a Total Cost of Rs.8,75,000, and the resultant 600/o becomes X and 30% becomes Y and 10o/o normally lost in processing.

ln Departmentll 1/6th of the quantity received from Department I is lost in processing. X is lurther processed in Department ll at
a cost of Rs.l,80,000.

tn Department lllturther 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 the are -

Particulars Product X Product Y
Quantity sold (kgs) 90,000 1,15,000
Sales Price DeI kq (Rs.) 10 4
There ware no Opening Stocks. lf these products were sold at Split-Off-Point, the Selling Price ol X and Y would be Rs. 8 and
Rs.4 kg respectively.

Required:
1. Prepare a Statement showing the apportionment of Joint Cost to X and Y in proportion ol Sales Value at Split Otf Point'
2. prepare a Statement showing the Cost per kg of each product indicating Joint Cost, Further Processing Cost and Total
Cost separately.
3. Prepare a Statement showing the product wise Profit lor the year.
4. On the basis of Profits before and after fufiher processing of Products X and Y, give your comment whether the products
should be further processed or not.
Solution: 1. Plocess Flow Diagram
Department - I (Joint Cost = Rs.8,75,000)
Total Inout = 2,00,000 kq of Raw Materials
t-,
Product X = 600/o Product Y = 30o/o Normal Loss = 10olo
1,20,000 kgs 60,000 kgs 20,000 kgs
No Scrap Value.
+ +
Depaftment II Department III Hence, ignored.
Input = 60,000 kgs
+ further material = 60,000 kgs Further Costs are -
Normal Loss Final OutPut + Dept II L8q000
U6u' = 20,000 kgs 1,00,000 kgs (bal.fig) Final Output = 1,20,000 kgs Dept III Lsq000
No scrap value. + +
Hence, ignored. 90,000 kgs sold at Rs.10.00 1,15,000 kgs sold at Rs.4.00

7.12
 Joint Products and By Products

2. Statement showinq Joint Cost and Product Wise Profits

Pafticulars Product X Product Y Total
(a) Outout at Solit off Staoe in Kos 1,20,000 kgs 60,000 kgs 1,80,000 kqs
(b) Sellino Price oer ko at Solit Off Staoe Rs.8 Rs.4
(c) Sale Value of Output at Split Off Staqe = (a x b) Rs.9,60,000 Rs,l,4!,00! Rs.12.00.000
(d) loint Cost of Deot I apportioned in ratio of (c) Rs.7.00.000 Rs.1,75,000 Rs.8.75.000
(e) Further Processino Costs ofthe oroducts Rs.1,80,000 Rs.1.50,000 Rs.3.30.000
(fl Final Output Produced in kqs. 1,00,000 kqs 1,20,000 kss
(o) loint Cost oer ko of Final Outout = (d + fl Rs.7.OO Rs.1.46
(h) Further Procesbinq Cost per kq = (e + f) Rs.1.80 Rs.1.25
(i) Total Cost per kq of Final Output = (g + h) Rs.8.80 Rs.2.71
) Sellinq Price per kq of Final Output (qiven) Rs.10.00 Rs.4.00
(k) Profit oer ko of Final Outout = (i - i Rs. 1.20 Rs.1.29
(l) Sale Ouantitv durinq the period in Kqs. 90,000 kqs 1,15,000 kss
(m) Profit for the oeriod = (k x l) Rs.1,O8,OOO Rs.1,4&350 Rs.2,56,350
Note: Profit is realised only upon sale of output, and not merely on production of output. Hence, Profit is calculated only
for the actual sale quantity.

3. Fufther Decision
Pafticularc Product X Product Y
(a) Sale Value after fufther orocessino 1,00,000 x 10 = Rs.10,00,000 1,20,000 x 4 = Rs.4,80,000
(b) Sale Value at Solit Off Point (See WN 2c) Rs. 9.60.000 Rs.2,210,000
(c) Additional Sale Value = (a - b) Rs. 40,000 Rs.2,40,000
(d) Additional Processing Costs (given) Rs. 1.80.000 Rs.1,50,000
(e) Additional Profit on fufther orocessino (c - d) f Rs.1.40.000) Rs. 90.000
(O Decision Sell at solit off Process further

fthptration 1l: Joint Cost Apportionment and Further Processing Decision r*.0{
Pokemon Chocolates manufactures and distributes chocolate products. lt purchases cocoa beans and processes them into
two intermediate products - (a) Chocolate Powder Liquid Base, and (b) Milk-Chocolate Liquid 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 Liquid Base and 30 gallons of Milk-Chocolate Liquid Base.

