13

Illustration 3
A chenmicalprocess yields 70% of the materials
by-product, 10% introduced as main product and 20% as a
being lost. Technical information teveals
by the main product and that of the mnaterials 75% is
the time needed for one 25% by the by-product. One unit of main absorbed
unit of by-product and product needs double
During a week, 1,000 units of raw overheads are absorbed in the ratio of 3 : 1.
totalled 3,200 and overheads camne to materials at a cost
of5,000 were introduced. Labour
the two products. 2,000. Wastage realised 200. Ascertain the cost of
Solution [B.Con, Delhi Univ.
Cost Statement

Particulars Basis of Total Main Product

(700 units)
Apportionment Total Per unit
By-Product (200 units)
Materials 75 : 25 Total Per unit
Labour 5,000 )
14 : 2 3,750 5.36
3,200 1,250
Overheads 1: 1 2,800 4.00
6.25
1,800 1,350
400
2.00
1.93
10,000 7,900
450
2.25
2,100
(i)
Number of units produced Working Notes
Main Product 70% Units
By-product 20% 700
Wastage 10%
Materials introduced 200
(iü) 100
Labour cost is
wages of that apportioned in the ratio of 14 : 2 1,000
cost,700 units required
for the because
(iii)
of the
by-product.
main product are Hence, for the
the main
ofproduct needs double the
Realisable value of wastage is equivalent to 1,400purpose
units of apportionment of labour
deducted from the by-product.
Illustration
The yield of a
overhead.
Product certain
? 23.75 and 5% as to the process
is 80% as
to the
per unit and all process loss. The main
other charges are material put inproduct, 15% as to the by
1
35,%. It is
the ratio of ascertained that process (5,000 units) COsts
10:9. Draw up apower is chargeable14,250
of
as to the
which power Cost accounted for
statement showing the cost ofmain
the product and
by-product. by-product in
[C.A. (Inter)]
 DSolution : By-Product
Statement showing the Cost of the
Particulars

750 18,750
x23.75) x
1. Material Cost (5,000 units 4,750
2 750 1,500
66 %x
2. Other charges (except power) 14,250 x 3 4,750
1 2,250
9
3. Power 14,250 x 33 %) x 19
22,500
4. Total Cost (1 + 2 +3)

Note : Calculation of Number of units Produced :

Yield in units
Yield in percentage
80% 4,000
Main product
15% 750
By-Product
Process Loss 5% 250
5,000

Illustration 5
A factory produces two products, A and B from a single process. The joint processing
costs during a particular period are :

Direct materials 26,000 Sales :

Direct labour 10,000 A 100 units @ 600 per unit
Variable overheads 8,000 B 120 units @ 200 per unit
Fixed overheads 22,000
of each product
Apportion the joint cost on the basis of : (a) Weight or Physical quantity[I.C.W.A. (Inter)]
and (b) Contribution margin of the products concerned.
GSolution :
on the basis of Weight
(a) Statement showing Apportionment of Joint Cost Profit
Total Cost66,000 Sales (Loss)
Production Apportioned Cost (100 : 120)
Products ()
(Units)
30,000
100 60,000
A 100 66,000 x 220 =30,000
(-)12,000
24,000
120
B 120 66,000× 220 =36,000
 Marginal Cost on the basis of Weight and
(b) Statement showing Apportionment ofbasis of contribution
Fixed Cost on the

Marginal Appor Profit

Products Production Sales Apportioned marginal tioned
(Units) cost (44,000 = 100: 120) Contribution fixed cost
(1) (2) (3) (4) (5)=(3)-(4) ? (7)-(5)-(6)
(6)
A 100 60,000 100 40,000 22,000 18,000
44,000 × 220 = 20,000

B 120 24,000 120 Nil Nil Nil

44,000 x 220 = 24,000

Marginal Cost = Direct Materials ( 26,000) + Direct Labour (* 10,000) + Variable Overhead
8,000) = 44,000.
Illustration 6

