Joint Products and by Products

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Joint Products and by Products
Q. Questions and Answer

No.
1. A company produces two joint product X and Y, from the same basic materials.
The processing is completed in three departments.
Materials are mixed in department I. At the end of this process X and Y get separated. After
separation, X is completed in the department II and Y is finished in department III. During a
period 2,00,000 kgs of raw material were processed in department I, at a total cost of ₹
8,75,000, and the resultant 60% becomes X and 30% becomes Y and 10% normally lost in
processing.
In department II 1/6 of the quantity received from department I is lost in processing. X is
further processed in department II at a cost of ₹ 1,80,000.
In department III further new material added to the material received from department I and
weight mixture is doubled, there is no quantity loss in the department and further processing
cost (with material cost) is ₹ 1,50,000.
The details of sales during the year;

Particulars Product – X Product – Y
Quantity sold (kgs) 90,000 1,15,000
Sales price per kg (₹) 10 4
There were no opening stocks. If these products sold at split-off point, the selling price of X
and Y would be ₹ 8 and ₹ 4 per kg respectively.
Required: -
i) Prepare a statement showing the apportionment of joint cost to X and Y in proportion of
sales value at split off point.
ii) Prepare a statement showing the cost per kg. of each product indicating joint cost,
processing cost and total cost separately.
iii) Prepare a statement showing the product wise profit for the year.
On the basis of profits before and after further processing of product X and Y, give your
comment that products should be further processed or not.
(May 2005, Modified in May 2002 & RTP Nov 2021, ICAI SM Modified)
Ans. 1) Apportionment of joint cost in the ratio of split off point:
Joint cost = ₹ 8,75,000
Calculation of ratio of sale value at split off point:
Total quantity = 2,00,000 kg; Normal loss 2,00,000 × 10% = 20,000 kg
Total output = 1,80,000; Output ratio 60: 30 or 2:1
Output of X at Department I = 1,80,000 kg × 2/3 = 1,20,000kg
Output of Y at Department II = 1,80,000 kg × 1/3 = 60,000 kg
Sale value = 1,20,000 kg × ₹ 8 per kg = ₹ 9,60,000
Sale value = 60,000 kg × ₹ 4 per kg = ₹ 2,40,000
Ratio = 4:1
Apportionment of joint cost to product X = ₹ 8,75,000 × (4/5) = ₹ 7,00,000
Apportionment of joint cost to product Y = ₹ 8,75,000 × (1/5) = ₹ 1,75,000
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2) Calculation of different cost per kg:
Joint Cost per unit
Joint cost of X = ₹ 7,00,000 ÷ (1,20,000 kg – 20,000* kg) = ₹ 7 per kg
Joint cost of Y = ₹ 1,75,000 ÷ 1,20,000* kg = ₹ 1.45833 per kg
*1/6 of the quantity is lost in the further processing i.e., 1,20,000 × 1/6 = 20,000 kg and
weight mixture of Product Y is doubled i.e., 60,000 x 2 = 1,20,000 kg.
Processing cost per unit

For Product X = ₹ 1,80,000 ÷ 1,00,000 = ₹ 1.8 per unit
For Product Y = ₹ 1,50,000 ÷ 1,20,000 = ₹ 1.25 per unit
Total cost per unit
For Product X = ₹ 7 +₹ 1.8 = ₹ 8.8 per unit
For Product Y = ₹ 1.45833 + ₹ 1.25 = ₹ 2.70833 per unit
3) Statement showing the product wise profit for the year:

Sale value of product X = 90,000 kg × ₹ 10 per kg = ₹ 9,00,000
Sale value of product Y = 1,15,000 kg × ₹ 4 per kg = ₹ 4,60,000
Total cost of product X = 90,000 kg × ₹ 8.8 per kg = ₹ 7,92,000
Total cost of product Y = 1,15,000 kg × ₹ 2.70833 per kg = ₹ 3,11,458
Profit for X = ₹ 9,00,000 – ₹ 7,92,000 = ₹ 1,08,000
Profit for Y = ₹ 4,60,000 – ₹ 3,11,458 = ₹ 1,48,452
4) Calculation of Profit before and after further processing:

Profit for X after further processing = ₹ 1,08,000
Profit for Y after further processing = ₹ 1,48,452
Calculation of profit before further processing:

Sale value = 1,20,000 kg × ₹ 8 per kg = ₹ 9,60,000
Sale value = 60,000 kg × ₹ 4 per kg = ₹ 2,40,000
Total cost of X before further processing = ₹ 7,00,000
Total cost of Y before further processing = ₹ 1,75,000
Profit of X before further processing = ₹ 9,60,000 - ₹ 7,00,000 = ₹ 2,60,000
Profit of Y before further processing = ₹ 2,40,000 - ₹ 1,75,000 = ₹ 65,000
Advise: It can be clearly shown from the above calculation that profit in case of product Y is
more after further processing but in case of Product X it is lower. Therefore, company should
not further process product X but further processing product Y is beneficial.
2. A Ltd. Produces ‘M’ as a main product and gets two by products – ‘P’ and ‘Q’ in the course of
processing.
Following information are available for the month of October, 20X1;
Particulars M P Q
Cost after separation ---- ₹ 60,000 ₹ 30,000
No. of units produced 4,500 2,500 1,500
Selling price (per unit) ₹ 170 ₹ 80 ₹ 50
Estimated Net profit to sales ---- 30% 25%

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The joint cost of manufacture upto separation point amounts to ₹ 2,50,000. Selling expenses
amounting to ₹ 85,000 are to be apportioned to the three products in the ratio of sales units.
There is no opening and closing stock. Prepare the statement showing;
a) Allocation of joint cost.
b) Product wise overall profitability and
c) Advise the company regarding results if the by-product ‘P’ is not further processed and is
sold at the point of separation at ₹ 60 per unit without incurring selling expenses.
(Nov. 2017, Modified in May 2013, May 2015 & RTP)
Sol. a)
Statement Showing Allocation of Joint Cost
Particulars P Q
No. of units produced 2,500 1,500
Selling price per unit (₹) 80 50
Sales Value (₹) 2,00,000 75,000
Less: Estimated profit (P – 30%, Q – 25%) 60,000 18,750
Cost of sales 1,40,000 56,250
Less: Estimated Selling Expense (W.N-1)
25,000 15,000
Cost of Production 1,15,000 41,250
Less: Cost after separation 60,000 30,000
Joint Cost allocated 55,000 11,250
Working Note: -
1. Calculation of selling expense;
85,000
P= × 2,500 = 25,000
8,500
85,000
Q= 8,500
× 1,500 = 15,000
85,000
M= 8,500
× 4,500 = 45,000
b)
Statement of Profitability
Particulars M (₹) P (₹) Q (₹)
✓ Sales value (A) 7,65,000 2,00,000 75,000
(4,500 × ₹ 170) (2500 x 80) (1500 x 50)
✓ Less: Joint Cost 1,83,750 55,000 11,250
(2,50,000 – 55,000 –
11,250)
Cost after separation ---- 60,000 30,000
Selling Expenses 45,000 25,000 15,000
✓ Total cost (B) 2,28,750 1,40,000 56,250
✓ Profit (A – B) 5,36,250 60,000 18,750
*Overall profit = ₹ 5,36,250 + ₹ 60,000 + ₹ 18,750

= ₹ 6,15,000
c) If the by-product P is not further processed and is sold at the point of separation;
Particulars Amount (₹)
✓ Sales value at the point of separation (2,500 units × ₹ 60) 1,50,000
✓ Less: Joint cost 55,000

