Upload
anon672065362
View
228
Download
4
Embed Size (px)
Citation preview
7/30/2019 Joint Products & by Products
1/56
11Joint Products & By Products
Question 1
How would you account for by-product in cost accounting:
(i) When they are of small total value. (2 marks)
(ii) When they are of considerable totalvalue.
(4 marks)
(iii) When they require further processing. (May, 1997, 4marks)
Answer
Treatment of By-product in Cost Accounting:
(i) When they are of small total value: If the amount realisedfrom the sale of by-product is small, it may be dealt in anyone of the following two ways:
(1) The sale value of the by-product may be credited to theProfit and Loss Account and no credit be given in the costaccounts. The credit to the Profit and Loss Account here istreated either as miscellaneous income or as additional salesrevenue.
(2) The sale proceeds of the by-product may be treated asdeductions from the total costs. The sale proceeds in factshould be deducted either from the production cost or fromthe cost of sales.
(ii) When they are of considerable total value: In this case by-products may be regarded as joint products. To determine exactcost of by-products the costs incurred upto the point ofseparation, should be apportioned over by-products and jointproducts by using a logical basis. In this case, the joint costsmay be divided over joint products and by-products by usingphysical unit method (at the point of split off) or ultimate sellingprice (if sold).
7/30/2019 Joint Products & by Products
2/56
Cost Accounting
(iii) When they require further processing: In this case, the netrealisable value of the by-product at the split-off pointmay be arrived at by subtracting the further processingcost 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-productsarise 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 sugarautomatically. Some of the products are not of much importancefrom the sales-value point of view, like molasses in the case ofsugar, but in some cases the products are all of importance. Usually,the term by-product is used in the former case and joint products inthe other case. One can see that distinction between joint productsand by-products turns on their relative importance which sometimesmakes it difficult to make a distinction. However, one point to keepnote of it is that, usually, in the case of joint products furtherprocessing is required, after initial common process, before the
products are sold.
Thus joint products represent two or more products separated inthe course of the same processing operations, usually requiringfurther processing, each product being in such proportion that nosingle product can be designated as a major product.
By-products may be defined as any saleable or usual valueincidentally produced in addition to the product. Sometimes theword wastage or even loss is used to denote what is really a by-product. For example, in a thermal power plant, ash will remainwhen coal is used up. In a place where good deal of constructionactivity is going on, the ash will have a market-it is a case of by-product even if it is termed as wastage.
Question 3
In the course of manufacture of the main product P, byproducts A and B also emerge. The joint expenses of manufactureamount to Rs. 1,19, 550. All the three products are processedfurther after separation and sold as per details given below:
Mainproducts
By-products
11.2
7/30/2019 Joint Products & by Products
3/56
Joint Products & By Products
P A B Sales Rs
.90,000 60,000 40,000
Costs incurred afterseparation
Rs.
6,000 5,000 4,000
Profit as percentageon sales
% 25 20 15
Total fixed selling expenses are 10% of total cost of sales whichare 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 issold at the point of separation for which there is a market, at Rs.58,500 without incurring and selling expenses, would you adviseits disposal at this stage? Show the workings.
11.3
7/30/2019 Joint Products & by Products
4/56
Cost Accounting
Answer
(i) Statement Showing Apportionment of JointCosts
to Main Product and two By-Products
MainProduct
By-products Total
A B
Rs. Rs. Rs.
Sales 90,000 60,000 40,000 1,90,00
0Less: Profit 22,500 12,000 6,000 40,500
Cost of sales 67,500 48,000 34,000 1,49,500
Less: Selling expenses 2,990 5,980 5,980 14,950
Cost of production 64,510 42,020 28,020 1,34,550
Less: Costs afterseparation
6,000 5,000 4,000 15,000
Value at the stage ofseparation
58,510 37,020 24,020 1,19,550
Working note:
Total Cost of sales Rs. 1,49,500
Selling expenses are 10% of
Rs. 1,49,500 i.e. Rs. 14,950
(ii) Economics of By-product A
Sales at split Sales after further
Off stage processing
Rs. Rs.
Sales 58,500 60,000
Costs 37,020 42,020
Profit 21,480 17,980
Since the profit earned is more if the by product is not processedfurther, it is advisable to sell the same before processing.
Working note:
Selling expense has not been taken into consideration, aswithout that the choice is apparent.
11.4
7/30/2019 Joint Products & by Products
5/56
Joint Products & By Products
Question 4
In an Oil Mill four products emerge from a refining process. Thetotal cost of input during the quarter ending March, 1983 in Rs.1,48,000. The output, sales and additional processing costs are asunder:
Product Output Additional Sales
In Litres Processing value
Costs after
Split offpoint
Rs. Rs. Rs.
AOXE 8,000 43,000 1,72,500
BOXE 4,000 9,000 15,000
COXE 2,000 6,000
DOXE 4,000 1,500 45,000
In case these products were disposed of at the split off pointthat is before further processing the selling price would have been:
AOXE BOXE COXE DOXE
Rs. 15.00 Rs.6.00 Rs. 3.00 Rs. 7.50
Prepare a statement of profitability based on:
(1) If the products are sold after further processing is carried out inthe mills.
(2) If they are sold at the split off point.
Answer
(1) Statement of Profitability of an OilMill
(after Carrying out further processing)(for the quarter ending March 1983)
Products SalesValue
Share of Further Total cost Profit
name after further
joint cost processing
after splitoff
(Loss)
processing
cost
(a) (b) (c) (d) (e) = (c) (f = (b)
11.5
7/30/2019 Joint Products & by Products
6/56
Cost Accounting
+ (d) (c)Rs. Rs. Rs. Rs. Rs.
AOXE 1,72,500 98,667 43,000 1,41,667 30,833
BOXE 15,000 19,733 9,000 28,733 (13,733)
COXE 6,000 4,933 - 4,933 1,067
DOXE 45,000 24,667 1,500 26,167 18,833
Total 2,38,500 1,48,000 53,500 2,02,500 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 beendetermined by dividing the total joint cost viz Rs. 1,48,000 in theratio 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) Statement of Profitability of anOil Mill(At the split off point)
(for the quarter ending March 1983)
Products Sellingprice
Output Salesvalue
Share of Profit at
name at split off
In at split joint cost split off
point units off point point
11.6
7/30/2019 Joint Products & by Products
7/56
Joint Products & By Products
(0) (1) (2) (3) = (1)x (2)
(4) (5) = (3) (4)
Rs. Rs. Rs. Rs. Rs.
AOXE 15 8,000 1,20,000 98,667 21,333
BOXE 6 4,000 24,000 19,733 4,267
COXE 3 2,000 6,000 4,933 1,067
DOXE 7.50 4,000 30,000 24,667 5,333
Total 1,80,000 1,48,000 32,000
Note : For share of joint cost refer to working notes of part (1)Question 5
Pokemon Chocolates manufactures and distributes chocolateproducts. It purchases Cocoa beans and processes them into twointermediate products:
Chocolate powder liquor base
Milk-chocolate liquor base
These two intermediate products become separately identifiableat a single split off point. Every 500 pounds of cocoa beans yields 20gallons of chocolate powder liquor base and 30 gallons of milk-chocolate liquor base.
The chocolate powder liquor base is further processed intochocolate powder. Every 20 gallons of chocolate-powder liquor base
yields 200 pounds of chocolate powder. The milk-chocolate liquorbase is further processed into milk-chocolate. Every 30 gallons ofmilk-chocolate liquor base yields 340 pounds of milk chocolate.
Production and sales data for October, 2004 are:
* Cocoa beansprocessed
7,500 pounds
Costs of processingCocoa beans to splitoff point
(including purchase ofbeans)
Rs. 7,12,500
Production Sales Selling price
Chocolate powder 3,000pounds
3,000pounds
Rs. 190 perpound
Milk chocolate 5,100 5,100 Rs. 237.50 per pound
11.7
7/30/2019 Joint Products & by Products
8/56
7/30/2019 Joint Products & by Products
9/56
Joint Products & By Products
0.65= Rs. 2,49,375 = Rs.