A manufacturing company produces three products of equal importance from the same
manufacturing operation. Joint cost at the point of separation is 25,000. Subsequent costs
incurred are as under:
Product X Product Y Product Z
() ) ()
Material 2,000 1,800 3,000
Labour 500 200 1,000
Overhead 1,500 1,000 1,000
4,000 3,000 5,000
Total Sales Value 20,000 15,000 10,000
Estimated Profit on Sales 20% 25% 30%
You are required to apportion the Joint cost on the basis of the Net Realisable Value
or Reverse Cost Method. [B.Com., Bangalore]
G Solution :
Statement Showing Apportionment of Joint Cost
Products Total
Particulars X Y
() ) () )
Sales Value 20,000 15,000 10,000 45,000
4,000 3,750 3,000 10,750
Less : Estimated profit on sales (as per %given)
Estimated Total Cost 16,000 11,250 7,000 34,250
4,000 3,000 5,000 12,000
Less : Subsequent Cost
12,000 8,250 2,000 22,250
Estimated Cost at Split-off point
Joint Cost 25,000 apportioned in the ratio 13,483 9,270 2,247 25,000
of 12,000:8,250 : 2,000 or 48 :33 :8
 processing at a
Illustration8 require further 25% on cost,
crude form and margin of
ate obtained in a Assuming a net the period, the
products P and Q before sales. During
Two
and 4 for Q per unit 8.75 per unit respectively.
P
cost of 5 for fixed at 13.75 and C.A. (Inter)]
sale prices are outputs were : [B.Com. Delhi &
their 88,000 and the unit.
joint cost was Ascertain the joint cost per
units, Q 6,000 units.
P 8,000
Solution : Apportionment of Joint Cost
Statement showing Products

P
Particulars
6,000
8,000
Output (in units)
13.75 8.75

2.75 1.75
Selling price per unit
or 20% on sales 7.00
Less: Profit @ 25% on cost 11.00
Cost of Sales 5.00 4.00
3.00
Less : After split-off cost 6.00
separation)
Share of Joint cost per unit (before 8,000units 6,000 units
x6 x3
Total Cost
=48,000 =18,000

48,000:18,000 or, 8:3

Ratio between P and Q is for
apportioned to P and in
Q the ratio of 8:3 i.e. 64,000
Total Joint Cost of 88,000 is
Pand 24,000 for Q.
A=64,000 8,000 units =8
Joint Cost per unit of
24,000 + 6,000 units =4
Joint Cost per unit of B =
Illustration 9
estimated preseparation costs per tonne of by-products Y and Z from the
Work out the
following data :
25,60,000.
Costs of manufacture before separation ?
selling prices are
Main product is X. There are two by-products Y and Z whose normal
as under:
Sales price of Y : 500 per tonne
Sales price of Z : 800 per tonne.
and the net
Selling and distribution expenses have been estimated to be 25% of selling price
Profit is expected to be 10% of selling price. Costs to manufacture each tonne after separation
trom the main product are : 95 for by-product Y, 145 for by-product Z. Assume equal
weight for Y and Z. [I.C.W.A. (Inter)]
18 fT G RSAR faa-II
Solution :
Statement Showing Estimated Preseparation Cost per tonne
Product Y
Particulars Product2
Selling price per tonne 500.00 800.00
Less: Net profit @10% of selling price 50.00 80.00
450.00 720.00
Less :Selling &distribution expenses 125.00 200.00
325.00 520.00
Less: Post-separation cost 95.00 145.00
Estimated preseparation cost per tonne 230.00 375.00

1llustration 10
A factory produces an article A and therefrom gets a by-product B. Both A and B
are
subsequently processed into finished products. The joint costs before separation were:
Material 50,000, Labour30,000, Overhead 20,000
Subsequent Costs were: A B

