Joint & By Product cost

Diesel

Crude Oil Process Petrol Further Process Hi-octane

Grease

In some process manufacturing system, two or more different products are produced from a common
manufacturing process.

Manufacturing Process

Joint product By-product

(Significant value products)
These are two or more products generated
Simultaneously by a single manufacturing process
using common input and being substantially
equal in value . Each joint product has a substantial
sale value relative to each other.
(Insignificant value products)
By-products are outputs from a joint process
that are relatively minor in quantity and/or
value.

Joint Product Cost or Common Processing Costs

These are those costs which arise from common processing or manufacturing of products produced from common
raw materials. A joint cost is incurred prior to the point at which separately identifiable products emerge from the
same process.
In order to calculate cost of each of joint product, these common costs must be shared (apportioned) between the
joint products.

Methods of Allocation of Joint Costs to Joint Products

1. Physical quantity or units basis
2. Sale value at split off basis
3. NRV basis (sales value at split off point less selling expenses if any)
*Split off point means a point where separately identifiable products emerge from a common process.

1. Unit basis (Also known as physical QUANTITY method)

In this method total joint production cost is to be apportioned on the basis of physical units of
production e.g
 Assume joint processing cost is Rs 120,000

Products Units Allocation

A 20,000 40,000
{(20,000÷60,000)×120,000}
B 25,000 50,000
C 15,000 30,000
Total 60,000 120,000

Page 1 of 25
 2. Sale-value ta split-off point
This method enjoys great popularity because of the argument that market value of any product reflects
the cost incurred in its production, means that if a product sells for more than another it is because
more cost was expended to produce it. To apply the method we need to have number of units produced
and their market or sale values at split off point e.g
 Assume that joint processing costs are Rs 10,000.
Products Units Produced Sale Price/Unit Market Value Allocation
A 1,000 2 2,000 1,000
{(2,000÷20,000)×10,000}
B 2,000 3 6,000 3,000
(6,000/20,000x10,000)
C 3,000 4 12,000 6,000
(12,000/20,000x10,000)
20,000 10,000

Some products are not saleable at the split off point and therefore without any market value; require
additional processing to place them in marketable condition. In such cases, the basis of allocation of the
joint production cost is a hypothetical market value at the split off point.

To arrive at the basis for apportionment, it is necessary to use a working back procedure whereby the
after split off processing cost is subtracted from the ultimate sales value to find a hypothetical market
value at split off point e.g:

 Assume that joint processing costs are Rs 13,200

Market value Cost after split off Hypothetical Allocation of Joint cost
after further (Further processing Market value at
processing cost) split off
A 2,000 500 1,500 1,200
{(1,500÷16,500) ×13,200}
B 6,000 1,000 5,000 4,000
{(5,000÷16,500) ×13,200}
C 12,000 2,000 10,000 8,000
{(10,000÷16,500)×13,200}
20,000 16,500 13,200
Finally total processing cost is:

A Rs.1,700 (500+1,200)
B Rs.5,000 (1,000+4,000)
C Rs.10,000 (2,000+8,000)
In the given situation, certain of joint products may be saleable at the split off point while others are
not, the market values at the split off point would be used for former group while for the latter group
hypothetical market values would values would be used.

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Treatment Of By Product
Cost is not allocated to by product. Instead its sale proceeds (if any) are accounted for by using any of
the following methods.
1. As revenue
Cash/Receivable ***
Revenue ***
2. As other income
Cash/Receivable ***
Other Income ***
3. As a deduction from joint process cost
Cash/Receivable ***
Joint process cost ***
The expected sale proceeds of by-product are deducted from the joint processing costs. After this
deduction, net joint processing costs are apportioned among the joint products.
Note: if the question is silent then use 3rd method as given above.
Example: By-product and joint products
Two joint products XX and YY, are produced from a common process.
During July, 11,000 units of materials were input to the process. Total costs of processing (direct
materials and conversion costs) were Rs 100,000.
Output was 6,000 units of XX and 4,000 units of YY and 1,000 units of by-product Q.

XX has a sales value of Rs. 24 per unit when it is output from the process.
YY has a sales value of Rs. 12 per unit when it is output from the process.
Q has a sales value of Rs.1 per unit

The company’s policy is to apportion joint costs based on sales value at the point of split off.
80% of the output of both XX and YY was sold by the month end.
The proceeds of sale of the by-product could be treated in one of the following ways.
a) As a separate revenue; or
b) As other income; or
c) As deduction from joint production cost
Required:
Prepare an income statement for the month of July assuming each of the above treatment for by-
products separately.

Solution
a) Proceeds from sale of by-product are treated as a separate
revenue
Income statement Rs.