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✓ Profit 95,000
✓ Profit after further processing 60,000
✓ Incremental Profit 35,000
*If the by-product P is sold at the point of separation, it will give an additional profit of
₹ 35,000 to the company, hence, the company should sell by-product P without further
processing.
3. Inorganic Chemicals purchases salt and processes it into more refined products such as
Caustic Soda, Chlorine and PVC. In the month of July, Inorganic Chemicals purchased Salt for
₹ 40,000. Conversion cost of ₹ 60,000 were incurred up to the split off point, at which time
two sealable products were produced. Chlorine can be further processed into PVC.
The July production and sales information is as follows;
Particulars Production Sales Quantity Selling price
(in ton) (in ton) per ton (₹)
Caustic Soda 1,200 1,200 50
Chlorine 800 ---- ----
PVC 500 500 200
All 800 tons of Chlorine were further processed, at an incremental cost of ₹ 20,000. To yield
500 tons of PVC. There was no beginning or ending inventories of Caustic Soda, Chlorine or
PVC in July.
There is active market for Chlorine, Inorganic Chemicals could have sold all its July Production
of Chlorine at ₹ 75 per ton.
Required: -
a) Show how joint cost of ₹ 1,00,000 would be apportioned between Caustic Soda and
Chlorine under each of following methods;
i) Sales Value at Split-off Pont;
ii) Physical Unit Methods, and
iii) Estimated Net Realisable Value
b) Life time Swimming Pool Products offers to purchase 800 tonnes of Chlorine in August at
₹ 75 per tonne. This sale of Chlorine would mean that no PVC would be produced in
August. Explain how the acceptance of this offer for the month of August would affect
operating income?
(ICAI SM with modification, May 2000, Modified MTP Nov 2020)
Ans. i) Sales Value at Split-off Point Method: -
Products Sales (in Selling Sales Joint Cost
Ton) Price per Revenue (₹) Apportioned
Ton (₹) (₹)
✓ Caustic Soda 1,200 50 60,000 50,000
✓ Chlorine 800 75 60,000 50,000
Total 1,20,000 1,00,000
✓ Apportionment of Joint Cost;

𝑇𝑜𝑡𝑎𝑙 𝐽𝑜𝑖𝑛𝑡 𝐶𝑜𝑠𝑡
= × 𝑆𝑎𝑙𝑒 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 𝑜𝑓 𝑒𝑎𝑐ℎ 𝑝𝑟𝑜𝑑𝑢𝑐𝑡
𝑇𝑜𝑡𝑎𝑙 𝑆𝑎𝑙𝑒 𝑉𝑎𝑙𝑢𝑒
✓ Joint Cost Apportioned to Caustic Soda
₹1,00,000
= ₹1,20,000 × ₹60,000
= ₹50,000

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✓ Joint cost apportioned to Chlorine
₹1,00,000
= ₹1,20,000 × ₹60,000
= ₹50,000
ii) Physical Measures Method: -

Products Sales (In Ton) Joint Cost Apportioned (₹)
✓ Caustic Soda 1,200 60,000
✓ Chlorine 800 40,000
Total 1,00,000
✓ Apportionment of Joint Cost;

= 𝑇𝑜𝑡𝑎𝑙 𝑃ℎ𝑦𝑠𝑖𝑐𝑎𝑙 𝑉𝑎𝑙𝑢𝑒 × 𝑃ℎ𝑦𝑠𝑖𝑐𝑎𝑙 𝑈𝑛𝑖𝑡𝑠 𝑜𝑓 𝑒𝑎𝑐ℎ 𝑃𝑟𝑜𝑑𝑢𝑐𝑡
✓ Joint Cost Apportioned to Caustic Soda
₹1,00,000
= ₹2,000 𝑡𝑜𝑛𝑛𝑒𝑠 × 1,200 𝑡𝑜𝑛𝑛𝑒𝑠
= ₹60,000
✓ Joint cost Apportioned to Chlorine
₹1,00,000
= 2,000 𝑡𝑜𝑛𝑛𝑒𝑠 × 800 𝑡𝑜𝑛𝑛𝑒𝑠
= ₹40,000
iii) Estimated Net Realisable Value Method: -

Particulars Caustic Soda (₹) Chlorine (₹)
✓ Sales Value 60,000 1,00,000
(₹ 50 × 1,200 tons) (₹ 200 × 500 tons)
✓ Less: Post split-off cost
(Further Processing cost) ---- (20,000)
Net Realizable Value 60,000 80,000
✓ Apportionment of Joint Cost of 42,857 57,143
₹ 1,00,000 in ratio of
(60,000:80,000) 3 : 4
b) Incremental Revenue from further processing of Chlorine into PVC;