4,63,125
300 x 997.50 = Rs. 2,99,250
450 x 1235 = Rs. 5,55,750
Physical measure method
Chocolatepowder
Milk chocolate Total
liquor base liquor base
Output 300 gallons 450 gallons 750gallons
Weight 300/750 = 0.40 450/750 = 0.60 1.00
Joint cost allocated Rs. 7,12,500 x0.40
Rs. 7,12,500 x0.60
Rs.7,12,500
=Rs. 2,85,000 = Rs. 4.27, 500
Net realisable value method
Chocolatepowder
Milk chocolate Total
liquor base liquor base
Final sales value ofproduction
3,000 lbs x Rs.190
= Rs. 5,70,000
5.100 lbs x Rs.
237.50 =
Rs.12,11,250
Rs.17,81,250
Less: separablecosts
Rs. 3,02,812.50 Rs. 6,23,437.50 Rs.9,26,250
Net realisable valueat
Rs. 2,67,187,50 Rs. 5,87,812.50 Rs.8,55,000
split off point
Weight 2,67,187.50/8,5
5.000
5,87,812.5/8,55
,000= 0.3125 = 0.6875
Joint cost allocated Rs. 7,12,500 x0.3125
Rs. 7,12,500 x
0.6875
= Rs.2,22,656.25
= Rs.4,89,843.75
Rs.7,12,500
11.9
7/30/2019 Joint Products & by Products
10/56
Cost Accounting
Constant + gross margin % NRV method
Chocolatepowder
Milk chocolateliquor
Total
Liquor base base
Final sales value ofproduction
Rs. 5,70,000 Rs. 12,11,250 Rs.17,81,250
(ChocolatePowder)
(MilkChocolate)
*Less: Gross margin8%
Rs. 45,600 Rs. 96,900 Rs1,42,500
Cost of goodsavailable for sale
Rs. 5,24,400 Rs. 11,14,350 Rs.16,38,750
Less Separable costs Rs. 3,02,812.50 Rs. 6,23,437.50 Rs.9,26,250
Joint cost allocated Rs. 2,21,587.50 Rs. 4,90,912.50 Rs.7,12,500
*Final sales value of total production = Rs. 17,81,250
Deduct joint and separable cost = Rs. 712500 + Rs. 926250
= Rs. 16,38,750
Gross Margin = Rs. 1,42,500Gross margin % = Rs 1,42,500 = 8%
Rs.17,81,250
(ii) Chocolate powder liquor base (calculations inRs)
Salesvalue at
Physical Estimatednet
Constant
Split off Measure Realisable gross
Value MarginNRV
Final sale valueof Chocolatepowder
5,70,000 5,70,000 5,70,000 5,70,000
Less: separablecosts
3,02,812.50
3,02,812.50
3,02,812.50
3,02,812.50
Less: Joint costs 2,49,375 2,85,000 2,22,656.25
2,21,587.50
Gross Margin 17,812.50 (17,812.50)
44,531.25 45,600
11.10
7/30/2019 Joint Products & by Products
11/56
Joint Products & By Products
Gross Margin % 3.125% (3.125%) 7.8125% 8%
Milk chocolate liquor base (calculations in Rs.)
Salesvalue at
Physical Estimatednet
Constant
split off measure realisable Grossmargin
NRV
Final sale value ofmilk chocolate
12,11,250 12,11,250
12,11,250 12,11,250
Less: separablecosts
6,23,437.50
6,23,437.50
6,23,437.50
6,23,437.50
Less: Joint costs 4,63,125 4,27,500 4,89,843.75
4,90,912
Gross Margin 1,24,687.50
1,60,312.50
97,968.75 96,900.50
Gross Margin % 10.29% 13.23% 8.08% 8%
(iii) Further processing of Chocolatepowder liquor
base into Chocolate powder (calculations in Rs)
Incremental revenue (5,70,000 (997.50 x 300) 2,70,750
Incremental costs 3,02,812.50
Incremental operating income (32,062.50)
Further processing of Milk chocolate liquor base intomilk chocolate (calculations in Rs)
Incremental revenue ((12,11,250 5,55,750) 6,55,500
Incremental cost 6,23,437.50
Incremental operating income 32,062.50
The above computations show that Pokemon Chocolates couldincrease operating income by Rs 32,062.50 if chocolate liquor baseis sold at split off point and milk chocolate liquor base is processedfurther.
Question 6
A company processes a raw material in its Department 1 toproduce three products, viz. B and X at the same split-off stage.
11.11
7/30/2019 Joint Products & by Products
12/56
Cost Accounting
During a period 1,80,000 kgs of raw materials were processed inDepartment 1 at a total cost of Rs. 12,88,000 and the resultantoutput of A, B and X were 18,000 kgs, 10,000 kgs and 54,000 kgsrespectively. A and B were further processed in Department 2 at acost of Rs. 1,80,000 and Rs. 1,50,000 respectively.
X was further processed in Department 3 at a cost of Rs1,08,000. There is no waste in further processing. The details ofsales effected during the period were as under:
A B X
Quantity
Sold
(kgs.) 17,000 5,000 44,000
Sales Value (Rs.) 12,24,000 2,50,000 7,92,000
There were no opening stocks. If these products were sold atsplit-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 toA, B and X.
(ii) Present a statement showing the cost per kg of each productindicating joint cost and further processing cost and total costseparately.
(iii) Prepare a statement showing the productwise and total profit forthe period.
(iv) State with supporting calculations as to whether any or all theproducts should be further processed or not
(Nov, 1996, 12 marks)
11.12
7/30/2019 Joint Products & by Products
13/56
Joint Products & By Products
Answer
(i) Statement showing the apportionment of jointcosts to A, B and X
Products A B X Total
Output (kg) 18,000 10,000 54,000
Sales value
at the point
of split off
(Rs.)
9,00,000
(Rs. 50 x 18,000)
4,00,000
(Rs. 40x10,000)
5,40,000
(Rs. 10 x 54,000)
18,40,0
00
Joint costapportionm
ent on the
basis of
sales value
at the point
of split off
(Rs.)
6,30,000
000,00,9.Rsx
000,40,18.Rs
000,88,21.Rs2,80,000
000,00,4.R sx
000,40,81.Rs
000,88,12.Rs3,78,000
000,40,5.Rsx
000,40,18.Rs
000,88,21.Rs12,88,0
00
(ii) Statement showing the cost per kg. Ofeach product
(indicating joint cost; further processing cost and total cost
separately)
Products A B X
Joint costs apportioned(Rs.) : (I)
[Refer to a(i)] 6,30,000 2,80,000 3,78,000
Production (kg) : (II) 18,000 10,000 54,000
Joint cost per kg (Rs.): (I/II) 35 28 7
Further processing
Cost per kg. (Rs)
10 15 2
kg000,18
000,80,1.Rs
kg000,10
000,50,1.Rs
kg000,54
000,08,1.Rs
Total cost per kg (Rs.) 45 43 9
(iii) Statement showing the productwise andtotal profit for the period
Products A B X Total
Sales value (Rs.) 12,24,00 2,50,000 7,92,00
11.13
7/30/2019 Joint Products & by Products
14/56
Cost Accounting
0 0
Add: Closing stock value(Rs.)
45,000 2,15,000 90,000
(Refer to Working note 2)
(I) Value of production(Rs.)
12,69,000
4,65,000 8,82,000
26,16,000
Apportionment of jointcost (Rs.) [Refer to a(i)]
6,30,000 2,80,000 3,78,000
Add: Further processing
cost (Rs.)
1,80,000 1,50,000 1,08,00
0
(II) Total cost (Rs.) 8,10,000 4,30,000 4,86,000
17,26,000
Profit (Rs.) : (I II) 4,59,000 35,000 3,96,000
8,90,000
Working Notes
1.
Products A B X Total
Sales value (Rs.) 12,24,000 2,50,000 7,92,000
Quantity sold(Kgs.)
17,000 5,000 44,000
Selling priceRs./kg
72 50 18
kg000,17
000,24,12.Rs
kg000,5
000,50,2.Rs
kg000,44
000,92,7.Rs
2. Valuation of closing stock:
Since the selling price per kg of products A, B and X is more thantheir total costs, therefore closing stock will be valued at cost.
Products A B X Total
Closing stock
(kgs.)
1,000 5,000 10,000
Cost per kg (Rs.) 45 43 9
Closing stock
value (Rs.)