Revenue:
Sales of XX (80% x 6,000 units x Rs. 24) 115,200
Sales of YY (80% x 4,000 units x Rs. 12) 38,400
By-product 1,000
154,600

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Cost of sales:
Production costs 100,000
Less: Closing inventory (W-1) (20,000)
(80,000)
Gross profit 74,600
Allocation of Joint cost Rs.
Sales value Rs.
XX (6,000 units x Rs. 24) 144,000
YY (4,000 units x Rs. 12) 48,000

192,000

XX: Rs. 144,000/ Rs. 192,000 x Rs.100,000 75,000

YY: Rs. 48,000/ Rs. 192,000 x Rs.100,000 25,000
100,000
W-1 Valuation of Closing Stock
XX 75,000/6,000 x 1,200 = 15,000
YY 25,000/4,000 x 800 = 5,000
20,000
b) Proceeds of sale of the by-product are treated as other income

Income statement
Revenue:
Rs.
Sales of XX (80% x 6,000 units x Rs. 24) 115,200
Sales of YY (80% x 4,000 units x Rs. 12) 38,400
153,600
Cost of sales:
Production costs 100,000
Less: Closing inventory (W-1) (20,000)
(80,000)
Gross profit 73,600
Other income 1,000
Profit 74,600
Allocation of Joint cost
Sales value Rs.
XX (6,000 units x Rs. 24) 144,000
YY (4,000 units x Rs. 12) 48,000
192,000
Rs.
XX: Rs. 144,000/ Rs. 192,000 x Rs 100,000 75,000
YY: Rs. 48,000/ Rs. 192,000 x Rs 100,000 25,000
100,000
W-1 Valuation of Closing Stock
XX 75,000/6,000 x 1,200 15,000
YY 25,000/4,000 x 800 5,000
20,000

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 c)Proceeds of sale of the by-product are deducted from the joint process cost

Income statement
Rs.
Revenue:
Sales of XX (80% x 6,000 units x Rs. 24) 115,200
Sales of YY (80% x 4,000 units x Rs. 12) 38,400
153,600
Cost of sales:
Production costs (100,000-1,000) 99,000
Less: Closing inventory (W-1) (19,800)
(79,200)
Profit 74,400

Allocation of Joint cost

Sales value Rs.
XX (6,000 units x Rs. 24) 144,000
YY (4,000 units x Rs. 12) 48,000
192,000
Rs.
XX: Rs. 144,000/ Rs. 192,000 x (Rs 100,000 - Rs. 1,000) 74,250
YY: Rs. 48,000/ Rs. 192,000 x (Rs 100,000 - Rs. 1,000) 24,750
99,000

W-1 Valuation of Closing Stock

XX 74250/6,000 x 1,200 14,850
YY 24,750/4,000 x 800 4,950
19,800

The profit in the (a) and (b) is higher than the profit in (c) by Rs. 200 because of higher value of closing
stock.

Q.1 The CBA Company produces three joint products. C, B and A. During February, the following information
was recorded:
C B A Total
Joint materials — — — Rs 5,000
Joint processing — — — Rs 23,000
Separate processing Rs 8,000 Rs 5,000 Rs 2,000 Rs 15,000
costs
Output in kilograms 2 000 kg 5 000 kg 3 000 kg 10,000 kg
Sales in kilograms 1 500 kg 4 200 kg 2 400 kg 8,100 kg
Sales price per kilogram Rs 10 Rs 6 Rs 7 —

Page 5 of 25
 Required:
Total cost for each product, using the market value method (means sale value method).
Note: Even if it is not mentioned in market value method, always use sale value at split-off point
method.

Q.2 M Company buys Zeon for processing. At the end of processing in Department 1, Zeon splits off into
Products A, B, and C. A is sold at the split-off point with no further processing; B and C require further
processing before they can be sold; B is processed in Department 2; and C is processed in Department 3.
The following is a summary of costs and other related data for the year ended June 30, 2015:
Department
1 2 3
Rupees
Cost of Zeon 96,000 - -
Direct labor 14,000 45,000 65,000
Factory overhead 10,000 21,000 49,000
Products
A B C
Units sold 20,000 30,000 45,000
Units on hand at June 30, 2015 10,000 - 15,000
Sales (in Rupees) 30,000 96,000 141,750
There were no inventories on hand at July 1, 2014 and there was no Zeon on hand at June 30, 2015. All
units on hand at June 30 2015, were complete as to processing. M company uses the market value at
split-off point to allocate joint cost.
Required:
(1) The market value at the split-off point for Product A’s total units produced for the year.
(2) The total joint cost for the year ended June 30, 2015, to be allocated.
(3) The cost of Product B sold for the year ended June 30, 2015.
(4) The cost assigned to the Product A ending inventory.
(5) The cost assigned to the Product C ending inventory.

Diagram missing

Discussion of FIFO & weighted Average:

Example:
FIFO / Weighted Average:
Units Amount
Opening Stock -- --
Add: cost of goods manufactured 50,000 1,000,000
Less: Closing Stock (10,000) (200,000)
Cost of sales 40,000 800,000

FIFO:
Units Amount
Opening Stock 5,000 90,000
Add: cost of goods manufactured 50,000 1,000,000
Less: Closing Stock (10,000) (200,000)*

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Cost of sales 45,000 890,000
*[1,000,000 / 50,000) x 10,000

Weighted Average:
Units Amount
Opening Stock 5,000 90,000
Add: cost of goods manufactured 50,000 1,000,000
Less: Closing Stock (10,000) (198,182)*
Cost of sales 45,000 891,818
*working:
90,000  1,000,000
=
5,000  50,000

= 19.8182 × 10,000
= 198,182
Conclusion:
Answer of FIFO and weighted Average will be different only when there is opening stock.