Particulars (₹)
✓ (500 tons × ₹ 200−800 tons × ₹ 75) ₹ 40,000
✓ Less: Incremental cost of further processing of Chlorine into PVC ₹ 20,000
✓ Incremental operating income from further processing ₹ 20,000
The operating income of Inorganic Chemicals will be reduced by ₹ 20,000 in August if it sells
800 tons of Chlorine to Lifetime Swimming Pool products, Instead of further processing of
Chlorine into PVC for sale.
4. Sun-moon Ltd. Produces and sells the following products;
Products Units Selling Price at Selling Price after
split-off point (₹) Further Processing (₹)
A 2,00,000 17 25
B 30,000 13 17
C 25,000 8 12
D 20,000 10 ----
E 75,000 14 20

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Raw material cost ₹ 35,90,000 and other manufacturing expenses cost ₹ 5,47,000 in the
manufacturing process which are absorbed on the products on the basis of their ‘Net
realisable value.’ The further processing costs of A, B, C and E are ₹ 12,50,000; ₹ 1,50,000;
₹ 50,000 and ₹ 1,50,000 respectively. Fixed costs are ₹ 4,73,000.
You are required to prepare the following in respect of the coming year;
a) Statement Showing income forecast of the company assuming that none of its products
are to be further processed.
b) Statement Showing income forecast of the company assuming that products A, B, C and E
are to be processed further.
Can you suggest any other production plan whereby the company can maximise its profits? If
yes, then submit a statement showing income forecast arising out of adoption of that plan.
(ICAI SM, Modified RTP 2015, Modified RTP May 2023)
Ans. a) Statement Showing income forecast of the company assuming that none of its
products are further processed;
Particulars Products Total (₹)
A (₹) B (₹) C (₹) D (₹) E (₹)
✓ Sales Revenue 34,00,000 3,90,000 2,00,000 2,00,000 10,50,000 52,40,000
(₹ 17 × (₹ 13 × (₹ 8 × (₹ 10 × (₹ 14 ×
2,00,000) 30,000) 25,000) 20,000) 75,000)
✓ Less: Apportioned 26,25,000 2,52,000 1,75,000 1,40,000 9,45,000 41,37,000
Costs (Refer
Working Note)
7,75,000 1,38,000 25,000 60,000 1,05,000 11,03,000
✓ Less: Fixed Cost 4,73,000
Profit 6,30,000
b) Statement Showing income forecast of the company; assuming that products A, B,C
and E are further processed (Refer to working note);
A (₹) B (₹) C (₹) D (₹) E (₹)
A) Sales Revenue 50,00,000 5,10,000 3,00,000 2,00,000 15,00,000 75,10,000
B) Apportioned 26,25,000 2,52,000 1,75,000 1,40,000 9,45,000 41,37,000
Costs
C) Further 12,50,000 1,50,000 50,000 ---- 1,50,000 16,00,000
Processing Cost
D) Total 38,75,000 4,02,000 2,25,000 1,40,000 10,95,000 57,37,000
Processing Cost
(B + C)
E) Excess of Sales 11,25,000 1,08,000 75,000 60,000 4,05,000 17,73,000
Revenue (A−D)
F) Fixed Cost 4,73,000
G) Profit (E−F) 13,00,000
Suggested Production plan for maximising profits: -

On Comparing the figures of excess of revenue over cost of manufacturing in the above
statements one observes that the concern is earning more after further processing of A, C and
E products but is loosing a sum of ₹ 30,000 in the case of product B (if it is processed further),
Hence the best production plan will be to sell A, C and E after further processing and B and D

