In a manufacturing process of Milky Way Ltd., one by-product 'Universe' emerges besides two main products Galaxy 1 and Galaxy 2, apart from scrap.…

As per Ind AS 2 ‘Inventories', by-products as well as scrap or waste materials which are immaterial in nature, are measured at net realisable value and this value is deducted from the cost of the main product. (1) Calculation of NRV of By-product Universe ₹ Selling price of by-product 2,000 units x 20 per unit 40,000 Less: Separate processing charges of by-product Universe (8,000) Packing charges (2,000) Net realisable value of by-product Universe 30,000 (2) Calculation of cost of conversion for allocation between joint products Galaxy 1 and Galaxy 2 ₹ Raw material 1,50,000 Wages 90,000 Fixed overhead 65,000 Variable overhead 50,000 Less: NRV of by-product Universe (See calculation 1) 30,000 Sale value of scrap 5,000 (35,000) Joint cost to be allocated between Galaxy 1 and Galaxy 2 3,20,000 (3) Determination of "basis for allocation" and allocation of joint cost to Galaxy 1 and Galaxy 2 Galaxy 1 Galaxy 2 Output in units (a) 5,000 4,000 Sales price per unit (b) ₹ 60 ₹ 50 Sales value (a x b) ₹ 3,00,000 ₹ 2,00,000 Ratio of allocation 3 2 Joint cost of 3,20,000 allocated in the ratio of 3:2 (c) ₹ 1,92,000 ₹ 1,28,000 Cost per unit [c/a] ₹ 38.4 ₹ 32 (4) Determination of value of closing stock of Galaxy 1 and Galaxy 2 Particulars Galaxy 1 Galaxy 2 Closing stock in units 100 units 250 units Cost per unit ₹ 38.4 ₹ 32 Value of closing stock ₹ 3,840 ₹ 8,000