Material 30,000 15,000

Labour 14,000 10,000
Overhead 6,000 5,000
50,000 30,000
Selling prices were: A? 1,60,000, B? 80,000. Estimated profits as a percentage of selling
nrices would be:A 25%, B 20%: Selling and distribution expenses are in proportion to selling
prices. Show the apportionment of the joint cost and the total production cost of each of A
and B till finished. [W.B. Audit & Accounts Service Examination]
Solution :
Statement Showing Apportionment of Joint Cost
Particulars
Main Product By-Prodúct Total
B()
Selling price 1,60,000 80,000 *2,40,000
Less: Estimated profit (25% &20% on Sales) 40,000 16,000 56,000
Total Cost 1,20,000 64,000 1,84,000
Less :Selling expenses (See Note below) 2,667 1,333 4,000
Cost of Production 1,17,333 62,667 1,80,000
Less :Subsequent expenses 50,000 30,000 80,000
-Share in Joint Cost 67,333 32,667 1,00,000
 Working Note

Selling expenses are not given in the question.

These are calculated as follows : 1,84,000
Total Cost (as calculated as above) 1,80,000
Less : Cost of production (1,00,000 + 50,000 + 30,000) 4,000
Selling expenses
4,000 x 100 = 1.6666%
Selling expenses as percentage to selling price = 2,40,000
Selling and distribution expenses :
1.6666
A:1,60,000 x 1.6666 =2,667, B: 80,000 x =1333
100 100

Illustration 11|
In a marnufacturing company 10,000 kilolitre of A is processed to produce 6,000 kilolitre
of B and 4,000 kilolitre of C. The joint cost before separation point came to an amount of
? 24,000. From the following particulars, calculate the apportionment of joint cost and the
profit of each product under (a) Physical measurement, (b) Market value at separation point
and (c) Market value after further processing:
B C

Unit selling price at separation point 5.00 3.75

Unit selling price after further processing 7.00 7.50
Further processing cost after separation 5,000 7,500
[I.C.W.A. (Inter)]
o Solution :
Statement showing Profit under Physical Units Method
B Total
Particulars

Sales value at separation point 30,000 15,000 45,000

Joint cost of 24,000 apportioned in the ratio of 3:2 14,400 9,600 24,000
Profit 15,600 5,400 21,000
Statement showing Profit under Market Value of Separation Point
Particulars Total

Sales value at separation point 30,000 15,000 45,000

Less : Joint cost apportioned in the ratio of 2:1 16,000 8,000 24,000
Profit 14,000 7,000 21,000
 20 fTIS fAb RAE-II
Statement showing Profit under Market Value after Further Processing
B
Particulars Total

Sales value after further processing 42,000 30,000 72,000

Less : Joint cost apportioned in the ratio of 7:5 14,000 10,000 24,000
28,000 20,000 48,000
Less : Further Processing Cost 5,000 7,500 12,500
Profit 23,000 12,500 35,500
Illustration 12
ABCLtd. produces three joint products X, Y and Z. The products are
processed furthet.
Preseparation costs are apportioned on the basis of weight of output of each joint product.
The following data are available for the month just concluded :
Cost incurred up to separation point 10,000
Product X Product Y Product 2
Output (in litre) 100 70 80
Cost incurred after separation point 7 2,000 1,200 800
Selling price per litre :
After further processing 7 50 80 60
At preseparation point (estimated) 25 70 45
You are required to :
(1) Prepare a statement showing profit or loss made by each product using the present
method of apportionment of preseparation cost, and
(1) Advise the management whether, ôn purely financial consideration, the three products
are to be processed further. [I.C.W.A. (Inter)]

Solution :
(1) Statement showing Profit for Three Joint Products
Joint Products
Total
Particulars Y Z
X

5,600 4,800
Sales (Output x selling price p.u.) 15,400 5,000
Less : Preseparation Costs (10:7:8) 3,200
(Apportioned on weight basis) 10,000 4,000 2,800
800
2,000 1,200
Post-separation Costs 4,000
4,000 4,000
Total Cost 14,000 6,000
800
1,600
Profit/ (loss) 1,400 (1,000)
 Joint Products
Statement showing Profitability of
(i) Incremental Profit or Loss
Incremerntal Revenue Incremental Cost
Product )
X
(50-25) x 100 = 2,500 e
2,000
1,200
500