The Chocolate Powder Liquid Base is further processed into Chocolate Powder. Every 20 gallons of Chocolate Powder Liquid
Base yields 200 pounds ol Chocolate Powder. The Milk Chocolate Liquid Base is lurther processed into Milk-Chocolate. Every
30 gallons of Milk Chocolate Liquid Base yields 340 pounds of Milk Chocolate.

Production and Cost Data for October are -

Gocoa Beans Processed 7,500 pounds

Chocolate Powder 3,000 pounds 3,000 pounds Rs.l90 per pound

Milk Chocolate 5,100 pounds 5,100 pounds Rs.237.50 per pound

The October separable costs of processing Chocolate Powder Liquid Base into Chocolate Powder are 8s.3,02,812.50. The
October separable costs of processing Milk Chocolate Liquid Base into Milk Chocolate are Rs.6,23,437.50.

Pokemon fully processes both of its intermediate products into Chocolate Powder or Milk Chocolate. There is an active market
for these intermediate products. ln October 2004, Pokemon could have sold the Chocolate Powder Liquid Base for Rs.997.50
per gallon and the Milk Chocolate Liquid Base at Rs.1,235 a gallon.

Required:
1. Calculate how the Joint Costs of Rs.7,12,500 would be allocated between the Chocolate Powder Liquid Base and Milk
Chocolate Liquid Base, 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.

7.L3
Students'Handbook on Cost Accounting and Financial Management

2. What is the Gross Margin percentage of the Chocolate Powder and Milk Chocolate Liquid Bases, under each ol the
methods in requirement (1)?
3. Could Pokemon have increased its operating income by a change in its decision to fully process both of its intermediate
products? Show your computations.

Solution: 1. Process Flow

(a) Standards (b) Actual Production and Sales during October
loint Process of Cocoa Beans: Std 500 pounds Joint Processing of Cocoa Beans: Actual 7500 pounds

Chocolate Powder Milk Chocolate Base

Chocolate Powder Liquid Milk Chocolate Liquid Base
Base 7'5oo
- lons
Liquid Liquid Base 7'5oo
20 gallons 30 gallons 500x 2o = 3oo oal ffi"30=450gallons

Chocolate Powder Milk Chocolate sold)

Chocolate Powder (fully Mitk Chocolate (fully sold)
200 pounds 340 pounds i99,, 2gg = 3,000 pounds iI9 3ag = 5,100 pounds
"
Note: From the above analysis, it is understood that there is no abnormal loss or gain during October.
-
2. of Joint Pnocessanq Costs under differcnt methods
Pafticularc Chocolate Powder Milk Chocolate Tota!
(a) Production Ouantitv 300 qallons 450 qallons 750 qallons
(b) Sales Price at Solit Off Rs.997.50 per qallon Rs.1,235.00 per qallon
(c) Sales Value at Split Off (a x b) Rs. 2,99,250.00 Rs.5,55,750.00 Rs.8,55,000
(d) Joint Costs apportioned based on Sales Value
Rs.2,49,375.00 Rs.4,63,125.00 Rs.7112r5OO
at solit off ooint lin ratio of (c)l
(e) Joint Costs appoftioned in physical measure
Rs.2,85rOOO.O0 Rs.4,27,500.00 Rs.7112150O
lin ratio of (a)l
(f) Sale Value of Final product (3,000 pounds x
Rs. 5,70,000.00 Rs. 12,11,250.00 Rs.17,81,250
Rs.190) and (5,100 pounds x Rs.237.50)
(o) Further Processinq Costs Rs. 3.02.812.50 Rs. 6.23.437.50 Rs. 9.26.250
(h) Estimated NRV at split-off (f - q) Rs.2,67,187.50 Rs. 5.87.812.50 Rs. 8.55.000
(i) Joint Cost apportioned on Estimated NRV [in
Rs.2,22,656.25 Rs.+89,843.75 Rs.7,12,500
ratio of (h)l
) Total Costs at 92a/o of (fl (See Note below) Rs. 5.24.400.00 Rs. 11.14,350.00 Rs.15.38.750
(k) Further Processino Costs Rs. 3.02.812.50 Rs. 6.23.437.50 Rs. 9,26,250.
(l) Balance Joint Costs allocated in the ratio of Rs.2,21,587.50 Rs.4r9Or912.50 Rs.7,12,500
constant Gross Marqin NRV (i - k)

