JPBP Ltd. manufactures two joint products A and B simultaneously from the same process. The process produces another product C which is recovered…
CA Intermediate · Cost and Management Accounting · RTP · January 2025
JPBP Ltd. manufactures two joint products A and B simultaneously from the same process. The process produces another product C which is recovered incidentally from the material used in the manufacture of A and B. The expenditures incurred up to the point of separation i.e. split-off point are - 14,82,000. As the joint products are capable of being measured in the same units, joint costs are allocated on the basis of physical unit. Though the joint products A and B are saleable at split-off point, these can also be further processed and sold at a higher market price, with some sales promotion efforts. However, product C can be sold only after further processing. The management is of the view that, as the net realisable value of the product C at split off point is too small, the value may be deducted from the joint production cost. The relevant details of the products are as follows: Particulars Product A Product B Product C Output (kg.) 16,250 8,125 1,625 Selling price at the split-off point (per kg.) (₹) 72 80 Further processing cost (per kg.) (₹) 16 20 8 Further marketing cost (per kg.) (₹) 8 8 4 Selling price after further processing (per kg.) (₹) 112 104 24 You are required the following: (i) DETERMINE the profit/ (loss) of each joint product if these are sold without further processing. (ii) WHETHER joint products be processed further? Decide on the basis of incremental profit/ (loss).
Suggested Answer and Working Notes:
Workings 1. Product C is produced incidentally from the material used in the manufacture of A and B, thus, Product C is a By-product. Per unit (₹) Selling price after further processing (per kg.) (₹) 24 Less: Further Processing Cost (per kg) 8 Further Marketing Cost (per kg) 4 12 Calculation of Joint Cost to be borne by By-product C Joint Costs to be borne by By-product C = Output (kg.) x 12 = 1,625 kg. × ₹ 12 = 19,500 2. Allocation of joint cost among joint products (on the basis of physical units) (given) Product A: (₹ 14,82,000 -19,500) x (16,250 / 24,375) = 9,75,000 Product B: (₹ 14,82,000 -19,500) x (8,125 / 24,375) = 4,87,500 (i) Statement of Profit/ (Loss) if joint products are sold without processing Particulars Product A Product B Total (a) Output (kg.) 16,250 8,125 (b) Selling price at the split-off point (per kg.) (₹) 72 80 (c) Sales Value (a) x (b) 11,70,000 6,50,000 18,20,000 (d) Allocation of joint costs 9,75,000 4,87,500 14,62,500 (e) Profit at the point of separation (c)-(d) 1,95,000 1,62,500 3,57,500 (ii) Further processing decision Particulars Product A (₹) Product B (₹) (a) Selling price at split off 72 80 (b) Selling price after further processing 112 104 (c) Incremental revenue (b)-(a) 40 24 (d) Further processing cost 16 20 (e) Further Marketing Cost 8 8 (f) Incremental cost (d)+(e) 24 28 (g) Incremental profit/ (loss) per kg (c)-(f) 16 (4) (h) Total Incremental profit/ (loss) 16 x 16,250 kg = 2,60,000 (4) x 8,125 kg = (32, 500) Therefore, Product A should be processed further as they give incremental profit. On the other hand, Product B should be sold at split-off point as they suffer incremental losses after further processing.
Topics: Joint Products and By Products
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