(500)
Y (80-70) x 70 = 700 400
(60-45) x 80 =1,200 800
400

processed andY should be sold at the point

Hence, Products X and Z should be further
of separation.
Illustration 13|
A firm manufactures three joint products A, B and C and a by-product X
by processing
market price and
a common stock of material which cost 8 per kg. The details of output,
is as follows :
the initial processing cost for an input of 10,000 kg. of raw material
Current Market
Product Output (Kg.) Price/ Kg. Initial Processing Cost
)
A 5,000 18 Direct labour 1,000 hours @20per hour
2,500 20 Variable overheads 80% of direct labour
B
1,500 24 Fixed overheads 21,000
5 0 0 S : su*

The comnpany apportions common cost among joint products on physical units basis. AlII
the by-products can be further processed and sold at a higher market price, with some sales
promotion efforts. The estimated processing cost, marketing cost and the final selling price
are given below :
Further Processing Further Marketing Final price per kg.
o Product( Cost per kg. Cost per kg.
)
4 2 28

B 5 2 26

6 2 34

2 1 6

Youare required to compute :

() Cost of joint products at.the point of seperation after initial processing.
(i) Profit or loss if the products are sold without further processing.
(iii) Which of the products have to be processed further for maximising profits? Show
workings. [I.C.WJA. (Inter)]
 processing. further
further of if Evaluation
(iii)of (i)
Variablelabour
costoverheads Direct
materials
Raw
() 22
eheadsWages
Materials are :The 14 Products they Product Total Lessoverheads
Total Fixed
Statement
actory employed
Illustration
X C B A
Total
C B
Product
A
Statement
are
processed cost Sales : Solution :
fRIR
following
available
details
processed of
A Joint value showing
showing
and Quantity
(Kg.) products of
S
and marketing
cost
processing
Further to9,000 1,500 2,500 5,000
andProductsbe by-product fRb
: :
C =3
further.hence are (2+1) (5+2)(4+2)
(6+2)=8 7= 6= Profit 80% 1,00010,000 Cost
at of
are giving Proportion the hours of
they 100.00 16.67 27.78 55.55 or (500 direct kg.
In (%) separation @8 Joint
1,000 this Loss kg. @
Particulars
incremental processed labour
should @4) 20per Products pq-II
situation, if per
tonnes from AllocationJoint
Cost the point kg.
Wages50% of 1,35,000 hour
Process A be 22,50037,50075,000
further Products at
10% the processedprofit Incremental
Revenue
3,000 at they (34 (26 (28 the
(6- 4)
= - - -
50 books 24) 20) 18) Point
should of for are
per perkg
further, = = = Maximising 24 20 18
Sales
of ) sold of
tonne 4 10 6 10
a be and 2 Separation
factory without
sold
Products
at 2 1,76,000 valueSales
in respectively Profits 36,00050,00090,000 ) further
split
Wages
30% of which B
Incremental
Profit
Process B off and (loss)or
20%
20,025 two point X ) 2 (1) 4 processing
1,35,000 1,37,000 16,00020,000 80,000
have they
if 41,00013,50012,50015,000 Profit
2,000
21,000