45,000 2,15,000 90,000 3,50,0
00
(Rs. 45 x
1,000 kg)
(Rs. 43 x
5,000 kg)
(Rs. 9 x
10,000 kg)
11.14
7/30/2019 Joint Products & by Products
15/56
Joint Products & By Products
(iv) Calculations for processing decision
Products A B X
Selling price per kg at the point of splitoff (Rs.)
50 40 10
Selling price per kg after furtherprocessing (Rs.)
(Refer to working Note I)
72 50 18
Incremental selling price per kg (Rs.) 22 10 8
Less: Further processing cost per kg(Rs.)
10 15 2
Incremental profit (loss) per kg (Rs) 12 (- 5) 6
Since product B does not give any profit on further processing; itshould not be further processed.
Question 7
Inorganic Chemical purchases salt and processes it into more-refined products such as caustic soda, chlorine, and PVC (Polyvinylchloride). During the month of April, 2000, Inorganic Chemicalspurchased salt for Rs. 10,00,000. Conversion cost of Rs. 15,00,000were incurred upto the split-off point, at which time two saleableproducts wee produced: Caustic soda and chlorine. Chlorine can be
further processed into PVC. The April production and salesinformation are as follows:
Production Sales Sales Price per Ton
Caustic Soda 1,200 tons 1,200 tons Rs. 1,250
Chlorine 800 tons
PVC 500 tons 500 tons Rs. 5,000
All 800 tons of chlorine were further processed, at anincremental cost of Rs. 5,00,000 to yield 500 tons of PVC. Therewere 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 couldhave 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 beallocated between Caustic soda and Chlorine under each of thefollowing methods:
11.15
7/30/2019 Joint Products & by Products
16/56
Cost Accounting
(1) sales value at split off;
(2) physical measure (tone); and
(3) estimated net realizable value.
(ii) What is the gross margin percentage of Caustic soda and PVCunder the three methods cited in requirement (i)?
(iii) Lifetime Swimming Pool Products offer to purchase 800 tonsof Chlorine in May, 2000 at Rs. 1,875 a ton. This sale wouldmean that no PVC would be produced in May. How wouldaccepting the offer affect May Operating Income?(May, 2000, 12 marks)
Answer
(i) (1) Statement of Joint Costs allocation betweenCaustic soda
and Chlorine by using sales value methodat split off
Products Caustic soda Chlorine Total
Sales value at splitoff (Rs.)
15,00,000 15,00,000 30,00,000
(1,200 tons x Rs.
1,250)
(800 tons x Rs.
1,875)Weightage 0.5 0.5
Joint costs allocated(Rs.)
12,50,000 12,50,000 25,00,000
(Rs. 25,00,000 x
0.5)
(Rs. 25,00,000 x
0.5)
(2) Statement of Joint Costs allocation betweenCaustic soda
and Chlorine by using physical measure (tons) method
Products Caustic soda Chlorine Total
Physical measure(tons)
1,200 800 2,000
Weightage 0.6 0.4
Joint costs allocated(Rs.)
15,00,000 10,000,000 25,00,000
(Rs. 25,00,000 x0.6)
(Rs. 25,00,000x 0.4)
11.16
7/30/2019 Joint Products & by Products
17/56
Joint Products & By Products
(3) Statement of Joint Costs allocation betweenCaustic soda
and Chlorine by using estimated net realizable value method
Products Caustic soda Chlorine Total
Expected salesvalue of production(Rs.)
15,00,000
(1,200 tons x Rs.1,250)
25,00,000
(500 tons x Rs.5,000)
40,00,000
Less: Furtherprocessing cost(Rs.)
--
_________
5,00,000
_________
5,00,000
________
_Estimated netrealisable value aspit off point (Rs.)
15,00,000 20,00,000 35,00,000
Weightage 3/7 4/7
Joint cost allocated(Rs.)
10,71,429 14,28,571 25,00,000
000,00,25.Rsx7
3
000,00,25.Rsx7
4
(ii) Statement of gross margin percentage of Causticsoda and PVC under
sales value, physical measure and estimated net realizablevalue methods
Sales value
(at split off)
PhysicalMeasure
Estimated netrealizable
value
Caustic soda:
Sales (Rs.) 15,00,000 15,00,000 15,00,000
Less: Joint costsallocated (Rs.)
12,50,000 15,00,000 10,71,429
Gross margin (Rs.) 2,50,000 0 4,28,571Gross margin (in %) 16.67 0 28.57
100x000,00,15.Rs
000,50,2.Rs
100x000,00,15.Rs
571,28,4.Rs
PVC:
Sales (Rs.)
(500 tons x
25,00,000 25,00,000 25,00,000
11.17
7/30/2019 Joint Products & by Products
18/56
Cost Accounting
Rs.5,000)Less: Joint cost
alocated (Rs.)
12,50,000 10,00,000 14,28,571
Less: Further
processing cost(Rs.)
5,00,000 5,00,000 5,00,000
Gross margin (Rs.) 7,50,000 10,00,000 5,71,429
Gross margin (in %) 30 40 22.86
100x000,00,25.Rs
000,50,7.Rs
100x000,00,25.Rs
000,00,10.Rs
100x000,00,25.Rs
429,71,5.Rs
(iii) Incremental revenue from further processing of Chlorine intoPVC
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 whichconverts chlorine into PVC after further processing will be reducedby Rs. 5,00,000 in May, if it accepts the offer of Lifetime SwimmingPool Products, of selling to them 800 tons of Chlorine at Rs. 1875 perton.
Question 8
Two products P and Q are obtained in a crude form and requirefurther processing at a cost of Rs. 5 for P and Rs. 4 for Q per unitbefore 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 8,000 units
Q 6,000 units
Ascertain the joint cost per unit (May,1998, 15 marks)
Answer
Statement for ascertaining joint cost per unit
11.18
7/30/2019 Joint Products & by Products
19/56
Joint Products & By Products
Output (units) 8,000 6,000Products P Q
Rs. Rs.
Selling price (p.u) 13.75 8.75
Less: Margin @ 25% on cost or 20% on sales
2.75 1.75
Cost of sales 11.00 7.00
Less: Post split off cost 5.00 4.00
Pre-split off net joint costpre unit
6.00 3.00
Share in joint cost of unitsof Pand Q can be obtainedby apportioning it in theratio of 8:3
(Refer to working Note)
64,000 24,000
Ascertained joint cost perunit
8.00 4.00
(Rs.64,000/8,000
units)
(Rs. 24,000/6,000units)
Working Note:Products P Q
Units 8,000 6,000
Total output cost (Rs.) 48,000 18,000
(8,000 x Rs. 6) (6,000 x Rs. 3)
Ratio between total outputcost of two type of products:
8 3
Question 9
The Sunshine Oil Company purchases crude vegetable oil. It
does refining of the same. The refining process results in fourproducts at the split off point: M, N, O and P.
Product O is fully processed at the split off point. Product M, Nand P can be individually further refined into Super M, Super Nand Super P. In the most recent month (October, 1999), the outputat split off point was:
Product M 3,00,000 gallons
Product N 1,00,000 gallons
Product O 50,000 gallons
11.19
7/30/2019 Joint Products & by Products
20/56
Cost Accounting
Product P 50,000 gallons
The joint cost of purchasing the crude vegetable oil andprocessing it were Rs. 40,00,000.
Sunshine had no beginning or ending inventories. Sales ofProduct O in October were Rs. 20,00,000. Total output of productsM, N and P was further refined and then sold. Data related toOctober, 1999 are as follows:
Further ProcessingCosts to
Make Super Products
Sales
Super M Rs. 80,00,000 Rs. 1,20,00,000
Super N Rs. 32,00,000 Rs. 40,00,000
Super P Rs. 36,00,000 Rs. 48,00,000
Sunshine had the option of selling products M, N and P at thesplit off point. This alternative would have yielded the followingsales for the October, 1999 production:
Product M Rs. 20,00,000
Product N Rs. 12,00,000
Product P Rs. 28,00,000
You are required to answer:
(i) How the joint cost of Rs. 40,00,000 would be allocated betweeneach product under each of the following methods (a) salesvalue at split off; (b) physical output (gallons); and (c) estimatednet realizable value?
