In a chemical manufacturing company, three products A, B and C emerge at a single split off stage in department P. Product A is further processed in…

Working Notes: 1. Statement of department-wise costs P (₹) Q (₹) R (₹) S (₹) Raw materials 12,68,800 Wages 3,84,000 96,000 64,000 36,000 Overheads (Apportioned on the basis of departmental direct wages i.e. 96:24:16:9) 3,07,200 76,800 51,200 28,800 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 19,60,000. (ii) Costs incurred in the departments Q, R and S are further processing costs of products A, B and C respectively. Further processing costs of products A, B and C thus are - 1,72,800; ₹ 1,15,200 and - 64,800 respectively. (i) Statement showing the apportionment of joint costs to joint products Products A B C Total Output sold Kg.: (I) 44,000 40,000 20,000 Selling price per kg. at split off (₹): (II) 20 22 10 Sales value at split off (₹): (i) x (II) 8,80,000 8,80,000 2,00,000 19,60,000 Joint costs (costs incurred in department P (₹) (apportioned on the basis of sales value at the point of split off) i.e. (22:22:5) (Working Note 1) 8,80,000 8,80,000 2,00,000 19,60,000 (ii) Statement showing product-wise and total profit for the month under reference (as per the company's current processing policy) Products A B C Total Output (kg.): (a) 44,000 40,000 20,000 Selling price per kg. after further processing (₹): (b) 32 24 16 Sales value after further processing (₹): (c) = {(a) x (b)} 14,08,000 9,60,000 3,20,000 26,88,000 Joint costs (₹): (d) 8,80,000 8,80,000 2,00,000 19,60,000 Further processing costs (₹): (e) (Working Note 2) 1,72,800 1,15,200 64,800 3,52,800 Total costs (₹): (f) = {(d) + (e)} 10,52,800 9,95,200 2,64,800 23,12,800 Profit/ (Loss) (₹): {(c))− (f)} 3,55,200 (35,200) 55,200 3,75,200 (iii) Processing decision to improve the profitability of the company. 44,000 units of product A and 20,000 units of product C should be further processed because the incremental sales revenue generated after further processing is more than the further processing costs incurred. 40,000 units of product B should be sold at the point of split off because the incremental revenue generated after further processing is less than the further processing costs. (iv) The product wise and total profit arising from the recommendation in (iii) above is as follows: Product A B C Total Profit (₹) 3,55,200 - 55,200 4,10,400