of constant NRV is as under -

Final Sales Value of all products (as per item [2fl above) Rs.17,81,250
Less: Total Joint Costs and Further Processinq Costs (Rs.7,12,500 + Rs.9,26,250) Rs.16.38.750
Gross Maroin of all oroducts Rs.1,42,500
Grtss Marsin o/o of Final Sale Value 0,42,500 + 17,81,250) 8o/o
Hence, Total Costs = 100o/o - 8o/o = 92o/o of the Final Sales Value. Joint Costs will be the balancing figure.

3. of Gross olo methods rf Rs.

Pafticularc Chocolate Powder Milk Chocolate Tota!
(a) Sales Value of Final product (See 2f above) 5,70,000.00 12,11,250.00 L7,81,250
(b) Further Processinq Costs 3,02,812.50 6,23,437.50 9.26.250
(c) loint Costs based on SV at split off point 2.49,375.00 4.63.125.00 7,12.500
(d) Gross Marqin fMethod (a)l = (a - b - c) L7,8L2.50 L,24,687.50 L,42,5OO
(e) Gross Maroin o/o lMethod (a)l = (d + a) 3.125o/o LO.29o/o 8o/o
(fl Joint Costs based on ohvsical measure 2,85,000.00 4,27,500.00 7.12.500
(q) Gross Marqin tMethod (b)l = (a - b - 0 (r7,812.50) 1,60,312.50 ,,r42r5OA
(h) Gross Maroin o/o l-Method (b)'l = (o + a) (3.125o/ol 13.23o/o 8o/o

7.14
 loint Products and By Products

Pafticulars Chocolate Powder Milk Chocolate Total

(i) Joint Cost based on Estimated NRV 2.22.6s6.2s 4,89,843.7s 7,t2,500
0) Gross Margin lMethod (c)l = (a - b - i) 4,531.25 97,968.75 1,42,5OO
(k) Gross Marqin % lMethod (c)l = (i + a) 7.8L25o/o 8.08o/o 8o/o
(l) Joint Cost based on constant Gross Maroin 2,2t,587.50 4,90,9L2.50 7,12,500
(m)Gross Margin [Method (d)l = (a - b - l) 45,600.00 96,900.00 r,42,500
(n) Gross Marqin o/o lMethod (d)l = (m + a) 8o/o 8o/o 8o/o

4. Decision
Pafticularc Chocolate Powder Milk Chocolate
(a) Sales Value after further processing (as above) 5,70,000.00 L2,tL,250.00
(b) Sales Value at Split off (as above) 2.99.250.00 5,55.750.00
(c) Additional Sales Revenue (a - b) 2,70,750.00 6,55,500.00
(d) Additional Processing Costs 3.02.812.s0 6,23,437.50
(e) Additional Profit (c - d) (32,062.50) 32,062.5O
(0 Decision sell at sDlit off Process Further
Decision:HencePokemoncanincreaseitsprofltsbyRs.32,062'5oifit-(a)seilscrrocotate@
Off Point, and (b) processes Milk Chocolate Liquid Base further into Milk Chocolate.

lllustration 12: Multiph kmeeing - Joht Cod Apportisrnremt and Further Processing llecisbn N 94 (R
A Company processes a Raw Material into five products. ln Process 1, products AXe anA BXE are produced in ttre raiio
of 1 : 1. Product AXE then passes on to Process 2 where it is processed into CXE and DXE. product BXE is used in
Process 3 to produce the product EXE.

Product AXE yields products CXE and DXE in the ratio of 7 ; 3 CXE is processed further in Process 4 after which it is sold
Rs.l8 per unit. DXE may be sold immediately at Rs.l4.40 per unit or it may be processed further in Process 5 after which it can
be sold for Rs.20.80 per unit.