proces es inste
lo a
 Dr, FactoryToWagesMaterials
Overheads To To
Dr. end Scrap
To To
of Scrapsold
By-products
Prepare
Dr.
Overheads
FactoryToProcess'
Wages To A/Ac To ProfitProcess Cost
Cost Wages30% of
Particulars
each
per
per Particulars
Loss
&Particulars
A process
process
A/c unit
unit A/c =
(54,500 accounts
and
= 200) -800) -
(1,000
,308-600)
the
180)
(600 - Tonnes
Tonnes 1,000 1,000 selling and
Tonnes
Process
600 600 200 200
=67.125
tonneper by-products
Process price
AmountAccount A 200
=7 Account
Process B 54,500 1,500 3,000 50,000
Amount
Amount A plu20s% tonneper?8
of cost
156.45 66,308 6,008 20,025 40,275 16,110 2,685 13,425 By-Product tonnes
)
By-product ByBy
by-products
accounts
10%
By A/Byc
sold
per By @67.125@67.125
tonne
Trànsfer @8peWastage
per tonneper tonne r
Scrap
By A/cBy By By
By-product @67.125 x
=780.55 Sales at
tonne @156.45
Finished @{ tonne
tonne
per Wastage
@10perScrap
Account sold Particulars
156.45 Particulars
A/c to (10% per and
sold Particulars (10%
Stock per (20%
Process
x tonne.show
(10% 100 120
1,0×00)
A/c tonne x B 1,000) the
x600) A/c 100
600) cost cóst ?
pltonnes
25%us 10
Tonnes
Tonnes
Tonnes
200
1,000 600 200 100 100 [B.Com.,
Mysore] per per 10%
200
600 320 100 60 120 tonne soldtonne
Amount Amount at
Amount 16,110 16,110 54,500 40,275 13,425 800 at
66,308 50,064 15,644 600 Cr.
Cr. the
Cr.
 Process B By-Product Account Cr.
Dr.

Particulars Tonnes
Amount Particulars Tonnes Amount
By Sales A/c 100
To Process B A/c 100 15,644 19,556
125
To Profit & Loss A/C 3,912 @156.,45 x
100
i.e. 195.56
100
100 19,556 19,556
Illustration 15|
JB Ltd. produces four joint products A, B, C andD, all of which emerge from the processino
of one raw material. The following are the relevant data :
Production for the period:
Joint Product No. of Units Selling price per unit

A 500 18.00
B 900 8.00
C 400 4.00
D 200 11.00

The company budgets for a profit of 10% of sales value. The other estimatedcosts are:
Carriage Inward 1,000
Direct Wages 3,000
Manufacturing Overhead 2,000
Administration Overhead 10% of sales value
You are required to :
(a) Calculate the maximum price that may be paid for the raw
material.
(b) Prepare a comprehensive cost statement for each of the product allocating the materials
and other costs based upon (1) Number of units, (ii) Sales [C.A. (Inter)
value.
t Solution
Total Sales value
Product
A 500 units @ 18 =
9,000
B 900 units @ 8 =
7,200
C 400 units @4 =
1,600
D 200 units @ 11 =
2,200
Total Sales Value 20,000
 Statement showing the maximum price for the raw materials
Particulars
Sales Value 20,000
Less : Desired profit @10% on sales 2,000
Joint Costs 18,000
Less : Conversion Cost:
Carriage lnwards 1,000
Direct Wages 3,000
Manufacturing Overhead 2,000
Administration Overhead (10% of 20,000) 2,000
8,000
10,000
Maximum price to be paid for raw materials
Statement showing allocation of Joint Costs (units)
Joint Products
B(900) C(400) D (200) Total
Particulars A (500)