(ii) Could Sunshine have increased its October, 1999 operatingprofits by making different decisions about the furtherrefining of product M, N or P? Show the effect of anychange you recommend on operating profits.
(Nov, 1999, 12 marks)Answer
(i) (a) Statement of joint cost allocatedbetween
each product by using sales value at split off method
Products
Sales value of the pointof split off
Joint cost allocated
11.20
7/30/2019 Joint Products & by Products
21/56
Joint Products & By Products
(Rs.) (Rs.)
M 20,00,000 10,00,000
00,00,20.Rsx000,80.Rs
000,40.Rs
N 12,00,000 6,00,000
00,00,12.Rsx000,80.Rs
000,40.Rs
O 20,00,000 10,00,000
00,00,20.Rsx000,80.Rs
000,40.Rs
P 28,00,000 14,00,000
00,00,28.Rsx000,80.Rs
000,40.Rs
Total 80,00,000 40,00,000
(b) Statement of joint cost allocated betweeneach product
by using physical output (gallons) methodProduc
tsPhysical output (in
gallons)Joint cost allocated (Rs.)
M 3,00,000 24,00,000
00,00,3.xgallons000,00,5
000,00,40.Rs
N 1,00,000 8,00,000
00,00,1.xgallons000,00,5
000,00,40.Rs
O 50,000 4,00,000
00,50.xgallons000,00,5
000,00,40.Rs
P 50,000 4,00,000
00,50.xgallons000,00,5
000,00,40.Rs
11.21
7/30/2019 Joint Products & by Products
22/56
Cost Accounting
Total 5,00,000 40,00,000
(c) Statement of joint cost allocated betweeneach
product by using estimated net realizable value method
Produc
ts
Sales
revenue
after
further
processin
g
Sales
revenue
at the
point of
split off
Further
processi
ng
costs
Net
realiza
ble
value
Joint cost allocated
(Rs.) (Rs.) (Rs.) (Rs.) (Rs.)
(a) (b) (c) (d) (e)=[(b
) (d)]
or (c)
Super
M
1,20,00,0
00
80,00,0
00
40,00,0
00
20,00,000
00,00,40.xRs000,00,80.Rs
000,00,40.Rs
SuperN
40,00,000
32,00,000
8,00,000
4,00,000
00,00,8.xRs000,00,80.Rs
000,00,40.Rs
O -- 20,00,0
00
-- 20,00,0
00
10,00,000
00,00,20.xRs000,00,80.Rs
000,00,40.Rs
Super
P
48,00,00
0
36,00,0
00
12,00,0
00
6,00,000
00,00,12.xRs000,00,80.Rs
000,00,40.Rs
11.22
7/30/2019 Joint Products & by Products
23/56
Joint Products & By Products
Total 80,00,000
40,00,000
(ii) Decision about the further refining ofProduct M, N or P.
Products M N P
Rs. Rs. Rs.
Sales revenue after furtherprocessing: (A)
1,20,00,000
40,00,000
48,00,000
Sales revenue at the point of
split off: (B)
20,00,000 12,00,00
0
28,00,00
0Incremental sales revenue:(C)={(A)-(B)}
1,00,00,000
28,00,000
20,00,000
Further processing cost: (D) 80,00,000 32,00,000
36,00,000
Profit (Loss) arising due tofurther processing: {(C) (D)}
20,00,000 (4,00,000)
(16,00,000)
Decision
It is apparent from above that further processing of products Nand P results in the decrease of the operating profit by Rs.
20,00,000. Hence M/s. Sunshine should not resort to furtherprocessing of its N and P products. This decision on adoption wouldincrease the operating profits of the company for the month ofOctober 1999 by Rs. 20,00,000.
Question 10
ABC Ltd. operates a simple chemical process to convert a singlematerial into three separate items, referred to here as X, Y and Z.
All three end products are separated simultaneously at a singlesplit-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 noavailable market price for Z at the split-off point.
The selling prices quoted here are expected to remain the samein the coming year. During 2002-03, the selling prices of the itemsand 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
11.23
7/30/2019 Joint Products & by Products
24/56
Cost Accounting
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 theyear, the following inventories of complete units were on hand:
X 180 tons
Y 60 Tons
Z 25 tons
There was no opening or closing work-in-progress.
Required:
(i)Compute the cost of inventories of X, Y and Z for BalanceSheet purposes and cost of goods sold for incomestatement 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 joint-cost allocation.
(ii) Compare the gross-margin percentages for X, Y and Z usingtwo methods given in requirement (i)
(May, 2003, 4 + 4 + 2 = 10 marks)
Answer
(i) (a) Statement of Joint Cost allocation ofinventories
of X, Y and Z for Balance Sheet purposes (By using net realisable value method)
Products
X Y Z Total
Rs. Rs. Rs. Rs.
Final sales value of total
production
5,49,000 6,60,375 5,70,750 17,80,1
25(Refer to working note 1)
Less: Additional cost
(366tons x
Rs.1,500)
--
(587tons x
Rs.1,125)
--
(761tons x
Rs. 750)
3,10,0003,10,00
0
Net realisable value 5,49,000 6,60,375 2,60,750 14,70,125
11.24
7/30/2019 Joint Products & by Products
25/56
Joint Products & By Products
(at split-off point)Joint cost allocated
(Refer to working note 2)
2,33,398 2,80,748 1,10,854 6,25,000
Cost of goods sold for income statement purpose as of March31,2003
(By using net realisable value method)
Products
X Y Z Total
Rs. Rs. Rs. Rs.
Allocated joint cost 2,33,378 2,80,748 1,10,854 6,25,000
Additional costs 3,10,000
3,10,000
Cost of goods available forsale (CGAS)
2,33,398 2,80,748 4,20,854
9,35,000
Less: Cost of endinginventory
1,14,785 28,692 13,846 (1,57,323)
X : 49.18%
Y : 10.22% x (CGAS)
Z : 3.29%
(Refer to working note)
Cost of goods sold 1,18,613 2,52,056 4,07008 7,77,677
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 5,52,000
14,23,875
(186tons x
Rs.1,500)
(527tons x
Rs.1,125)
(736tons x
Rs.750)
Less: Cost of goods sold(Rs.)
1,18,613 2,52,056 4,07,008
7,77,677
Gross margin (Rs.) 1,60,387 3,40,819 1,44,99 6,46,19
11.25
7/30/2019 Joint Products & by Products
26/56
Cost Accounting
2 8Gross margin (%) 57.49% 57.49% 26.26%
(b) Statement of joint cost allocation ofinventories of X, Y and Z
for Balance sheet purposes
(By using constant gross margin percentage net-realisable valuemethod)
Product
X Y Z Total
Rs. Rs. Rs. Rs
Final sales value of totalproduction
5,49,000 6,60,375 5,70,750
17,80,125
Less: Gross margin 2,60,641 3,13,517 2,70,967
8,45,125
(Refer to working note 3) 2,88,359 3,46,958 2,99,783
9,35,000
Less: Additional Cost _______ _______ 3,10,000
3,10,000
Joint cost allocated 2,88,359 3,46,858 (10,217)
6,25,000
Note: The negative joint cost allocation to product Z illustrates oneunusual feature of the constant gross margin NRV method.
Cost of goods sold for income statement purpose
(By using constant gross margin percentage net-realisable valuemethod)
Products
X Y Z Total
Allocated joint cost 2,88,359 3,46,858 (10,217)
6,25,000
Joint Cost 3,10,000 3,10,000
Cost of goods available forsale (CGAS)
2,88,359 3,46,858 2,99,783
9,35,000
Less: Cost of endinginventory
1,41,815 35,449 9,863 1,87,127
X: 49.18%
Y: 10.22% x CCGS
Z: 3.29%
11.26
7/30/2019 Joint Products & by Products
27/56
Joint Products & By Products
Cost of goods sold 1,46,544 3,11,409 2,89,920
7,47,873
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 5,52,000
14,23,875
Less: Cost of goods sold(Rs.)