Q.3 Binary Limited manufactures three joint products viz. Aay, Bee and Cee in one common
process. Following this process, product Aay and Bee are sold immediately while product Cee is
subjected to further processing. Following information is available for the period ended June 30, 2007:
1.
Aay Bee Cee
Opening stock in kg Nil Nil Nil
Production in kg 335,000 295,000 134,000
Sales in kg 285,000 212,000 -
Sales price per kg (Rs.) 30.85 40.38 -
2. Total costs of production were Rs 17,915,800.
3. 128,000 kg of Cee were further processed during the period and converted into 96,000 kg of
Zee. The additional costs of further processing were as follows:
Direct labor Rs. 558,500
Production overhead Rs. 244,700
4. 94,000 kg of Zee was sold during the period, with total revenue of Rs. 3,003,300. Opening stock
of Zee was 8,000 kg, valued at Rs 172,800. FIFO method is used for pricing transfers of Zee to
cost of sales.
5. 8,000 kg of a bye-product Vee was also produced during further processing and sold @ Rs. 10
per kg. Sales proceeds of bye-product are adjusted against production cost of product
Zee.(treatment of by-product).
6. The cost of production is apportioned among Aay, Bee and Cee on the basis of weight of output
(means physical units basis).
7. Selling and administration costs of Rs. 2,500,000 were incurred during the period. These are
allocated to all the main products based on sales value.

Required:

Page 7 of 25
 Prepare a profit and loss account for the period, identifying separately the profitability of each of the
three main products. (19 Marks)[Autumn 2007]
Note: If nothing is mentioned in question then assume that any loss is normal loss.
Also solve the same question by weighted average.
Diagram missing

Treatment of Losses
 
Normal Loss Abnormal Loss
(Expected loss that is uncontrollable) (Unexpected loss)
E.g 1000 units of raw material are imported @ 500 per unit = Rs 500,000.
Suppose it is expected that 50 units of raw material will be of no use (means normal loss).
No cost is allocated to normal loss, cost of normal loss units is absorbed by remaining units.
Therefore simply per unit cost of remaining units will be 500,000 = 526.31/unit
950
If normal loss has recovery value then; (let’s assume 50 units can be sold @ 100/unit as scrap)
500,000-5,000 = 521.05/unit
950
Abnormal Loss:
Suppose 50 units are abnormal loss instead of normal loss (means suppose loss was not expected). Cost
is allocated to abnormal loss units just like good units. Therefore:
500,000 = 500/unit
1,000

50 x 500 = 25,000 will be recognized as abnormal loss in income statement. If it has some recovery value
then it is adjusted against cost of abnormal loss.

Normal & Abnormal loss (both):

Suppose instead of 50 units loss which was expected, actual loss is 60 units;
Then:
500,000 = 526.31/unit
950
10 x 526.31 = 5,263 is considered as an abnormal loss (recognized in income statement)
If it has some recovery value than it is adjusted against cost of abnormal loss.

Q.4 Platinum Limited (PL) manufactures two joint products Alpha and Beta and a by-product
Zeta from a single production process. Following information is available from PL’s records for the
month of February 2012:

Direct material 25,000 kg. @ Rs. 25 per kg.

Direct labor @ Rs. 15 per hour Rs. 432,000
Normal process loss 20% of the material consumed

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Overheads are allocated to the products at the rate of Rs. 10 per direct labour hour. The normal loss is
sold as scrap at the rate of Rs. 8 per kg.
Following data relates to the output from the process:

Product Output Selling price per kg.

ratio (Rs.)
Alpha 75% 95.0
Beta 15% 175.0
Zeta 10% 52.5

Alpha is further processed at a cost of Rs. 30 per unit, before being sold in the market. Joint costs are
allocated on the basis of net realizable value (sale value at split off point less selling expenses (if any)).
Required:
Compute the total joint manufacturing costs for February 2012. Also calculate the profit per kg for Alpha
and Beta. (10 marks)
Note: treatment of normal loss is like by-product (i.e deduct the sale proceeds from cost of production).
No cost is allocated to normal loss.
Diagram missing

Q.5 Colon Limited (CL) manufactures two joint products Pollen and Stigma in the ratio of 65:35.
The company has two production departments A and B. Pollen can either be sold at split off point or can
further be processed at department-B and sold as a new product Seeds. Stigma is sold without further
processing. Following information relating to the three products is available from CL’s records:
Pollen Stigma Seeds
---------------Rupees---------------
Sales price per kg 90 300 125
Total selling expenses 135,000 306,000 180,000
Following further information relating to the two departments is available:
Department A Department B
Material X 75,000 kg at Rs. 60 per kg -
Material Y - 12,000 kg at Rs. 25 per kg
Labor @ Rs. 150 per hour 12,000 hours 3,600 hours
Variable overheads Rs. 125 per labor hour Rs. 65 per labor hour
Fixed overheads Rs. 100 per labor hour Rs. 50 per labor hour
Material input output ratio 100:88 100:96
Material is added at the beginning of the process. Joint costs are allocated on the basis of net realizable
value at split off point (sale value at split-off point less selling expenses).
Required:
a) Calculate the joint costs and apportion them to the two products. (10 Marks)
b) Advise CL whether it should produce Seeds or sell Pollen without further processing. (6 Marks)

Note:
1) If nothing is mentioned then assume that loss is normal.
2) If no information of stocks then assume stocks are nil.