4,500 2,000 1,000 10,000

Materials (5:9:4:2) 2,500
750 1,350 600 300 3,000
Direct Wages 200 100 1,000
Carriage Inward 250 450
500 900 400 200 2,000
Manufacturing Overheads 2,000
500 900 400 200
Administration Oyerheads
8,100 3,600 1,800 18,000
4,500
Value)
Statement showing allocation of Joint Costs (Sales
Joint Products
B D Total
Particulars A
() )
7,200 1,600 2,200 20,000
Sales Value 9,000
3,600 800 1,100 10,000
Materials 4,500
1,080 240 330 3,000
1,350
Wages 450 360 80 110 1,000
Carriage Inward 720 160 220 2,000
Manufacturing Overheads 900
720 160 220 2,000
Administration Overheads 900
6,480 1,440 1,980 18,000
8,100
Illustration 16
products emerge from a refining process. The total cost of input during
In an Oil Millfour
additional processing costs are as under:
March, 2015 is 148,000. The output, sales and
Additional processing Sales Value
Output in litres costs after split-off point )
Product
43,000 1,72,500
A 8,000 15,000
9,000
B 4,000 6,000
C 2,000 45,000
4,000 1,500
D
 In case these products were sold out at the split-off point, that is before further
the selling price would have been:
A
(i)
15, B = 6, C=3, D={7.50.
Find out the profitability under present condition, as well
as, if products
processing,
Split-off stage and comment on the results. are sold at
(ii) Using the concepts of relevancy of costs and differential costs,
whether further processing should be undertaken or not. advise your
G Solution : [C.A, (Inter)management
Adapted]
Statement of Profitability after further
Particulars A
processing
B C
Sales ) ) Total
Less :Share of Joint Cost (20: 1,72,500 15,000 6,000 45,000
4:1:5) 98,667 19,733 2,38,500
Additional processing cost 43,000
4,933 24,667 1,48,000
Total cost 9,000
1,500
Profit/loss) 1,41,667 28,733 4,933
53,500
30,833 26,167 2,01,500
(13,733) 1,067 18,833
37,000
(1) Sales value at split off point Working Notes
for :
A =8,000 x 15
= 1,20,000
B = 4,000 x 6 =
C=
24,000
2,000 x3 =
6,000
D = 4,000 x
7.50 = 30,000
The ratio between the
sales value of
(iü) Share of joint cost of
total joint cost viz.
A:B:C:D 20: 4:1:5
products B, C and D has þeen
A,
148,000 in the ratio
determined by dividing the
of 20:
A = ( 148,000 x 4:1:5
20)+ 30 =
98,667
B= 148,000 x 4) + 30 = 19,733
C= ( 148,000 x 1) + 30
4,933
D = ( 148,000 x 5) + 30
= 24,667

Statement of Profitability at the

Particulars A
split-off pgint
B
() D Total
Sales
Less : Share of Joint Cost
1,20,000 24,000 6,000 1,80,000
30,000
98,667 19,733 4,933 24,667 1,48,000
Profit
21,333 4,267 1,067 5,333 32,000
 Comments :
present condition (i.e, after further processing) is higher than the protit
(a) Profit under
if it is sold at split-off point.
processing should be based on whether the
(b) The decision with regard to furtherprocessing exceeds additional cost of further
incremental revenue as a result of further
processing. Thus, we have D Total
A B
Particulars ) ) )
15,000 6,000 45,000 2,38,500
Sales value after further processing 1,72,500
30,000 1,80,000
1,20,000 24,000 6,000
Sales value at split-off point 15,000 58,500
Additional sales value 52,500 (-)9,000
1,500 53,500
Addition¡l cost of further processing 43,000 9,000
13,500 5,000
Ingremental Profit / (Loss) 9,500 (18,000)

from the above that A and D should be further processed and B and C should
It follows
be sold at the point of split-off without further processing.
Illustration 17
11.04 lakhs and processes them into
for
purchases raw materials worth
Acompany 3, 9, 16 and 60 respectively
and S, which haye a unit sale value of
products P, Q, R year,
such to other processors. However, during a
at split-off point, as they could be sold as products P, Qand S, while R was not to
further process and sell
the company decided to raw
processed further but sold at split-off point to other processors. The processing of
be year
into the four products cost 28 lakhs to the company. The other data for the
materials
were as under;
Additional processing cost after
Sales split-off (all variable costs)
Product
Output in lakh)
(unit) in lakh)
12.00
10,00,000 46.00
P 2.40
20,000 4.00
10,000 1.60
R 0.40
18,000 12.00