EXE is processed in Process 6 where normal spoilage of 5olo occurs. The spoiled units are disposed of at a price of Rs.2 per
unit. EXE sells at Rs.15.20 per unit.
The costs incurred during a period are as u nder:
Process 1 2 3 4 5 6
Output (units) 1.00.000 50.000 50,000 35.000 15,000 47.500
Costs ffis.) 5.41.500 1.50.000 1.08.000 1.30.000 1,00.000 97.000
The output of Process 6 represents good units. The process costs are variaUle costs

1. State with supporting calculations whether the Product DXE should be processed in Process 5 or not.
2. Prepare a statement showing apportionment of ioint costs to Products AXE and BXE & products CXE and DXE.
3. Prepare a statement of profit for the period based on your decision at (1) above.

Solution: 1. Process Flow Diagram

Process 1 lnput = 1

Product A)G 50,000 units Product BXE

r
+ +
Process 2 (Input = 50,000 units) Process 3 (Input = 50,000 units)
+
Product EXE 50,000 units
Product CXE Product DXE
+
35,000 units 15,000 units Process 6 (Inout = 50.000 units)
+ z-l..---f v
Process 4 Option1 Option 2 Product EXE Normal Spoilage
Input = 35,000 units Sale at Input in 47,500 units 2,500 units
Rs.14.40 p.u Prccess 5
+ + +
Product CXE and sell at SP at Rs.15.20 p.u. NRV at Rs.2 p.u,
SP at Rs.18 p.u. Rs.20.80 p,u,

v.L5
Students'Handbook on Cost Accounting and Financial Management

2. Further Decision (for Product

Additional Revenue from fufther processing (Rs.20.80 - Rs.14.40) x 15,000 units Rs. 96,000
Less: Further Processinq Costs in Process 5 Rs.1,00,000
Loss in futher orocessino Rs. 4"000
Hence, Product DXE shculd not be processed further.

3. Ioint Cost Apportionment

Note: Since joint products require further processing in various processes, the NRV Method of apportioning Joint Costs is
adopted. The NRV is calculated in the following manner.
a of NRV for
Product Final Sale Value' Previous Process Balance NRV of Previous Balance NRV at
Costs prev staqe Process Costs earlier stage
C(E 35,000 18 =x Process 4 Costs = 630000 - 130000 =
6,30,000 1,30,000 5,00,000 | ,ro."rr 2 costs = 500000 + 216000 -
DXE 15,000 x 14.4 = Process5Costs=N.A. Rs.1,5o,ooo 150000 = 5,6OOOO
2,16,000 2,16,000 f
EXE 47,500 x 15.2 = Process 6 Costs = 7,22,000 -
92,000 ' Process 3 Costs = 630000 - 108000 =
7,22,000 (Note) 92,000 = 6,30,000 1,08,000 5,22,OOO
Note: Process 6 Costs = Gross Costs Rs.97,000 Less NRV of Normal Loss (2,500 x Rs.2) = Rs.92,000.

b
Pafticulars Rs.
Joint Costs to be apportioned to Products AXE & BXE = Process 1 Costs of Rs.5,41,500, in AXE's Share = Rs.2,81,700
ratio of 566:522 BXE's Share = Rs.2,59,800
Joint Costs to be apportioned to Products CXE and DXE = AXE's Share of Costs + Process 2 CXE's Share = Rs.3,01,466
Costs = (2,8t,700 + 1,50,000) = Rs,4,31,700 in the ratio of 500 : 216 DXE's Share = Rs.1,30,234
Note: CXE and DXE are joint products for which AXE is the common raw material. Hence, the cost to be apportioned to
C(E and DXE = Material Cost (AXE) + Conversion Cost (Process 2).

5. Statement of Overall
Pafticulars Rs.
Total Sales Revenue (6,30,000 + 2,16,000 + 7,22,000) 15,58,000
Less: Total Processing Costs: (1 + 2 + 3 + 4 + 6)only(sinceProcess5 isnotcarried out)
(5,41,500 + 1,50,000 + 1,08,000 + 1,30,000 + 92,000 net of NRV) 10.21.500
Overall Net Profit 5,46,500

A Chemicat Factory processes Raw Material R and produces three similar products P1, P2 and P3 out of a joint process. The
joint costs of processing 5,000 kg of R are: Labour - Hs.6,000 and Overheads - Rs.2,000.