Page 9 of 25
 Q.6 Binary Ltd. (BL) manufactures three products, A, B and C. It is the policy of the company to
apportion the joint costs on the basis of estimated sales value at split off point. BL incurred the following
joint costs during the month of August 2008:
Rs. in ‘000
Direct material 16,000
Direct labor 3,200
Overheads (including depreciation) 2,200
Total joint costs 21,400
During the month of August 2008 the production and sales of Product A, B and C were 12,000, 16,000
and 20,000 units respectively. Their average selling prices were Rs. 1,200, Rs. 1,400 and Rs 1,850 per
unit respectively.
In August 2008, processing costs incurred on Product A after the split off point amounted to
Rs 1,900,000.
Product B and C are sold after being packed on a specialized machine. The packing material costs Rs. 40
per square foot and each unit requires the following:
Product Square feet
B 4.00
C 7.50
The monthly operating costs associated with the packing machine are as follows:
Rupees
Depreciation 480,000
Labor 720,000
Other costs 660,000

All the above costs are fixed and are apportioned on the basis of packing material consumption in
square feet.
Required:
a) Calculate the joint costs to be apportioned to each product. (13 Marks)
b) BL has received an offer from another company to purchase the total output of Product B
without packaging, at Rs. 1,200 per unit. Determine the viability of this offer. (03Marks)

Note: Always remember if production is equal to sales then there is no of finished stock.

Q.7 J Ltd. manufactures two products Orange and Mango by processing a raw material in Department 1.
Orange is then further processed in Department 2 with no loss. Mango is further processed in
department 3. By-product Leaf is also produced in department 3 which can be sold in the market.
It is estimated that after processing in Department 1, 55% of the raw material is converted into
processed Orange and 40% into processed Mango. No product is in a saleable condition at this stage.
The selling price of Orange is Rs 45 per kilo and Mango is Rs 64 per kilo. Leaf can be sold at Rs. 12 per
kilo.
It is estimated that in department 3, 10% of all input becomes leaf and 88% becomes Mango.
During the month of January 198,000 kilos of Orange were produced.
It is company policy to subtract revenue of by products from total costs of the departments in which
they are produced. Joint costs are allocated on the basis of hypothetical market value at split-off point.

Page 10 of 25
 Labour Overheads
Department 1 1,060,000 795,000
Department 2 720,000 540,000
Department 3 880,000 660,000
Raw material consumed per unit started is Rs. 32 per kilo.
Required:
a) Calculate the product wise and total profit for the month of January assuming all output is sold.
b) Assume Finished Goods of Orange and Mango is left in stock prepare product wise and in total
income statement for the month of January.
Suppose Stock Left is:
 Orange = 9,800 kgs.
 Mango = 5,500 kgs.

Further scenarios in question No. 3:

(a) Binary Limited

Page 11 of 25
 Assuming that 100% loss of Cee while further processing in to Zee is abnormal less identified at
the end offurther processing)
It means 24,000 kg. of Cee was abnormal loss as follows:

A 96,000 Zee
B 8,000 by Product

C 134,000 24,000 Kgs (bal)

(6,000)

128,000

Income statement
Aay Bee Zee Total
Sales 8,792,250 8,560,560 3,003,300 20,356,110
Cost of sales
Opening Stock -- -- 172,800 172,800
Cost of goods 7,855,750 6,917,750 2,979,840 (W-1) 17,753,340
manufactured
Closing Stock (1,172,500) (1,946,350) (310,400) (W-2) (3,429,250)
(6,683,250) (4,971,400) (2,842,240) (14,496,890)
Gross Profit 2,109,000 3,589,160 161,060 5,857,220
Selling & Admin (1,079,805) (1,051,350) (368,845) (2,500,000)
Abnormal Loss -- -- (744,960) (744,960)
Profit/ (loss) 1,029,195 2,537,810 (952,745)* 2,612,260

*Loss is increased by 77,600 because value of closing stock of Zee is decreased by 77,600
(388,000 – 310,400)
WORKINGS:
W-1 Cost of goods manufactured of Zee
Raw Material: (Cee)
Opening --
COGM 3,142,300 (Cost of 134,000 kgs)
Closing (140,700) (Cost of 6,000 kgs)
3,001,600 (Cost of 128,000 kgs)
Direct Labor 558,500
Factory overheads 244,700
Total Manufacturing Cost 3,804,800 (Cost of 128,000 kgs)
Recovery Value of by product (80,000) (Recovery value of 8,000 kgs)
Net manufacturing cost 3,724,800 (Net cost of 120,000 kgs)
Less: Cost of Abnormal less
3,724,800
 24,000 = (744,960) (Cost of 24,000 kgs)
120,000
Net Manufacturing cost of Zee 2,979,840 (Cost of 96,000 kgs)
W-2 Calculation of Closing Stock of Zee (FIFO)

Page 12 of 25
 2,979,840 ÷ 96,000 × 10,000 = 310,400

(b) Binary Limited

Assuming that loss of Cee while further processing into Zee is normal upto 10% of input while
balance is abnormal loss which is identified after further processing.

