ABC Ltd. operates a simple chemical process to convert a single material into three separate items, referred to here as X, Y and Z. All three end…

CA Intermediate · Cost and Management Accounting · RTP · May 2026
ABC Ltd. operates a simple chemical process to convert a single material into three separate items, referred to here as X, Y and Z. All three end products are separated simultaneously at a single split-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 no available market price for Z at the split-off point. The selling prices quoted here are expected to remain the same in the coming year. During 2024-25, the selling prices of the items and the total amounts sold were: X – 186 tons sold for 3,000 per ton Y - 527 tons sold for 2,250 per ton Z – 736 tons sold for 1,500 per ton The total joint manufacturing costs for the year were - 12,50,000. An additional - 6,20,000 was spent to finish product Z. There were no opening inventories of X, Y or Z at the end of the year. 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: COMPUTE the cost of inventories of X, Y and Z and cost of goods sold for year ended March 31, 2025, using Net realizable value (NRV) method of joint cost allocation.

Suggested Answer and Working Notes:

(i) (a) Statement of Joint Cost allocation of inventories of X, Y and Z (By using Net Realisable Value Method) Products Total X (₹) Y (₹) Z (₹) (₹) Final sales value of total production (Working Note 1) 10,98,000 (366 × 3,000) 13,20,750 (587 × ₹ 2,250) 11,41,500 (761 × 1,500) 35,60,250 Less: Additional cost -- -- (6,20,000) (6,20,000) Net realisable value (at split-off point) 10,98,000 13,20,750 5,21,500 29,40,250 Joint cost allocated (Working Note 2) 4,66,797 5,61,496 2,21,707 12,50,000 Cost of goods sold as on March 31, 2025 (By using Net Realisable Value Method) Products Total X (₹) Y (₹) Z (₹) (₹) Allocated joint cost 4,66,797 5,61,496 2,21,707 12,50,000 Additional costs -- -- 6,20,000 6,20,000 Cost of goods available for sale (CGAS) 4,66,797 5,61,496 8,41,707 18,70,000 Less: Cost of ending inventory (Working Note 1) 2,29,571 (CGAS × 49.18%) 57,385 (CGAS × 10.22%) 27,692 (CGAS × 3.29%) 3,14,648 Cost of goods sold 2,37,226 5,04,111 8,14,015 15,55,352 Working Notes 1. Total production of three products for the year 2024-25 Products Quantity sold in tones Quantity of ending inventory in tons Total production Ending inventory 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: Total Joint cost / Total Net Realisable Value × Net Realisable Value of each product Total cost of Product X = 12,50,000 /29,40,250 × ₹ 10,98,000 = 4,66,797 Total cost of Product Y = 12,50,000 /29,40,250 × ₹ 13,20,750 = 5,61,496 Total cost of Product Z = 12,50,000 /29,40,250 × ₹ 5,21,500 = 2,21,707

Topics: Joint Products and By Products

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