A company produces two products, A and B, through a joint production process. The total joint production cost incurred is as under: Material 20,000…

(a) Working Calculation of joint cost Description Amount (₹) Material 20,000 Labour 10,000 Variable overheads 6,000 Total variable cost 36,000 Fixed overheads 24,000 Total joint cost 60,000 (i) (a) Allocation of joint cost using physical unit method: Product A = 60,000 × 2,000/6,000 = 20,000 Product B = 60,000 × 4,000/6,000 = 40,000 (b) Allocation of joint cost using contribution margin method: Description Product-A Product-B Units produced 2,000 4,000 Selling price per unit (₹) 20 15 A. Sales value (₹) 40,000 60,000 B. Allocation of joint variable cost on the basis of physical unit 36,000 × 2,000/6,000 (12,000) 36,000 × 4,000/6,000 (24,000) C= A-B Contribution 28,000 36,000 D Allocation of fixed joint cost on the basis of contribution margin 24,000 × 28,000/64,000 (10,500) 24,000 × 36,000/64,000 (13,500) C-D Profit at split off point 17,500 22,500 Allocation of Joint Cost on the basis of Contribution Margin Method: Particulars Product A Product B Allocation of Variable Cost 12,000 24,000 Allocation of Fixed Cost 10,500 13,500 Total Joint Cost 22,500 37,500 (ii) Profitability after further processing of Product B Description Amount (₹) Units produced and sold 98% of 4,000 units 3,920 Selling price per unit (₹) 18 Sales value (₹) 70,560 Joint cost upto split off point (37,500) Further processing cost (12,000) Profit after further processing 21,060 Calculation of the profitability after further processing of product B can also be done in the following manner: Profitability after further processing of Product B Description Amount (₹) Incremental revenue on further processing (3,920 x 18)- (4,000 x 15) 10,560 Further processing cost (12,000) Incremental loss after further processing 1,440 Impact on profitability on Product B If Product B is sold at split off point it earns profit of 22,500, but after further processing the profit is reduced to 21,060/- i.e. an opportunity loss of 1,440/-.