Aay 96,000 kg (Zee Given)

8,000 kg (by product Given)
Bee
12,800 Kgs (normal loss, 10%)
Cee 134,000 11,200 Kgs (bal. abnormal loss)
(6,000)

128,000

Income statement
Aay Bee Zee Total
Sales 8,792,250 8,560,560 3,003,300 20,356,110
Cost of sales
Opening Stock -- -- 172,800 172,800
Cost of goods 7,855,750 6,917,750 3,335,642 18,109,142
manufactured
Closing Stock (1,172,500) (1,946,350) (347,463) (3,466,313)
(6,683,250) (4,971,400) (3,160,979) (14,815,629)
Gross Profit 2,109,000 3,589,160 (157,679) 5,540,481
Selling & Admin (1,079,805) (1,051,350) (368,845) (2,500,000)
Abnormal Loss -- -- (389,158) (389,158)
Profit/ (loss) 1,029,195 2,537,810 (915,682) 2,651,323

Loss is increased by 40,537 because value of closing stock of Zee is decreased by 40,537
(388,000 – 347,463).
WORKINGS:
W-1 Cost of goods manufactured of Zee
Raw Material: (Cee)
Opening --
Cost of goods manufactured 3,142,300 (Cost of 134,000 kgs)
Closing (140,700) (Cost of 6,000 kgs)
3,001,600 (Cost of 128,000 kgs)
Direct Labor 558,500
Factory overheads 244,700
Total Manufacturing Cost 3,804,800 (Cost of 128,000 kgs)
Less: Recovery Value of by (80,000) (Recovery value of 8,000 kgs)
product
Net manufacturing cost 3,724,800 (Net cost of 120,000 kgs
but because of normal loss of
12,800 kg it is now cost of

Page 13 of 25
 107,200 kg)
Less: Cost of Abnormal less
3,724,800
 11,200 = (389,158) (Cost of 11,200 kgs)
107,200
Net Manufacturing cost of Zee 3,335,642 (Cost of 96,000 kgs)
W-2 Calculation of Closing Stock of Zee
FIFO:
3,335,642
 10,000 = 347,463
96,000

Solutions:
A.1

Page 14 of 25
 Product Ultimate Market Units Ultimate Separable Hypothetical Joint Cost Total Cost
Value per unit Produced Market Processing Market Allocation
Value Costs Value

C 10 2,000 20,000 8,000 12,000 6,000* 14,000

B 6 5,000 30,000 5,000 25,000 12,500 17,500

A 7 30,000 21,000 2,000 19,000 9,500 11,500

Total 71,000 15,000 56,000 28,000** 43,000

*12,000/56,000 x 28,000 = 6,000
**5,000+23,000=28,000

A.2

1) 30,000 ___ = 1.50 per unit

20,000
1.50 x 30,000(20,000 + 10,000) = 45,000 market value of production at split-off point for Product A.

2) Department

Cost of Zeon 96,000

Direct labor 14,000
Factory Overhead 10,000
Total Joint cost 120,000
3)
Product Ultimate Market Units Ultimate Separable Hypothetical Joint Cost Total Cost
Value per unit Produced Market Processing Market Allocation
Value Costs Value

A 1.50 30,000 45,000 - 45,000 36,000 36,000

(45,000/150,000
x120,000)
B 3.20* 30,000 96,000 66,000 30,000 24,000 90,000
(45,000+21,000)
C 3.15** 60,000 189,000 114,000 75,000 60,000 174,000
(65,000+49,000)
Total 330,000 180,000 150,000 120,000 300,000
*96,000/30,000 = 3.2
**141,750/45,000 = 3.15
Conclusion:
Cost of Product B sold for the year ended June 30, 2015 is 90,000.
4) 36,000 = 1.20 per unit
30,000
1.20 x 10,000 units in ending inventory = 12,000 cost assigned to Product A ending inventory.
5) 114,000 + 60,000 = 2.90 per unit
60,000
2.90 x 15,000 units in ending inventory = 43,500 cost assigned to Product C ending inventory.
A.3 Binary Limited
Income Statement

Page 15 of 25
For year ended 30-6-2007
Aay Bee Zee Total
Sale 8,792,250 8,560,560 3,003,300 20,356,110
(285,000 x 30.85) (212,000x40.38) (Given)
Less: Cost of sales
Opening Cost - - - -
Joint Production cost (W-1) 7,855,750 6,917,750 3,142,300 17,915,800
Closing Stock (W-2) (1,172,500) (1,946,350) (140,700) (3,259,550)
6,683,250 4,971,400 3,001,600 14,656,250
Additional further processing costs 803,200 803,200
(558,500+244,700)
Total Production cost 6,683,250 4,971,400 3,804,800 15,459,450
Less Recovery value by-product (80,000)
(8,000 x 10)
Net Total Manufacturing Cost 6,683,250 4,971,400 3,724,800 15,379,450
Opening stock - - 172,800 172,800
(Given)
Closing Stock (W-3) - - (388,000) (388,000)
Cost of sales 6,683,250 4,971,400 3,509,600 15,164,250
Gross Profit 2,109,000 3,589,160 (506,300) 5,191,860
Less: Selling and Distribution (W-4) (1,079,805) (1,051,350) (368,845) (2,500,000)
Net Profit 1,029,195 2,537,810 (875,145) 2,691,860
Working
W-1 Calculation of joint product cost (on the basis of weight of output)
Aay Bee Cee Total
Production (kg) 335,000 295,000 134,000 764,000
Allocation of cost 7,855,750 6,917,750 3,142,300 17,915,800
(335,000/764,000 (295,000/764,000 (134,000/764,000 (Given)
x17,915,800) x17,915,800) x17,915,800)