1,46,544 3,11,409 2,89,920
7,47,873
Gross margin (Rs.) 1,32,456 2,81,466 2,62,080
6,76,002
Gross margin (%) 47.475% 47.475% 47.478%
47.478%
(ii) Comparative statement of grosspercentage for X, Y and Z
(Using net realisable value and Constant gross margin percentageNRV methods)
Method Product gross margin percentage
X Y Z
Net realisable 57.49 57.49 26.26
Constant gross marginpercentage NRV
47.48 47.48 47.48
Working notes
1. Total production of three products for the year2002-2003:
Items/Products
Quantitysold in
tones
Quantity ofending
inentory intons
Totalproducion
Endinginventory
percentage
(1) (2) (3) (4) = [(2) +(3)}
(5) = (3)/(4)
X 186 180 366 49.18
Y 527 60 587 10.22
Z 736 25 761 3.29
2. Joint cost apportioned to each product:
11.27
7/30/2019 Joint Products & by Products
28/56
Cost Accounting
produeachofvaluerealisableNetxvaluerealisablenetTotal
costjointTotal
00,49,5.Rsx125,70,14.Rs
000,25,6.RsXproductofcostTotal ==
Similarly, the joint cost of inventories of products Y and Z comesto Rs. 2,80,748 and Rs 1,10,854 respectively.
3. Gross margin percentage
Rs.
Final sales value production 17,80,125
Less: Joint cost and additional costs
(Rs. 6,25,000 + Rs. 3,10,000)
9,35,000
Gross margin 8,45,125
Gross margin percentage 47.4756
%
(Rs. 8,45,125/Rs. 17,80,125) x 100
Question 11SUNMOON 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 assumingthat none of its products are to be further processed.
11.28
7/30/2019 Joint Products & by Products
29/56
Joint Products & By Products
(b) Statement showing income forecast of the company assumingthat products A, B, C and E are to be processed further.
Can you suggest any other production plan whereby thecompany can maximise its profits. If yes, then submit astatement showing income forecast arising out of adoption ofthat plan. (Nov,1997, 16 marks)
11.29
7/30/2019 Joint Products & by Products
30/56
Cost Accounting
Answer
Working Note:
Statement showing apportionment of joint costs on netrealisable value basis
Products Sales Value Post separation cost
Netreaisable
Value
Apportioned joint
costs
(1) (2) (1) (2)= (3)
(4)
Rs. Rs. Rs. Rs.A 50,00,000 12,50,00
037,50,000 26,25,00
0
(2,00,000 units x Rs.25)
C 3,00,000 50,000 2,50,000 1,75,000
(25,000 units x Rs. 12)
D 2,00,000 -- 2,00,000 1,40,000
(20,000 units x Rs. 10)
E 15,00,000 1,50,000 13,50,000 9,45,000
(75,000 units x Rs. 20) ________ ________ 59,10,000 41,37,000
Total joint cost = Raw materials costs + Manufacturing expenses
= Rs. 35,90,000 + Rs. 5,47,000 = Rs. 41,37,000
Apportioned joint cost = Total joint cost x Netrealisable value
Total net realisable value of eachproduct
Apportioned joint cost for product A =00,25,26.Rs000,50,37.Rsx
000,10,59.Rs
000,37,41.Rs=
Similarly, the apportioned joint cost for products B, C, D and Eare Rs.2,52,000, Rs.1,75,000, Rs.1,40,000 and Rs.9,45,000respectively
(a) Statement showing income forecast ofthe company
11.30
7/30/2019 Joint Products & by Products
31/56
Joint Products & By Products
assuming that none of its products are further processedProduct
A B C D E Total
Rs. Rs. Rs. Rs. Rs. Rs.
Sales revenue 34,00,0
00
3,90,0
00
2,00,0
00
2,00,0
00
10,50,0
00
52,40,0
00
(2,00,0
00
units x
Rs. 17)
30,000
units x
Rs 13)
(25,00
0 units
x Rs.
8)
(20,00
0 units
x Rs.
10)
(75,00
0 units
x Rs.
14)
Less: Apportionedjoint cost
(Refer to working
note)
26,25,000
2,52,000
1,75,000
1,40,000
9,45,000
41,37,000
Excess of revenue
over joint cost of
manufacturing
7,75,00
0
1,38,0
00
25,000 60,000 1,05,00
0
11,03,0
00
Less: Fixed cost 4,73,00
0
Profit 6,30,00
0
(b) Statement showing income forecastof the
company; assuming that products A, B, C and E are furtherprocessed
(Refer to working note)
Products
A B C D E Total
Rs. Rs. Rs. Rs. Rs. Rs.
Sales revenue: (X) 50,00,000
5,10,000
3,00,000
2,00,000
15,00,000
75,10,000
Apportioned joint
cost: (Y) 26,25,0
00
2,52,0
00
1,75,0
00
1,40,0
00
9,45,00
0
41,37,0
00
Further processing
cost: (Z)
12,50,0
00
1,50,0
00
50,000
--
-- 1,50,00
0
16,00,0
00
Total
manufacturing cost
38,75,0
00
4,02,0
00
2,25,0
00
1,40,0
00
10,95,0
00
57,37,0
00
11.31
7/30/2019 Joint Products & by Products
32/56
Cost Accounting
(K)=(Y) + (Z)
Excess of sales
revenue over total
manufacturing
11,25,0
00
1,08,0
00
75,000 60,000 4,05,00
0
17,73,0
00
Cost: [(X) (K)]
Less: Fixed cost 4,73,00
0
Profit 13,00,0
00
Suggested production plan for maximising profits
On comparing the figures of excess of revenue over cost ofmanufacturing in the above statements one observes that theconcern is earning more after further processing of A, C and Eproducts 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 tosell A, C and E after further processing and B, D at the point of splitoff. The profit statement based on this suggested production plan isas below:
Profit statement based on suggested production plan
Products
A B C D E TotalRs. Rs. Rs. Rs. Rs. Rs.
Sales revenue (X)
Apportioned joint
50,00,0
00
3,90,0
00
3,00,0
00
2,00,0
00
15,00,0
00
73,90,0
00
Cost: (Y)
Further processing
26,25,0
00
2,52,0
00
1,75,0
00
1,40,0
00
9,45,00
0
41,37,0
00
Cost: (Z) 12,50,0
00
-- 50,000 -- 1,50,00
0
14,50,0
00
Total
manufacturing
cost: (K) = (Y) + (Z)
38,75,0
00
2,52,0
00
2,25,0
00
1,40,0
00
10,95,0
00
55,87,0
00
Excess of sales
revenue over
manufacturing cost
{(X)-(K)}
11,25,0
00
1,38,0
00
75,000 60,000 4,05,00
0
18,03,0
00
Less: Fixed cost 4,73,00
0
Profit 13,30,0
00
11.32
7/30/2019 Joint Products & by Products
33/56
Joint Products & By Products
Hence the profit of the company has increased by Rs. 30,000
Question 12
In a chemical manufacturing company, three products A, B andC emerge at a single split off stage in department P. Product A isfurther processed in department Q, product B in department R and
product R and product C in department S. There is no loss in furtherProcessing of any of the three products. The cost data for a monthare as under:
Cost of raw materials introduced in department P Rs. 12,68,800
Direct Wages Department Rs.
P 3,84,000
Q 96,000
R 64,000
S 36,000
Factory overheads of Rs 4,64,000 are to be apportioned to thedepartments on direct wage basis.
During the month under reference, the company sold all threeproducts after processing them further as under:
Products A B COutput sold kg. 44,000 40,000 20,000
Selling Price per kg.Rs.
32 24 16
There are no Opening or Closing Stocks If these products weresold at the split off stage, that is, without further processing, theselling prices would have been Rs. 20,, Rs 22 and Rs. 10 each per kgrespectively for A, B and C.
Required:
(i) Prepare a statement showing the apportionment of joint costs tojoint products:
(ii) Present a statement showing product-wise and total profit forthe month under reference as per the companys current
processing policy.
(iii) What processing decision should have been taken toimprove the profitability of the company.
11.33
7/30/2019 Joint Products & by Products
34/56
Cost Accounting
(iv) Calculate the product-wise and total profit arising from yourrecommendation in (iii) above.
(May, 2002, 12 marks)
Answer
(i) Statement showing the apportionment of joint coststo joint products
Products
A B C Total
Output sold Kgs.: (I) 44,000 40,000 20,000
Selling price per kg. at split off(Rs.): (II) 20 22 10
Sales value at split off (Rs.): (I)x (II)
8,80,000
8,80,000
2,00,000
19,60,000
Joint costs (costs incurred indepartment P (Rs.)
