Joint Product & By-product Examples

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Allocation of Cost to by-Product Z by Reversal Cost Method

Operating Profit per unit Add: Operating Expenses: Marketing and Administrative expenses per unit

1 1

GROSS PROFIT per unit

2

Sales price per unit Less: Gross profit per unit

5 (2)

COST OF GOODS SOLD per unit

3

Less: Further processing cost per unit

(1)

COST OF GOODS SOLD per unit (at split off point)

2

Cost of Z Product = 2,000 units x Rs. 2 = Rs 4,000

ALLOCATION OF JOINT PRODUCT COST TO X and Y (by Market value method. Product

Ultimate MV / unit

Nos. of units produced

Ultimate Market Price

Processing cost

Hypothetical Market value

X

20

8,000

160,000

40,000

120,000

Y

25

10,000

250,000

70,000

180,000 300,000

Allocation of Joint Production Cost to X and Y is now Rs. 200,000 because Rs. 4,000 charged to Product Z which deduct from total cost of Rs. 204,000

Allocation %

w Rs. 200,000 duct from total

Allocation of Joint cost

40

80,000

60

120,000 200,000

Required no. 1: Market Value method Product

Units

Sales price per unit

Total Market Value

Allocation %

Buildon

6,000

2.20

13,200

36.67

Buildeze

8,000

1.25

10,000

27.78

Buildrite

10,000

1.28

12,800 36,000

35.56 100

Required no. 2: Weighted Average method Product

Units

Weight per unit

Weighted Units

Allocation %

Buildon

6,000

6

36,000

33.33

Buildeze

8,000

4

32,000

29.63

Buildrite

10,000

4

40,000 108,000

37.04 100

Appropriation of Joint Production cost 7,920 6,000 7,680 21,600

Appropriation of Joint Production cost 7,200 6,400 8,000 21,600

Required no. 1: Average unit cost method

Product Unit Produced

Allocation %

Allocation of Joint production cost

Additional Cost

Total Cost

X

6,000

50.00

30,000

9,000

39,000

Y

4,000

33.33

20,000

7,000

27,000

Z

2,000 12,000

16.67 100

10,000 60,000

5,000 21,000

15,000 81,000

Required no: 2: Market Value method

Total joint production cost Units Sales price at split off A B C D

20,000 15,000 10,000 15,000

120,000

0.25 3.00 3.50 5.00

ALLOCATION OF JOINT PRODUCTION COST (AT SPLIT OFF POINT) Joint Product

No. of units produced

A B C D

Sales price at split off

20,000 15,000 10,000 15,000

Total

Total M. Value

0.25 3.00 3.50 5.00

A

Percentage

5,000 45,000 35,000 75,000 160,000

B

Allocation of Joint cost

3.125 28.125 21.875 46.875 100

C

3,750 33,750 26,250 56,250 120,000

D

Total units

60,000

20,000

15,000

10,000

15,000

Sales (in units)

52,000

18,000

12,000

8,000

14,000

8,000

2,000

3,000

2,000

1,000

138,500

4,500

36,000

28,000

70,000

Cost 120,000 Less: ending inventory (16,125)

3,750 (375)

33,750 (6,750)

26,250 (5,250)

56,250 (3,750)

COGS

103,875

3,375

27,000

21,000

52,500

34,625

1,125

9,000

7,000

17,500

25

25

25

25

25

Ending units Sales (in value)

Gross Profit GP percentage

ALLOCATION OF JOINT PRODUCTION COST (AFTER SPLIT OFF POINT SALES VALUE)

Product

Ultimate M.V per unit

A B C D

Unit Produced

0.50 5.00 4.50 8.00

20,000 15,000 10,000 15,000

Section A

Sat

8:30 -10

Section B

Sat

10- 11:30

Ultimate M.V

10,000 75,000 45,000 120,000 250,000

Processing Cost after split off point 2,000 10,000 10,000 28,000 50,000

Hypothetical Market Value 8,000 65,000 35,000 92,000 200,000

0.19 2.25 2.63 3.75

% of Joint Cost Allocation 4.00 32.50 17.50 46.00 100

Allocation of Joint Production Cost 4,800 39,000 21,000 55,200 120,000

Total Cost

6,800 49,000 31,000 83,200 170,000

Dept no.1:

Dept no.2

Input

110,000

Receiving from dept 1

Cost

120,000

Additional cost

66,000 38,000

19,800 BETA (30% of 66,000 units)

No additional cost & Joint produc Market expenses Sales value 1.20 per unit

46,200 APLHA Transfer to Dept 4 (70% of 66,000 units) Additional cost Sale value Dept No. 3 Receiving from dept 1

23,660 Rs. 5 / unit

44,000 (40 % of input in dept 1) (4,000) (10% of good output) 40,000 Good output

Additional cost

165,000 Sales value 12 per unit

Let good output is X Input - Loss = Good output 44000 - 0.1 of x = x 44000 = x + 0.1 x 44000 = 1.1 x x = 44000 / 1.1 X = good out put = 40,000 units Req no: 1 Allocation of Joint Production Cost

Product

M.V. per unit

Aplha

Gamma

Nos. of units produced

Market Value

Processing Cost

Hypothetical M.V

5

46,200

231,000 15,660

38,000 23,660

185,000

37

12

40,000

480,000

165,000

315,000 500,000

63 100

W-1: Calculation of net realizable value method Sales revenue of Beta (19,800 units x 1.20) Less: Marketing expenses Net Realizable Value of beta

23,760 (8,100) 15,660

Required no: 2: Gross profit of Alpha Sales

Allocation %

(48,000 x 80% = 38,400 units x Rs. 5)

Less: Production Cost Joint cost allocation to Alpha Additional cost: Department no. 2 Department no. 4

102,000 38,000 23,660

61,660

Total Production Cost Less: Net Realizable value of beta

163,660 (15,900)

Net Production Cost Less: Ending inventory

147,760 (29,552) COST OF GOODS SOLD Gross Profit

W-1

W-2

Net realizable value of beta Sales value of Beta Less: Marketable value NRV

24,000 (8,100) 15,900

Cost of ending inventory Cost of ending inventory = Net production cost x % of ending inventory =147,760 x 20% 29,552

(60 % of input in dept 1)

o additional cost & Joint production cost arket expenses 8,100 ales value 1.20 per unit

GAMMA Loss

APLHA BETA

Allocation of Joint Production cost 44,400

75,600 120,000

192,000

(118,208) 73,792

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