W-2
Cost of Closing Stock
Aay = 7,858,750/335,000 x 50,000 = 1,172,500
Bee = 6,917,750/295,000 x 83,000 = 1,946,350
Cee = 3,142,300/134,000 x 6,000 = 140,700
Units of Closing Stock
Aay=335,000-285,000=50,000
Bee=295,000-212,000=83,000
Cee=134,000-128,000=6,000
W-3
Closing Stock of Zee (By using FIFO)
=3,724,800/96,000 x 10,000 = 388,000
If weighted average then:

Page 16 of 25
 172,800 + 3,724,800 x 10,000 = 374,769
8, 000 + 96,000

W-4 Selling and Distribution Expenses (based on sales)

Aay = 8,792,250/20,356,110 x 2,500,000 = 1,079,805

Bee = 8,560,560/20,356,110 x 2,500,000 = 1,051,350
Zee = 3,003,300/20,356,110 x 2,500,000 = 368,845

A.4
PLATINUM LIMITED
(i) Total cost of output: Kg. Rupees
Direct material [25,000 x 25] 25,000 625,000
Direct Labour 432,000
Overheads [ 432,000 / Rs. 15 x Rs. 10] 288,000
1,345,000
Less: Sale of normal loss units [ 25,000 x 20% x Rs. 8] (5,000) (40,000)
Total cost of production 20,000 1,305,000

(ii) Profit per kg of Alpha and Beta: Rupees

Joint costs of production 1,305,000
Less: Sale of Zeta [20,000 x 10% x Rs. 52.5] (105,000)
Net Joint cost of production 1,200,000

Product Kg output % NRV at split off point Total NRV Joint cost allocation

Alpha 15,000 75% 65 975,000 780,000

(95-30) (975,000/1,500,000
x1,200,000)
Beta 3,000 15% 175 525,000 420,000
18,000 1,500,000 1,200,000

Total Joint cost Further Total cost Profit Profit/kg

Revenue processing
cost
A 15,000x95 1,425,000 780,000 45,000 1,230,000 195,000 13
(15,000x30) (195,000/15,000)
B 3,000x175 525,000 420,000 - 420,000 105,000 35
(105,000/3,000)

A.5

Page 17 of 25
(a) Calculation of Joint costs:
Dept. A
Rupees in ‘000
Material X [75,000 × Rs. 60] 4,500
Labor [12,000 × Rs. 150] 1,800
Variable overheads [12,000 × Rs. 125] 1,500
Fixed overheads [12,000 × Rs. 100] 1,200
Total cost 9,000
Apportionment of joint costs:
Input of material X in dept. A 75,000 kg
Yield (88% of input material X) 66,000 kg
Ratio of output for Pollen and Stigma 65:35
Quantity of Pollen produced at split off point (66,000 × 65/100) 42,900 kg
Quantity of Stigma produced at split off point (66,000 × 35/100) 23,100 kg

Statement showing apportionment of joint costs: Pollen Stigma

Rupees in ‘000
Sales [42,900 × 90] and [23,100 × 300] 3,861 6,930
Less: Selling expenses (135) (306)
Net realizable value 3,726 6,624 = 10,350
(3,726/10,350)x9000 (6,624/10,350)x9,000

Allocation of joint costs 3,240 5,760

(b) Advise to CL whether it should produce Seeds or sell Pollen without further processing:

Computation of output of Seeds:

Transfer of Pollen to dept. B for further processing 42,900 kg
Input of material Y in dept. B 12,000 kg
Total material in dept. B 54,900 kg
Yield (96% of input material) [54,900 × 96%] 52,704 kg
Statement showing profit earned from Seeds:
Rs. in ‘000
Sales [52,704 × 125] 6,588
Less: Expenses
Joint costs (3,240)
Cost incurred in dept. B (W-1) (1,254)
Selling expenses (180)
Profit from Seeds 1,914

If Pollen is sold without further processing, then the profitability would be as under:

Page 18 of 25
 Rs 000
Sales (42,900 x 90) 3,861
Less Expenses
Joint costs – Allocated as above (3,240)
Selling expenses (135)
Profit from Pollen 486
NOTE: if Pollen would be sold then no cost will be incurred in department B (as it would not be
required).
Advise: The Company’s profit has increased by Rs. 1,428,000 (i.e. Rs. 1,914,000 – Rs. 486,000) on further
processing of Pollen into Seeds. Therefore, it is advisable to CL to further process Pollen into Seeds.
W-1: Cost incurred in Department B
Dept. B
Rupees in 000
Material Y [12,000 × Rs. 25] 300
Labor [3,600 × Rs. 150] 540
Variable overheads [3,600 × Rs. 65] 234
Fixed overheads [3,600 × Rs. 50] 180
Total cost 1,254

A.6
a) Allocation on the basis of sale value at split-off point
Product A Product B Product C Total
Units produced 12,000 16,000 20,000
Sale price/unit 1,200 1,400 1,850
Total Sale value 14,400,000 22,400,000 37,000,000
Cost after split off point (1,900,000) (3,116,262) (7,303,738)
(Given) (W-1) (W-1)
Sale value at split off point 12,500,000 19,283,000 29,696,262 61,480,000
(hypothetical market value)
Allocation of Joint cost:
A 12,500,000/61,480,000 x 21,400,000 = 4,351,008
B 19,283,000 / 61,480,000 x 21,400,000 = 6,712,040
C 29,696,262 / 61,480,000 x 21,400,000 = 10,336,695

