Three products X, Y and Z alongwith a byproduct B are obtained again in a crude state which require further processing at a cost of 5for X; 4for Y;…

CA Intermediate · Cost and Management Accounting · RTP · September 2024
Three products X, Y and Z alongwith a byproduct B are obtained again in a crude state which require further processing at a cost of 5for X; 4for Y; and - 2.50 for Z per unit before sale. The byproduct is however saleable as such to a nearby factory. The selling prices for the three main products and byproduct, assuming they should yield a net margin of 25 percent of cost, are fixed at 13.758.75 and - 7.50 and - 1.00 respectively - all per unit quantity sold. During a period, the joint input cost including the material cost was - 90,800 and the respective outputs were: X 8,000 units Y 6,000 units Z 4,000 units B 1,000 units By product should be credited to the joint cost and only the net joint costs are to be allocated to the main products. CALCULATE the joint cost per unit of each product and the margin available as a percentage on cost.

Suggested Answer and Working Notes:

15. Working Notes: (i) Computation of Allocation Ratio for Joint Costs Products X (₹) Y (₹) Z (₹) Selling Price 13.75 8.75 7.50 Less: anticipated margin@ 25% on cost of 20% on sales 2.75 1.75 1.50 Cost of sales 11.00 7.00 6.00 Less: post split off cost 5.00 4.00 2.50 Joint cost per unit 6.00 3.00 3.50 Output (units) 8,000 6,000 4,000 Total output cost 48,000 18,000 14,000 Allocation ratio for joint costs 24 9 7 (ii) Computation of net allocable joint costs Particulars ₹ Joint input cost including material cost 90,800 Less: Credit for realization from by-product B: Sales revenue (1,000 × Re. 1) 1,000 Less: profit @ 25% on cost or 20% on sales 200 800 Net joint costs to be allocated 90,000 Determination of joint cost per unit of each product Product Net joint costs allocation (₹) Output (units) Joint cost per unit (₹) X 54,000 (Note: 1) 8,000 6.75 Y 20,250 6,000 3.38 Z 15,750 4,000 3.94 90,000 Profit margin available on each product as a percentage on cost Product Joint Cost (₹) Post spilt-off cost (₹) Total Cost (₹) Selling Price (₹) Margin (₹) Margin % on cost X 6.75 5.00 11.75 13.75 2.00 17.02 Y 3.38 4.00 7.38 8.75 1.37 18.56 Z 3.94 2.50 6.44 7.50 1.06 16.46 Note: 1 X = (24/40) × 90,000 = 54,000 Y = (9/40) × 90,000 = 20,250

Topics: Joint Products and By Products

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