Raw Material R is purchased at Rs.2.40 per kg. This rate is after a trade discount ol20o/o on list price. Normal Loss is estimated
at 10% of input weight. The scrap generated lrom processing R is recovered to the extent ol 25o/o (by weight) and sold as such
in the market at Rs.4. The products P1, P2 and P3 can be sold at Rs.5.00, Rs.6.00 and Rs.6.50 per kg respectively without any
further processing.

However, Product P1 and P2 can also be further jointly processed at an additional cost of Rs.2 per kg of input to get product
J1. The further processing cost of Jl will be Re 1 per kg of output weight. Similarly, products P2 and P3 can be jointly
processed to get a product J2 at an additional cost ol Rs.5 per kg of input. The further processing cost of J2 will be Rs.2 per
kg of output weight. The normal loss of processing J1 out of Pl and P2 will be 5% of input weight. No processing loss is
on processinq J2. The sellinq prices ol J1 and J2 includinq the is oiven below
lnput Output J1 Output J2 Outout weioht ratio
P1 40Yo 3
P2 60% s0% 4
P3 50o/o 2
Price per kq Rs.10 Rs.12

7.t6
Requircd:
1. Ascertain the profitability of processing P1, P2 and P3 from 5,000 kg of R assuming sale at split-off point.
2. Compute the prolits after both Jl and J2 are further processed and marketed using P2 in the ratio of 3:2 for J1 and J2
respectively.
3. Recommend whether the Company can use the whole output of P-2tor processifg J-l instead of using it in the ratio of 3 :
2for both products J-l and J-2 as in (2) above.

Solution:
1. Profitability of processanE PL P2 and P3 from 5000 kg of R assuming sale at split-off point
Raw Material = 5,000 kg of R at Rs.2.40 per kg

Products = 4,50d kg) Noimal Loss at 10o/o =v500 kg

Produced in the outout weioht ratio 3 : 4 : 2
J
Item P-1 P-2 P-3 Materials (5,000 x 2.40) = 12,000
Quantitv 1,500 kg 2,000 kq 1,000 kg Labour
6,000 =
SP o.u. Rs.5 Rs.5 Rs.6.50 Overheads
2,000 =
SV at split off . Rs.7.500 Rs.12.000 Rs.6,500, SufTotal = 20,000
Less: NRV (500x250/ox4) 500 =
Total Revenue = Rs.2O000

Profit = Rs.26,000 - Rs.19,500 =

2. Profitability when P-2 is consumed for J-l and J-2 in the ratio of 3 : 2
l.laterial Qtty Usage

\ gOO kg I
= 4}o/o Input forJ-1 ------Loss = 5%o - Outout of l-1
;1t,200kg = 69o6 J 2,000 kg r,goo kg ---+ sotd at Rs.10
F2(3:2) ,/
z,oootg' \ \800kg =50o/o
1 InputforJ-2 NoLoss outputofJ-2
_-.-r 800 kg = 50o/o
JI 1,600 kg r,ooo kg
1,600 fg_-| Sotd at Rs.12
sotd
P-3
1,000 kg \ 200 kg = 676
- Sotd at Rs.6.50

Pafticulars Rs.
Total Revenue [(700 x 5) + (1,900 x 10) + (1,600 x 12) + (200 x 6.50)] 43,000
Less: Total Costs: Joint Costs --> 19,500
Further Processing Costs: J-l (2,000 x 2) + (1,900 x 1) 5,900
Further Processing Costs: J-2 (1,600 x 5) + (1,600 x 2) 11,200 36,600
Overall Net Profit 6,400

3, Profitability when F2 is consumed wholly for J-l purposes

Material Qtty Usage
ts1 167 kg = 611 Sold at Rs.5
1,500 kg
1,333 kg = 40o/o I Input for J-l Loss = 5olo output of J-l
P-2 2,000 kg = 600/o ro 3,167 kg Sold at Rs.10
2,000 kg
Js,:st
-->
P-3
1,000 kg Sold at Rs.5.50

7.t7
Students'Handbook on Cost Accounting and Financial Management

Particulars Rs.
Total Revenue lA67 x 5) + (3,167 x 10) + (1,000 x 6.50)l 38.995
Less: Total Costs: Joint Costs 19,500
Further Processino Costs: l-1 (3.333 x 2) + (3.167 x 1) 9.832 29,332
Overall Net Profit 9,653
Decision: Profit increases from Rs.6,400 to Rs.9,663 in case P-2 is used only for J-1 purposes. Hence, the Company
opt to consume P-2 for J-1 purposes only.