8,80,000
8,80,000
2,00,000
19,60,000
(apportioned on the basis ofsales value at the point of splitoff) i.e. (22:22:5)
(ii) Statement showing product-wise and totalprofit for the
month under reference (as per the companys currentprocessing policy)
Products
A B C Total
Output Kgs.: (a) 44,000 40,000 20,000
Selling price per kg. afterfurther processing (Rs.): (b)
32 24 16
Sales value after furtherprocessing (Rs).:(c) = {(a) x (b)}
14,08,000
9,60,000
3,20,000
26,88,000
Joint costs (Rs.): (d) 8,80,000
8,80,000
2,00,000
19,60,000
(Refer to b (i) working notes &2(i)
Further processing costs (Rs.):(e)
1,72,800
1,15,200
64,800 3,52,800
(Refer to working note 2 (ii)
Total costs (Rs.): (f) = [(d) +(e)}
10,52,800
9,95,200
2,64,800
23,12,800
11.34
7/30/2019 Joint Products & by Products
35/56
Joint Products & By Products
Profit/ (Loss) (Rs.): [(c)) (f)} 3,55,200
(35,200)
55,200 3,75,200
Alternatively:
Incrementalsales revenue(Rs.)
5,28,000 80,000 1,20,000
(44,000 units xRs. 12
(40,000 units xRs. 2)
(20,000 units xRs. 6)
Less: Furtherprocessing costs(Rs.):
1,72,800 1,15,200 64,800
[Refer to working note2 (ii)]Incremental netprofit / (loss)
3,55,200 (35,200) 55,200
11.35
7/30/2019 Joint Products & by Products
36/56
Cost Accounting
(iii) Processing decision to improve the profitability of thecompany.
44,000 units of product A and 20,000 units of product C shouldbe further processed because the incremental sales revenuegenerated after further processing is more than the furtherprocessing costs incurred. 40,000 units of product B should be soldat the point of-split off because the incremental revenue generatedafter further processing is less than the further processing costs.
(iv) The product wise and total profit arising from therecommendation in (iii) above is as follows:
Product A B C Total
Profit (Rs.) 3,55,200
-- 55,200 4,10,400
Working notes:
1. Statement of department-wisecosts
P Q R S
Rs. Rs. Rs. Rs.
Raw materials 12,68,800
Wages 3,84,000
96,000 64,000 36,000
Overheads 3,07,200
76,800 51,200 28,800
(Apportioned on the basis ofdepartmental direct wagesi.e. 96:24:16:9)
Total Cost 19,60,000
1,72,800
1,15,200
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 furtherprocessing costs of products A, B and C respectively.Further processing costs of products A, B and C thus areRs. 1,72, 800; Rs. 1,15,200 and Rs. 64,800 respectively.
Question 13
11.36
7/30/2019 Joint Products & by Products
37/56
Joint Products & By Products
J B Limited produces four joint products A, B, C and D, all ofwhich emerge from the processing of one raw material. Thefollowing are the relevant data:
Production for the period:
Joint Product Number ofunits
Selling priceper unit
Rs.A 500 18.00B 900 8.00C 400 4.00D 200 11.00
The company budgets for a profit of 10% of sales value. Theother estimated costs are:
Rs.
Carriage inwards 1,000
Direct wages 3,000
Manufacturing overhead 2,000
Administration overhead 10% of salesvalue
You are required to:
(a) Calculate the maximum price that may be paid for the rawmaterial.
(b) Prepare a comprehensive cost statement for each of theproducts allocating the materials and other costs based upon
(i) Number of units
(ii) Sales value.
Answer
Working Notes
(i) Total Sales Value:
Joint Products No of Units Selling priceper unit
Sales value
Rs. Rs.
A 500 18 9,000
B 900 8 7,200
C 400 4 1,600
D 200 11 2,200
Total 20,000
11.37
7/30/2019 Joint Products & by Products
38/56
Cost Accounting
(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. Rs.
Joint products cost
(Refer to Working Notes (I) & (ii)
18,000
Less: Other Costs
Carriage inwards 1,000
Direct Wages 3,000
Manufacturing Overhead 2,000
Administration Overhead 2,000 8,000
Maximum price to be paid for the raw material 10,000
(b) (i) Comprehensive Cost Statement (Basedon Units)
Joint products:
A B C D Total
Units: 500 900 400 200Rs. Rs. Rs. Rs. Rs.
Raw Material 2,500 4,500 2,000
1,000 10,000
Carriage 250 450 200 100 1,000
Direct wages 750 1,350 600 300 3,000
Manufacturing Overhead 500 900 400 200 2,000
Administration Overhead 500 900 400 200 2,000
Total Cost 4,500 8,100 3,600
1,800 18,000
(ii) Comprehensive Cost Statement (Based on Sales Value)Joint products:
A B C D Total
Rs. Rs. Rs. Rs. Rs.
Sales Value 9,000 7,200 1,600
2,200 20,000
Raw Material 4,500 3,600 800 1,100 10,000
Carriage 450 360 80 110 1,000
Direct wages 1,350 1,080 240 330 3,000
11.38
7/30/2019 Joint Products & by Products
39/56
Joint Products & By Products
Manufacturing Overhead 900 720 160 220 2,000Administrative Overhead 900 720 160 220 2,000
Total Cost 8,100 6,480 1,440
1,980 18,000
Question 14
A companys plant processes 1,50,000 kgs. of raw material in amonth to produce two products, viz, P and Q. The cost of rawmaterial is Rs. 12 per kg. The process costs month are:
Rs.
Direct Materials 90,000Direct Wages 1,20,000
Variable Overheads 1,00,000
Fixed Overheads 1,00,000
The loss in process is 5% of input and the output ratio of P and Qwhich 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.20Per kg. A proposal is available to process P further by mixing it withother purchased materials. The entire current output of the plantcan 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 onekilogram of input P. The cost of processing of P into S (includingother materials) is Rs. 1,85,000 per month.
You are required to prepare a statement showing the monthlyprofitability based both on the existing manufacturing operationsand on further processing.
Will you recommend further processing?
Answer
Working Notes:
Kgs.1. Material input 1,50,000
Less: Loss of Material in process
(5% of 1,50,000)
7,500
Total output 1,42,500
2. Output of P and Q are in the ratio of 1 : 2 of the total output:
P = 1,42,500 x 1 = 47,500 kg.
3
11.39
7/30/2019 Joint Products & by Products
40/56
Cost Accounting
Q = 1,42,500 x 2 = 95,000 kg.
3
3. Joint Costs:
Rs.Material (input) (1,50,000 kg. X Rs. 12) 18,00,000Direct materials 90,000Direct Wages 1,20,000Variable overheads 1,00,000Fixed overheads 1,00,000
22,10,000
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 inproportion of their sales value i.e. Rs. 5,70,000 and Rs.19,00,000, i.e., 3 : 10 is:
Total P Q
Rs Rs. Rs.
Joint costapportionment
22,10,000 5,10,000 17,00,000
In the ratio of 3: 10
13
3x000,10,22.Rs
13
10x000,10,22.Rs
6. Total Cost of 47,500 kg. of S = Joint Cost of P + Cost ofProcessing P into S.
= Rs. 5,10,000 + Rs. 1,85,000
= Rs. 6,85,000.
Statement showing the Monthly Profitability
Based on existing
manufacturing operations
Based on further processing
of P into S
Products Products
P Q Total S Q Total
Sales quantity (kgs.) 47,500 95,000 1,42,50
0
47,500 95,000 1,42,50
0
Rs. Rs. Rs. Rs. Rs. Rs.
Sales Revenue
(Refer to working
5,70,00
0
19,00,00
0
24,70,0
00
7,12,50
0
19,00,0
00
26,12,5
00
11.40
7/30/2019 Joint Products & by Products
41/56
Joint Products & By Products
note 4)
Less:Joint Costs
(Refer to working
note 5)
5,10,00
0
______
17,00,00
0
_______
22,10,0
00
_______
6,95,00
0
_______
17,00,0
00
_______
15,95,0
00
_______
Profit 60,000 2,00,000 2,60,00
0
17,500 2,00,00
0
2,17,50
0
Refer to working note 6
Recommendation:Further processing of P is not recommended asit results in a lower profit of P
Question 15
A company operates a chemical process which produces fourproducts: K, L M and N from a basic raw material. The companysbudget for a month is as under:
Rs.