Workings
W-1 Total Further processing cost of Product B and C
a) Packing material cost
Product B Product C Total
Units 16,000 20,000
Packing material/unit 4 sq feet 7.5 sq feet
Total packing material 64,000 150,000 214,000
in sq feet
Cost of packing material 2,560,000 6,000,000 8,560,000
(sq feet x 40)

Page 19 of 25
b)
Operating cost = 1,860,000 (480,000+720,000+660,000)

Product B share = 64,000/214,000 x 1,860,000 = 556,262

Product C share = 150,000/214,000 x 1,860,000 = 1,303,738

Total Further Processing Cost:

B = 2,560,000 + 556,262 = 3,116,262
C = 6,000,000 + 1,303,738 = 7,303,738
b) Revenue that will be obtained at split-off point = 16,000 x 1,200 = 19,200,000
Revenue that will be obtained if joint product is processed further
=16,000 x 1,400 = 22,400,000
Less: Incremental cost of further processing = 2,560,000
(16,000 x 160) = 19,840,000
Decision:
Company should sell the product B after packing because it result into greater profit.
Note: Packing machine operating expenses are fixed and are not directly attributable to product B only;
therefore ignored while working. They still have to be incurred for processing product C.

A.7 a)

Kg
Output of Orange 198,000
Quantity of Mango at split off point (198,000÷55 x40) 144,000
Quantity of good output of Mango (144,000 x 88%) 126,720
Quantity of good output of Leaf (14,400 x 10%) 14,400
Loss in Department 1 (198,000÷55 x 5) 18,000

Total units started (144,000 + 198,000 + 18,000) Units 360,000

Rs.
Cost of Raw material in Department 1 (360,000 x 32) 11,520,000

Costs of labour and overheads in Department 1 1,855,000

(1,060,000 + 795,000)
Total Department 1 cost 13,375,000
Department 3 costs
Conv. Cost in Department 3 (880,000 + 660,000) 1,540,000
Less Sales of Leaf (14,400 x 12) (172,800)
Net Department 3 cost 1,367,200

Market Value Quantity Rate

Page 20 of 25
Orange 198,000 45 8,910,000
Mango 126,720 64 8,110,080

Hypothetical market value at split off point

Selling Further processing
price Costs
Orange 8,910,000 (1,260,000) 7,650,000
(720 + 540)
Mango 8,110,080 (1,367,200) 6,742,880
Department 1 costs allocated 14,392,880
Orange 7,108,984
(7,650,000/14,392,880 x 13,375,000)
Mango 6,226,016
Product Revenue Apportioned costs Further processing costs Profit
Orange 8,910,000 (7,108,984) (1,260,000) 541,016
Mango 8,110,080 (6,226,016) (1,367,200) 476,864
Total Profit for the month of January 1,017,880

b)
Income statement for the month of January:
Orange Mango Total
Sales 8,469,000 7,758,080 16,227,080
(198,000-9,800)×45 (126,720-5,500)×64
Cost
Opening Stock -- -- -
Cost of goods 8,368,984 7,633,216 16,002,200
manufactured
(7,108,984+1,260,000) (6,266,016+1,367,200)
Closing Stock (W 1) (414,222) (331,303) (745,525)
(7,954,762) (7,301,913) (15,256,675)
Gross profit 514,238 456,167 970,405

W-1 Closing Stock:

Orange = 8,363,984 ÷ 198,000 × 9,800 = 414,222
Mango = 7,633,216 ÷ 126,720 × 5,500 = 331,303

Page 21 of 25
Extra practice questions

Question No. 1
Oceanic Chemicals manufactures two joint products Sigma and Beta in a single process at its production
department. Incidental to the production of these products, it produces a by product known as ZEE.
Sigma and ZEE are sold upon completion of processing in production department whereas Beta goes to
refining department where it is converted into Theta.
Joint costs are allocated to Sigma and Beta on the basis of their net realizable values. Proceeds from
sale of by product are treated as reduction in joint costs. In both the departments, losses upto 5% of the
input are considered as a normal loss.
Actual data for the month of June 2015:

Department
Production Refining
Cost ------ Rs. In ‘000’------
Material input at Rs. 50 per liter 3,000 -
Direct labour at Rs. 100 per hour 2,500 350
Production overheads 1,850 890
Output ---------- Liters -----------
Sigma 34,800 -
Beta 16,055 -
ZEE (by product) 5,845 -
Theta - 15,200