required to work out the following information for managerial decision

You are
making : four products on the basis of 'Net Realisable
() Ifthe Joint Costs are allocated amongst the
annual income ?
Value' at split-off point, what would be the company's
split-off stage, identify the
(ü) If the company had sold off all the other three products at above.
increase/decrease in the company's annual income as compared to (i)
profits in the year?
(i1) What sales strategy could the company have planned to maximise its
(iv) Identify the net increase in income if the strategy at (iii) is adopted, as compared to
[I.C.W.A. (Inter)]
(i) above.
 28 fYG f5t faSF II
Solution
) Statement showing Annual Income for Four Products ( in Lakh)
Product Sales Joint Cost Further Processing Cost Total Cost Net Income
(1) (2) (3) (4) (5) = [(3) + (4)]
P
(2) -(5)] =(6)
46.00 27.20 12.00 39.20 6.80
4.00 1.28 2.40 3.68 0,32
R 1.60 1.28 1.28 0.32
12.00 9.28 0.40 9.68 2.32
Total 63.60 39.04 14.80 53.84 9.76

Statement showing Apportionment of Joint Cost amongst products P, Q R

and S
(Under Net Realisable Value at the Split-off Point
Method)
in Lakh)
Product Sales Further Processing Net Realisation at
Cost
split-off point Allocation of Joint Costs
(1) (2) (3) (4) = [(2) - (3)] (5)
P 46.00 12.00 34.00 34
x 39.04= 27.20
Q 4.00 48.8
2.40 1.60 1.60
x 39.04 =1.28
R 1.60 48.8
1.60 1.60
x 39.04 = 1.28
S 12.00 48.8
0.40 11.60 (11.60 x 39,04 =9.28
Total 63.60 48.8
14.80
48.80
39,04
(ii) Statement showing Annual
Income when P, Q and S along with R
split-off stage were sold at
Product fin Lakh)
P
R Total
Output (units)
10,00,000 20,000 10,000 18,000
Selling price p.u. () 3
9 16 60
Total sales 30,00 1.80 1.60 44.20
10.80
Less : Joint cost 27.20 1.28 1.28 39,04
Net Income 9.28
2.80 0.52 5.16
0,32 1,52
Remarks :
In (ii). annual income has declined by ? 4.60 lakhs (i.e. 9.76 -
(iii) The following sales strategy may be planned by the 5.16) asforcompared. to
maximisation of
profit in the year. company
 further processing as net income in
1. P and S should be sold after (2.32>1.52).
and S
(1) is more than (ii) i.e., P (6.80>2.80) net income in (ii) is more than (1), i.e.,
point as
2. Qshould be sold at split-off
(0.52>0.32)
sold at split-off point as it gives same net income under (1) and (11).
3. R should be
Income under strategy (iii)
(iv) Statement showing Annual in Lakh)
R Total
Product P
12.00 61.40
46.00 1.80 1.60
Sales Value (1)
Les: Costs :
1.28 9.28 39.04
27.20 1.28
Joint Cost
0.40 12.40
12.00
Further processing cost 51.44
39.20 1.28 1.28 9.68
Total Cost (2)
0.32 2.32 9.96
6.80 0.52
Net Income [(1) -(2)]
Remarks :
(9.96 - 9.76) as compared to
In (iv), overall net income will increase by 0.20 lakh i.e.
should be further processed.
). Thus Q and R should be sold at split-off point while P and S
Illustration 18|
Alpha Ltd. manufactures products A, Band Cfrom a joint process. Additional data are
given below
Product

A B C Total

Units produced 8,000 4,000 2,000 14,000

Joint Costs ? 18,000 1,20,000
Sales value at
split-off {1,20,000 ? ? 72,00,000
Additional costs to process further 14,000 10,000 7 6,000 30,000
Sales value if
processed further 1,40,000 60,000 740,000 ? 2,40,000

off, Assumi
what nwere
g thatthejoint product costs are allocated on the basis of relative sales value at split-
joint costs and sales value at split-off of products A, Band C?
Solution :
Since ioint costs are allocated on the basis of relative sales value, we know that the fraction
Joint cost
For Satesvalue at split-off
Sarne tortotalll joint cost, the ratit: 2,00,000). This ratio will be the
thrge
poducts.