Raw materials consumption 17,520
Initial processing wages 16,240
Initial processing overheads 16,240
Product Production Sales Additional ProcessingCosts after split-off
Kgs. Rs. Rs.K 16,000 1,09,600 28,800
L 200 5,600
M 2,000 30,000 16,000
N 360 21,600 6,600
The company presently intends to sell product L at the point ofsplit-off without further processing. The remaining products, K, Mand N are to be further processed and sold. However, themanagement has been advised that it would be possible to sell allthe four products at the split-off point without further processing
and if this course was adopted, the selling prices would be as under:
Product K L M N
Selling Price Rs.Per kg.
4.00 28.00 8.00 40.00
The joint costs are to be apportioned on the basis of the salesvalue realisation at the point of split-off.
Required:
11.41
7/30/2019 Joint Products & by Products
42/56
Cost Accounting
(i) Prepare the statement showing the apportionment of joint costs.
(ii) Present a statement showing the productwise and totalbudgeted profit or loss based on the proposal to sell product L atthe split-off point and products K, M and N after further
processing.
(iii) Prepare a statement to show the productwise and total profit orloss if the alternative strategy to sell all the products at split-offstage was adopted.
(iv) Recommend any other alternative which in your opinion canincrease the total profit further. Calculate the total profit
as also the poductwise profit or loss, based on yourrecommendation.
Answer
(i) Statement showing Apportionment of JointCosts
Products K L M N Total(Rs.)
Production (Kgs.): (A) 16,000 200 2,000 360
Selling Price at split off
point(Rs./Kg.): (B)
4 28 8 40
Sales value at split offpoint
(Rs.): (C) = (A X B)
64,000 5,600 16,000
14,400
1,00,000
Joint Cost apportionment 32,000 2,800 8,000 7,200 50,000
(Refer to Working Note)
(ii) Statement of Total Budgeted Profit orLoss
(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
11.42
7/30/2019 Joint Products & by Products
43/56
Joint Products & By Products
00 0 0 00Joint Cost: (B) 32,000 2,800 8,000 7,200 50,000
(Refer to Working Note)
Addl. Processing Cost:(C)
(after split off)
28,800 -- 16,000
6,600 51,400
Total Cost: (D) = (B + C) 60,800 2,800 24,000
13,800
1,01,400
Profit: (A D) 48,800 2,800 6,000 7,800 65,400
(iii) 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 16,000
14,400
1,00,000
Less: Joint Cost
(Refer to Working Note)
32,000
_____
2,800
_____
8,000
_____
7,200
_____
50,000
_____
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 salesrevenue on furtherprocessing
45,600 14,000 7,200
(Rs.1,09,600-
Rs. 64,000)
(Rs.30,000-
Rs.16,000)
(Rs.21,600-
Rs.14,400)
Less: Additionalprocessing Cost
28,800 16,000 6,600
Profit (Loss) 16,800 (2,000) 600
Since further processing of K and N adds to profit, therefore therecommended mix that would increase total profit is to processproducts K and N further and sell products L and M at the split - offpoint.
11.43
7/30/2019 Joint Products & by Products
44/56
Cost Accounting
Profit and Loss statement based on recommendedalternative
K L M N Total
Products Processfurther& sell
Sell atsplit off
Sell atsplit off
Processfurther &
sell
Rs Rs. Rs. Rs. Rs.
Profit at split off point: (A)
32,000 2,800 8,000 7,200
Incremental profit on
sale after furtherprocessing: (B)
16,800
_____
--
_____
--
_____
600
_____ _____
Total: (C) = (A + B) 48,800 2,800 8,000 7,800 67,400
Working Note:
Joint Cost
= Raw material consumption + Initial processing wages + Initialprocessing overheads
= R. 17,520 + Rs. 16,240 + Rs. 16,240 = Rs. 50,000
Joint Cost apportionment (On the basis of sales value at split offpoint)
produtheofvaluexSalesvaluesalesTotal
CostintJo=
Products Joint Cost apportionment
K 00,32.Rs000,64.Rsx000,00,1.Rs
000,50.Rs=
L 80,2.Rs600,5.Rsx000,00,1.Rs
000,50.Rs =
M 00,8.Rs000,16.Rsx000,00,1.Rs
000,50.Rs =
N 20,7.Rs000,14.Rsx000,00,1.Rs
000,50.Rs=
Question 16
Three joint products are produced by passing chemicals throughtwo consecutive processes. Output from process 1 is transferred to
11.44
7/30/2019 Joint Products & by Products
45/56
Joint Products & By Products
process 2 from which the three joint products are produced andimmediately sold. The data regarding the processes for April, 1990is given below:
Process 1 Process 2
Direct material 2,500 kilos atRs. 4 per kilo
Rs. 10,000
Direct labour Rs. 6,250 Rs. 6,900Overheads Rs. 4,500 Rs. 6,900
Normal Loss 10% of input
Scrap value of loss Rs. 2 per kilo
Output 2,300 kilos Joint products
A 900 Kilos
B 800 Kilos
C 600 Kilos
There were no opening or closing stocks in either process andthe 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 GainAccounts you consider necessary to record the monthsactivities.
(b) Calculate the profit attributable to each of the joint products byapportioning 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
Rs.By Transfer of output from 20,700
11.45
7/30/2019 Joint Products & by Products
46/56
Cost Accounting
process-IDirect Labour 6,900Overhead 6,900
Total 34,500
(2)
Joint Products Output inKg.
Apportionment of joint coston the basis of weight of
outputA 900 Rs. 34,500 x 9 = Rs. 13,500
23
B 800 Rs. 34,500 x 8 = Rs 12,00023
C 600 Rs. 34,500 x 6 = Rs. 9,00023
(3)
Joint
Products
Output
In Kg.
S.P.
(p.u.)
Sales
Revenue
Apportionment of Joint Coston the basis of market
value of production
Rs. Rs.
A 900 24 21,600 Rs. 34,500 x 36
= Rs.17,250
B 800 18 14,400 Rs. 34,500 x 2
6
= Rs.11,500
C 600 12 7,200
______
Rs. 34,500 x 1
6
= Rs.5,750
_______
43,200 34,500
(a) Process 1 Account
Kg. Rateper
kg.
(Rs.
)
Amount
Rs.
Kg. Rateper
kg.
(Rs.)
Amount
Rs.
To Direct
material
2,50
0
4 10,00
0
By Process 2 2,3
00
9 20,70
0
To Direct labour -- -- 6,250 (Refer to Note 1)
To Overhead -- -- 4,500 By Normal Loss 250 2 500
To Abnormal gain 50 9 450 (10% of input) ___ ___
11.46
7/30/2019 Joint Products & by Products
47/56
Joint Products & By Products
2,55
0
21,20
0
2,5
50
21,20
0
Normal Loss Account
Kg. Rate
per
kg.
(Rs.)
Amo
unt
Rs.
Kg. Rate
per
kg.
(Rs.)
Amou
nt
Rs.
To Process I 250 2 500 By Sales 200 2 400
___ ___ By Abnormal gain 50 2 100
250 500 250 500
Abnormal Gain Account
Kg. Rate
per
kg.
(Rs.)
Amo
unt
Rs.
Kg. Rate
per
kg.
(Rs.)
Amou
nt
Rs.
To Normal Loss
A/c
50 2 100 By Process I 50 9 450
To Costing Profit
and
Loss Account
___ 350 ___ ___
50 450 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.) = 9.Rskg250,2
250,20.Rs=
(b) Statement of Profit(attributable to each of the Joint Products according to
weight of output and market value of production)
Joint
produc
ts
Outpu
t
S.P.
(p.u.)
Sales
value
Joint cost
apportionment
according to
Profit
(Loss)
Profit
Weight of
output
Market
value of
producti
on
Rs. Kg. Rs. Rs. Rs. Rs. Rs. Rs.