Inco
illuetatiun I {: By-Produot,Aceourtlng HTT,
Triple-Products Ltd manufactures product A, which yields two by-products B and C. The actualjoint expenses of manufacture
for a period were Rs.8,000. It was estimated that the profit on each products as a percentage of sales would 30o/o,25o/o and 157o
ectivelv. Subseouentlv exoenses were incurred as under -
Particulars A B c
Materials 100 75 25
Direct Wages 200 125 50
Overheads 150 125 75
Total 450 325 150
Sales 6,000 4,000 2,500
Prepare a statement showing the apportionment of the joint expenses ol manufacture over different products. Also
presume that selling expenses are apportioned over the products as a percentage to sales.

Solution:
Product A B c Total
Nature Main Product By-Product By-Product
Sales Value (given) 6,000 4,000 2,500 12,500
Less: Profit Maroin (based on o/o oiven) 1.800 1.000 375 3,L75
Cost of Sales 4,200 3,000 2,L25 v 9,325
Less: S &DOverheads [See Note] 192 128 80 + (bal.fio.) 400
Cost of Production 4,008 2,872 2,045 8,925
Less: Fufther Processino Costs (oiven) 450 325 150 925
loint Costs (bal. fiq) 3,558 2,547 1,89s (qiven) 8,000
Note:
. In the total column, since Joint Costs are given, S & D Overheads constitutes the balancing figure.

. Next,thepercentageof Totals&DoHtoTotalsalesiscomputed* =3.2o/oof sales.

ffi
. Therefore, product-wise S & D Overhead is calculated at 3.2o/o of Sales Value, for each product.
. Thereafter, Costs of Production are derived and NRV of By-Products are determined.
. Balance loint Costs are identified with the Main Product (i.e. 8,000 - 2,547 - 1,895 = 31558)

'tf
lllustration 15: Joint Cost Apportionmont - By Product Revenue - A/c Prcpardion s*i'
JKL Limited produces two products - J and K, together with a By-Product L, from a single main process called Process l.
Product J is sold at the point of separation at Rs.55 per kg, whereas product K is sold for Rs.77 per kg, after lurther processing
into product K2, Byproduct L is sold without further processing for Rs.I9.25 per kg.

Process lis closely monitored by a team ol chemists, who planned the output per 1,000 kg of input materials as follows -
Product J - 500 kg, Product K - 350 kg, Product L - 1 00 kg, Toxic Waste - 50 kg.
The toxic waste is disposed at a cost ol Rs.16.50 per kg and arises at the end of processing.

Process ll which is used for further processing ol product K into K2 has the following cost structure -
Fixed Costs Rs.2,64,000 per week, Variable Costs Rs.16.50 per kg" processed

7.t8
The actual data relate to the lirst week of the month -
Process I

0pening Work in progress NIL

Materiallnput 40,000 kg costing Rs.6,60,000
Dircct Labour Rs,4,40,000
Variable Overheads Rs.1,76,000
Fixed Overheads Rs.2,64,000

Product J 19,200 kg.

Product K 14,400 kg.
Product L 4,000 kg.
Toxic Waste 2,400 kg.
NIL

Process l!
Opening Work in progress NIL
lnput ol product K 14,400 kg.
Output of product K2 13,200 kg.
ctosing work in progress (50% converted and conversion costs were incurred in 1,200 kg.
accordance with the planned cost structure)

1. Prepare Process lAccount for the first week of the month using the Final Sales Value method. Attribute the pr+separation
costs to joint products.
2. Prepare the Toxic Waste Account and Process ll account for the first week of the month.
3. Comment on the method used by JKL Ltd to attribute the pre-separation costs to ioint products.
4. Advise the management of JKL Limited whether or not, on purely financial grounds, it should continue to process product
K into K2 -
(a) !f product K could be sold at the point of separation for Rs.rg.30 per kg. and
(b) lf the 60% of the weekly fixed costs ot process ll were avoided by not processing product K further.