Sigma, Theta and by product ZEE were sold at Rs. 300, Rs. 500 and Rs. 40 per liter respectively. There
was no work in process at the beginning and the end of the month.
Required:
Compute the cost per liter of Sigma and Theta, for the month of June 2015.
Question No. 2
ABC Ltd. Produces two joint products, COCO and SODA. A further product CRUST, is also made as a by
product of one of the processes for making SODA. Each product is sold in bottles of one litre capacity.
It is now December 2002. You are a cost accountant for ABC Ltd. You have been instructed to allocate
the company’s joint costs for the year October 2001 to September 2002 between COCO and SODA, but
not to the by-product CRUST.
During the year, 2 million litres of a raw material, Neckter, costing Rs. 3 million were processed in
Department Alpha with no wastage. The processing costs were Rs. 1.675 million.
50% of the output of Department Alpha was unfinished COCO, for which there was no external market. It
was transferred to Department Beta where it was further processed at an additional cost of Rs. 8.1
million. Normal wastage by evaporation was 16% of the input of unfinished COCO. The remaining good
output of finished COCO was sold for Rs. 10 per litre in the outside market.
The other 50% of the output from the joint process in department Alpha was in the form of processed
Neckter. It was all transferred to Department Gamma, as there was no outside market for processed
Neckter. In Department Gamma it was further processed, with no wastage, at cost of Rs. 30.9 million.
72% of the output of Department Gamma was in the form of unfinished SODA, for which there was no
external market. It was transferred to Department Delta, were it was subjected to a finishing process at a

Page 22 of 25
further cost of Rs. 719,000. Normal spoilage of 16.67% of the input to the finishing process was
observed. The spoiled material was disposed off without charge, as effluent. The remaining finished
SODA was sold in the outside market for Rs. 60 per litre.
The remaining 28% of the output of Department Gamma was in the form of finished CRUST, the by
product. It was sold in outside market for Rs. 8 per litre, but due to its dangerous nature, special delivery
costs of Rs. 70,000 were incurred in respect of it.
Required:
(a) To allocate the appropriate joint costs between COCO and SODA on the basis of relative sales
value at split off point.
(b) To prepare a statement showing profit or loss attributed to each of the products and the total profit
or loss for the year on basis of the information above and allocating joint costs as in (a) above.
Answer No. 1
Oceanic Chemicals
Product wise cost of Sigma and Theta

Sigma Theta
------ Rs. In ‘000’------
Joint cost of Production (W-2) 4,395.23 2,679.24
Cost of refining (W-2) 1,236.00
4,395.23 3,915.24
No. of units produced (litres) 34,800 15,200
Cost per litre 126.30 257.58

Workings:
(W-1)

Theta 15,200 kgs

Sigma 34,800 kgs
N. Loss 803 kgs
Beta 16,055 kgs
Zee 5,845 kgs R (16,055 × 5%)
Ab..Loss 52 kgs
Input
P N. Loss 3,000kgs(10%of Input)
Ab.. Loss 300 kgs (balance)
60,000 Kgs

(3,000,000 / 50)

Joint Production Cost: Further Processing Costs:

= [3,000 + 2,500 + 1,850 – (5,845 × 40)] = 7,116,200 [350 + 890] = 1,240
Treatment of by-product is similar to treatment of  1,240 
normal loss. Cost of Ab. Loss:   × 52 = 4,228
 15,200  52 

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  7,116,200   1,240 
Cost of abnormal loss:   × 300
 Cost of Theta:   15,200 
 34,800  16,055  300 
 15,200  52 
= 41,733
=1,235,772

Net Cost of Direct products to be allocated to Sigma and Beta: 7,116,200 – 41,733 = 7,074,470
(W-2)
Allocation of Joint Cost:

Rs. ‘000’ Rs. ‘000’ Rs. 000

Units Sale price/litre Sale price Further processing NRV
Sigma 34,800 300 10,440 -- 10,440
Beta 15,200 500 7,600 1,236* 6,364
16,804

 350,000  890,000 
*   × 15,200 = 1,235,772
 15,200  52 
Allocation of Joint Cost:
Rs.000
Sigma (10,440/16,804) × 7,074,470 = 4,395.23
Beta (6,364/16,804) × 7,074,470 = 2,679.24
7,074.47

Answer:
(i) Joint Cost Allocation:
Total Joint Cost:
Rs. ‘000’
Raw Material = 3,000
Processing Cost = 1,675
4,675

Allocation: (W-1)
COCO = 300/6,851 × 4,675 = 205
SODA = 6,551/6,851 × 4,675 = 4,470
4,675
Workings:
(W-1) Sale Value at Split off Point:

Further
Qty S.P/Unit Ultimate MV S.P at Split off
Processing Cost
COCO 840 10 8,400 8,100 300
SODA 600 60 36,000 29,449 6,551
(28,730 + 719)
6,851

Page 24 of 25
(ii) Income Statement
Rs. ‘000’ Rs. ‘000’ Rs. ‘000’
COCO SODA Total
Sales 8,400 36,000 44,400

Cost of sale:
Opening Stock -- -- --
Cost of goods Manufactured:
Joint Cost 205 4,470 4,675
In Beta 8,100 8,100
In Gamma 28,730 28,730
In Delta 719 719
8,305 33,919 42,224
Closing Stock (--) (--) (--)
(8,305) (33,919) (42,224)
Gross Profit 95 2,081 2,176

Diagram: (Rs. In ‘000’) (IT IS TO BE CORRECTED)

Rs. 8,100 [840,000] Rs. 719

600,000 (83.33%)
COCO Beta Delta
COCO (84%) N. Loss (16.67%)
2,000,000 Alpha N. Loss (16%)
[1,000,000]
Processed Nectar [120,000]
RM = 3,000 [160,000]
[720,000]
[1,000,000] Gamma
Conv. = 1,675 SODA (28%)
Crust (72%)
Rs. 30,900
280,000
[280,000]× 8 = 2,240 – 70 = 2,170
2,170

Page 25 of 25