11.47
7/30/2019 Joint Products & by Products
48/56
Cost Accounting
1 2 3 2x3=4 5 6 4-5=7 4-6=8
A 900 24 21,60
0
13,500* 17,250*
*
8,100 4,350
B 800 18 14,40
0
12,000 11,500 2,400 2,900
C 600 12 7,200 9,000 5,750 (1,800
)
1,450
2,300 43,20
0
34,500 34,500 8,700 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 putin process (5,000 units) cost Rs. 23,75 per unit and all other charges
are Rs. 14,250, of which power cost accounted for 333
1%. It is
ascertained that power is chargeable as to the main product and by-product in the ratio of 10 : 9.
Draw up a statement showing the cost of the by-product.
11.48
7/30/2019 Joint Products & by Products
49/56
Joint Products & By Products
Answer
Working Note
Yield per 5,000 input units
Yield in Percentage Yield in Units
Main product 80% 4,000
By product 15% 750
Process loss 5% 250
Statement Showing the Cost of the By-Product
Rs.Cost of Material 18,750
(5,000 x Rs. 23.75) x75,4
750
Other Charges (except power) 1,500
(Rs. 14,250 x75,4
750x%)
3
266
Power 2,250
(Rs. 14,250 x19
9x%)
3
133
_____
Total Cost 22,500
Question 18
A factory is engaged in the production of a chemical BOMEX andin the course of its manufacture, a by-product BRUCIL is produced,which after further processing has a commercial value. For themonth of April 1990, the following are the summarised cost data:
JointExpenses
Separate Expenses
BOMEX BRUCIL
Rs. Rs. Rs.Materials 1,00,000 6,000 4,000
Labour 50,000 20,000 18,000
Overheads 30,000 10,000 6,000
Selling Price per unit 98 34
Estimated profit per uniton sale of BRUCIL
98 34
Units Units
11.49
7/30/2019 Joint Products & by Products
50/56
Cost Accounting
No. of units produced 2,000 2,000
The factory uses reverse cost method of accounting for by-products whereby the sales value of by-products after deduction ofthe estimated, profit, post separation costs and selling anddistribution 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 forApril 1990.
Answer
Working Notes:
Computation of the share of Joint expenses allocable tothe by-product BRUCIL.
BRUCIL
1. By-product
Units produced 2,000
Selling price per unit (Rs.) 34
Sales Revenue (Rs.) 68,000
(2,000 x Rs. 34)
Less: Profit (2,000 x Rs.4) 8,000
Cost of Sales 60,000
Less: Selling and Distribution Exp. Nil
Less: Expenses after separation 28,000
(Rs. 4,000 + Rs. 18,000 + Rs. 6,000) _____
Cost of production at the point of separation 32,000
(i) Statement of Joint Cost Allocable to
BOMEXTotal Joint Expenses Rs. Rs.
Material 1,00,000
Labour 50,000
Overhead 30,000 1,80,000
Less: Joint Cost allocable to theproduction of 2,000 units ofBRUCIL at the point of separation
32,000
(See Working Note 1) _______
11.50
7/30/2019 Joint Products & by Products
51/56
Joint Products & By Products
Cost of production of 2,000 unitsof BOMEX
1,48,000
11.51
7/30/2019 Joint Products & by Products
52/56
Cost Accounting
(ii) Productwise and Overall profitability Statement ofthe month of April, 1990
Products
BOMEX BRUCIL Total
Rs.
Sales (units) 2,000 2,000
Selling price (Rs.) 98 34
Sales Revenue (Rs.) 1,96,000
68,000
Less:Cost of production at the
point ofseparation
1,48,000 32,000
Less: Post separationcost
36,000 1,84,000
28,000
60,000
Profit (Rs.) 12,000 8,000 20,000
Question 19
Distinguish between Joint products and By-products.
Answer
Joint products and By-products: Joint Products are defined as theproducts which are produced simultaneously from same basic rawmaterials by a common process or processes but none of theproducts is relatively of more importance or value as compared withthe 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 minorimportance jointly produced with other products of relatively moreimportance or value by the common process and using the samebasic materials. These products remain inseparable upto the point of
split off. For example in Dairy industries, batter or cheese is themain 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 by-products are produced from the scrap or the discardedmaterials of the main product.
11.52
7/30/2019 Joint Products & by Products
53/56
Joint Products & By Products
(3) Joint products are not produced incidentally, but by-productsemerge incidentally also.
Question 20
A company produces two joint product X and Y, from the samebasic materials. The processing is completed in three departments.
Materials are mixed in department I. At the end of this process Xand Y get separated. After separation X is completed in thedepartment II and Y is finished in department III. During a period2,00,000 kgs of raw material were processed in department I, at atotal cost of
Rs. 8,75,000, and the resultant 60% becomes X and 30% becomes Yand 10%normally lost in processing.
In department II 1/6 of the quantity received from department Iis lost in processing. X is further processed in department II at acost of Rs. 1,80,000.
In department III further new material added to the materialreceived from department I and weight mixture is doubled, thereis 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 Product Y
Quantity sold (kgs) 90,000 1,15,000
Sales price per kg(Rs.)
10 4
There were no opening stocks. If these products sold at split-off-point, the selling price of X and Y would be Rs. 8 and Rs. 4 perkg respectively.
Required:
(i) Prepare a statement showing the apportionment of joint costto X and Y in proportion of sales value at split off point.
(ii) Prepare a statement showing the cost per kg of each productindicating joint cost, processing cost and total costseparately.
(iii) Prepare a statement showing the product wise profit for theyear.
(iv) On the basis of profits before and after further processing ofproduct X and Y, give your comment that products should be
11.53
7/30/2019 Joint Products & by Products
54/56
Cost Accounting
further processed or not.(2+3+2+2= 9 marks)
Answer
Calculation of quantity produced
Dept I Dept II Dept III
Input (kg) 2,00,000 1,20,000 60,000
Weight lost oradded
(20,000) (20,000) 60,000
1,80,000 1,00,000 1,20,000
Production of X 1,20,000 1,00,000
Production of Y 60,000 1,20,000(i) Statement of apportionment of joint cost
(Joint cost Rs.8,75,000)
Product X Product Y
Out put (kg) 1,20,000 60,000
Selling price per kg(Rs.)
8 4
Sales value (Rs.) 9,60,000 2,40,000
Share in Joint cost
(4:1)
7,00,000 1,75,000
(ii) Statement of cost per kg
Product X Product Y
Share in joint cost (Rs.) 7,00,000 1,75,000
Out put (kg) 1,00,000 1,20,000
Cost per kg (Rs.) (Joint cost) 7.00 1.458
Further processing cost per kg(Rs.)
1.80 1.250
Total cost per kg (Rs.) 8.80 2.708
(iii) Statement of profit
Product X Product Y
Out put (kg) 1,00,000 1,20,000
Sales (kg) 90,000 1,15,000
Closing stock 10,000 5,000
Rs. Rs.
Sales @ Rs. 10, 4(for product X 9,00,000 4,60,000
11.54
7/30/2019 Joint Products & by Products
55/56
Joint Products & By Products
and Y)
Add: closing stock (kg) (at fullcost)
88,000 13,540
Value of production 9,88,000 4,73,540
Less: Share in joint cost 7,00,000 1,75,000
Further processing 1,80,000 1,50,000
Profit 1,08,000 1,48,540
(iv) Profitability statement, before andafter processing
Product X
Product X Product Y
Product Y
Before(Rs.)
After(Rs.)
Before(Rs,)
After(Rs)
Sales Value 9,60,000
2,40,000
Share in jointcosts
7,00,000
1,75,000
Profit 2,60,000
1,08,000(as per iii
above)
65,000 1,48,540(as per iii
above)Product X should be sold at split off point and product Y afterprocessing 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 fromtheir sale may be dealt as follows:
Sales value of the by-product may be credited to Profitand Loss Account and no credit be given in CostAccounting. The credit to Profit and Loss Account here istreated either as a miscellaneous income or as additionalsales revenue.
The sale proceeds of the by product may be treated as
11.55
7/30/2019 Joint Products & by Products
56/56
Cost Accounting
deduction from the total costs. The sales proceedsshould be deducted either from production cost or cost ofsales.
(ii) When they require further processing:
In this case, the net realizable value of the by product at the split-offpoint may be arrived at by subtracting the further processing costfrom realizable value of by products. If the value is small, it may betreated as discussed in (i) above.
11.56