Solution: 1. of Net Costs

Pafticularc ComPutation '! Rs.
Joint Costs (Materials + Labour + VOH + FOH) (6,60,000 + 4,40,000 + 1,76,000 + 2,64,000) 15,401000
"
Less: Reductions from Cost
t 4o,ooo ks x Rs'16'50
NRV of Normal Toxic Waste
# 33,000
NRV of Normal By-Product L Production :
J9L 149,96 kg x Rs.19.25
77,000
Net Normal Joint cost 14,30,000
2. Final Sales Value of foint Products J and K (Norma! production)
ProductJ: :5;10; x 40,000 kg x Rs.55 = Rs.11,00,000 Product X: *1,000 x 40,000 kg x Rs.77 = Rs.10,78,000
1,000

Total Sales Value = Rs.21,7&OO0

3. Apportionment of Normal Joint Costs based on Final Sales Value

Joint Costs of Rs.14,30,000 are apportioned in the ratio 1100 : 1078. Hence the amounts areRs.7,22,222andRs.7,07,77g
for Product I and K respectively. The Joint cost per kg of products is computed below -
Pafticulars Product J Product K
Joint Cost Apportioned Rs.7,22,222 Rs.7,07,778
Expected Output
40,000kSrffi=20,000kg 40,000 ts , ,3:=0= = 14,000 kg
1,000
Averaqe Joint Cost per ko Rs.36.11 per kg Rs.50.56 per kq

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Students' Handbook on Cost Accounting and Financial Management

4. Process I Account
Pafticularc Qtw Rs. Pafticularc Qtty Rs.
To Direct Materials 40,000 6,60,000 By Finished Goods A/c - Product J at Rs.36.11 19,200 6,93,333
To Direct Labour 4,40,000 By Process II I/c - Product K at Rs.50.56 L4,400 7,28,000
To Variable Overheads L,76,900 By By-Product Account at Rs.19.25 4,000 77,000
To Fiied Overheads 2,64,000 By Normal Toxic Waste Account (at Rs.15.50) 2,000 33,000
By Abnormal Toxic Waste A/c (b/O 400 8.667
Total 40,000 15,40,000 Total 40,000 15,40,000

5. Normal Toxic Waste Account

Pafticularc ow Rs. Pafticularc attv Rs.
To Process I Account 2,000 33,000 By Bank (2,000 at Rs.16,50) 2.000 33.000
Total zoo0 33,000 Total 2,000 33,000

6. Abnormal Toxic Waste Account

Pafticularc Qtty Rs. Particularc Qttv Rs.
To Process I Account 400 8,667 By Bank (400 at Rs.16.50) oo: 6,600
By Costinq P & L Account (balancinq fiqure) 2.067
Total 400 8,667 Total 400 9,667

7. Prccess fIAccount
Pafticularc attv Rs. Pafticularc aw Rs.
To Process I Account 14,400 7,28,000 By Finished Goods Control A/c- Prcduct K2 (bl 0 L3,2OO tL,37,655
To Fixed Costs 2,U,000 By Closing WIP (Note 2) t,200 82,045
To Var.Costs (Note 1) 2.27.700
Total L4,4OO 12.L9,700 Total L4r4/,,0 Lz,lg,7OO
I{ote l: VariableCosts = (13,200 kg x Rs.16.50) + (1,200 kg x Rs.15.50 x 50o/o) =Rs.2,27,700.
Note 2: Valuation of WIP:
Rs.7,28,000
Materials: x 1.200 Rs.60,667
L4,400

Fixed Costs: *39,0=o=q- x 6oo Equivatent Units Rs.11,478

(13,200 + 500)
Variable Costs: 600 Equivalent units x Rs.16.50 Rs. 9.900
Total Rs.82,045

8. Comments on use of Final S'ales Value Method for appoftioning Joint Costs
The Company uses the Final Sales Value Method for apportioning the Joint Costs. However, where one of the loint
Products require further processing and the other is sold at split-off point, the NRV Method of apportioning Joint Costs
may be more realistic.

9. Economics of further
Additional Revenue from further processing Rs.77.00 - Rs.47.30 Rs.29.70 per kg
Less: Additional Variable Processinq Costs Rs.15.50 oei kq
Net Additional Revenue oer kq Rs.13.20 per kq

Total Additional Income for expected production of f .3=5=0-

1,000
x 40,000 kg x Rs.13.20 Rs.1,84,800

Less: Specific Avoidable Fixed Costs 600/o of Rs.2,64,000 Rs.1,58.400

Net Additional Income in processinq further Rs.26,400
Decision: Product K may be Drocessed fufther into Product K2.

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