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at the point of split off. The profit statement based on this suggested production plan is as
below;
Profit Statement Based On Suggested Production Plan;
A (₹) B (₹) C (₹) D (₹) E (₹)
A) Sales Revenue 50,00,000 3,90,000 3,00,000 2,00,000 15,00,000 73,90,000
B) Apportioned 26,25,000 2,52,000 1,75,000 1,40,000 9,45,000 41,37,000
Costs
C) Further 12,50,000 ---- 50,000 ---- 1,50,000 14,50,000
Processing Cost
D) Total Processing 38,75,000 2,52,000 2,25,000 1,40,000 10,95,000 55,87,000
Cost (B + C)
E) Excess of Sales 11,25,000 1,38,000 75,000 60,000 4,05,000 18,03,000
Revenue (A−D)
F) Fixed Cost 4,73,000
G) Profit (E−F) 13,30,000
*Hence the profit of the company has increased by ₹ 30,000.
Working Notes: -
Apportionment of Joint costs on the basis of Net Realisable Value method.
Products Sales Value Post Net Apportioned
(₹) Separation Realizable Cost (₹)
Cost (₹) Value (₹)
A 50,00,000 12,50,000 37,50,000 26,25,000
(2,00,000 units × ₹ 25)
B 5,10,000 1,50,000 3,60,000 2,52,000
(30,000 units × ₹ 17)
C 3,00,000 50,000 2,50,000 1,75,000
(25,000 units × ₹ 12)
D 2,00,000 ---- 2,00,000 1,40,000
(20,000 units × ₹ 10)
E 15,00,000 1,50,000 13,50,000 9,45,000
(75,000 units × ₹ 20)
59,10,000 41,37,000
✓ Total Joint Cost = Raw Material Cost + Manufacturing Expenses

= ₹ 35,90,000 + ₹ 5,47,000 = ₹ 41,37,000
✓ Apportioned Joint Cost;
= 𝑇𝑜𝑡𝑎𝑙 𝑅𝑒𝑎𝑙𝑖𝑠𝑎𝑏𝑙𝑒 𝑉𝑎𝑙𝑢𝑒 × Net Realisable Value of each product
✓ Apportioned Joint Cost for Product A;
₹41,37,000
= × ₹ 37,50,000 = ₹ 26,25,000
₹59,10,000
*Similarly, the apportioned joint cost for products B, C, D and E are ₹2,52,000, ₹1,75,000,
₹ 1,40,000 and ₹ 9,45,000 respectively.
5. Find Out the Cost of Joint Products A and B using contribution margin method from the
following data: -
Sales;
A : 100 kg @ ₹ 60 per kg.
B : 120 kg @ ₹ 30 per kg.

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Joint Costs;
Marginal Cost ₹ 4,400
Fixed Cost ₹ 3,900
(ICAI SM, Modified MTP May 2022)
Ans. The marginal cost (variable cost) of ₹ 4,400 is apportioned over the joint products A and B
in the ratio of their physical quantity i.e., 100: 120
100
✓ Marginal Cost for Product A : ₹ 4,400 × = ₹2,000
220
120
✓ Marginal Cost for Product B : ₹ 4,400 × 220 = ₹2,400
The fixed cost of ₹ 3,900 is apportioned over the joint products A and B in the ratio of their
contribution margin i.e. 40 : 12(Refer to working note)
✓ Product A : ₹ 3,900 × 40/52 = ₹ 3,000
✓ Product B : ₹ 3,900 × 12/52 =₹ 900
Working Notes: -
Computation of Contribution margin ratio;
Products Sales Revenue Marginal Cost Contribution
(₹) (₹) (₹)
AB 6,000 2,000 4,000
3,600 2,400 1,200
(Refer to above)
*Contribution ratio is 40 : 12
6. Smile company produces two main products and a by-product out of a joint process. The ratio
of output quantities to input quantities of direct material used in the joint process remains
consistent on yearly basis, Company has employed the physical volume method to allocate
joint production costs to the main products. The net realizable value of the by-product is used
to reduce the joint production costs before the joint costs are allocated to the main products.
Details of company’s operation are given in the table below. During the month, company
incurred joint production costs of ₹10,00,000/- The main products are not marketable at the
split off point and thus have to be processed further.
Particulars Product-A Product-B By Product
Monthly output in kg. 60,000 1,20,000 50,000
Selling price per kg. ₹ 50 ₹ 30 ₹5
Process costs ₹ 2,00,000 ₹ 3,00,000
Find out the amount of Joint product cost that smile company would allocate to the product-
B by using the physical volume method to allocate Joint production costs?
(ICAI SM, Modified MTP May 2022)
Ans. Calculation of Net Joint Costs to be allocated;
Particulars (₹)
✓ Joint Costs 10,00,000
✓ Less: Net Realizable value of by-product (50,000 × 5) 2,50,000
✓ Net Joint costs to be allocated 7,50,000
✓ Therefore, amount of joint product cost that smile company would allocate to the
product-B by using the physical volume method to allocate joint production costs:

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𝑃ℎ𝑦𝑠𝑖𝑐𝑎𝑙 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑜𝑓 𝑃𝑟𝑜𝑑𝑢𝑐𝑡−𝐵
= 𝑇𝑜𝑡𝑎𝑙 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦
× Net Joint Costs to be allocated
1,20,000 𝑢𝑛𝑖𝑡𝑠
= 1,80,000 𝑢𝑛𝑖𝑡𝑠 × ₹7,50,000 = ₹5,00,000
7. NN Manufacturing Company uses Joint production process that produces three products at
the split off-point. Joint productions costs during September were ₹ 8,40,000. Product
information for September was as follows;
Particulars Product-A Product-B Product-C
Units Produced 1,500 3,000 4,500
Units Sold 2,000 6,000 7,500
Sales Prices;
At the split-off ₹ 100
After further processing ₹ 150 ₹ 175 ₹ 50
Costs to process after split-off ₹ 1,50,000 ₹ 1,50,000 ₹ 1,50,000
Assume that product C is treated as a by-product and the company accounts for the by-
product at net realizable value as a reduction of joint cost. Assume also that Production B & C
must be processed further before they can be sold. Find Out the total cost of Product A in
September if joint cost allocation is based on net realizable values?
(ICAI SM, Modified RTP Nov 2022)
Ans. ✓ Product A can be sold at the split-off point, because the question says that “Products B and
C must be processed further before they can be sold. “Since Product A is not includedin that,
we know that Product A can be sold at the split-off point. Further more, the cost to process
Product A after the split-off point is ₹ 1,50,000. Whereas the additional revenueto be earned
by processing it further is only ₹ 75,000 (₹ 50 increases in selling price per unit multiplied
by the 1,500 units produced during September). Therefore, Product A willnot be processed
further, and we use the sales value at split-off for A for allocating the joint costs. The Sales
value at the split-off for A is ₹ 100 × 1,500 units, or ₹ 1,50,000.
✓ Since Product B must be processed further, we use its net realizable value for the joint cost
allocation. The net realizable value of Product B is ₹ 5,25,000 (₹ 175 selling price after
further processing × 3,000 units produced) − ₹ 1,50,000 in further processing Costs
= ₹ 3,75,000.
✓ Product C, the by-product, must also be processed further to be sold. The net realizable
value of Product C is ₹ 75,000 (₹ 50 sales price after further processing × 4,500 units
produced−₹ 1,50,000 in further processing costs = ₹ 75,000.
✓ Joint Production costs total ₹ 8,40,000. Since the by-product C is accounted for as a
reduction to the joint costs, the joint costs to be allocated are ₹ 7,65,000 (₹ 8,40,000 minus
the ₹ 75,000 NRV of Product C), to be allocated between Product A (Sales value ₹ 1,50,000)
and Product B (net realizable value ₹ 3,75,000). So, the total on which the allocation of the
joint costs is based is ₹ 1,50,000 + 3,75,000 = ₹ 5,25,000 Product A represents 28.571% of
the total (₹ 1,50,000 ÷ ₹ 5,25,000).
Since Product A has no further processing costs, the total cost of Product A is equal to its
allocated Joint costs, which are 28.571% of the net Joint costs of ₹ 7,65,000, or ₹ 2,18,568.
8. A Factory produces two products, ‘A’ and ‘B’ from a single process. The joint processing costs
during a particular month are;
Particulars (₹)
Direct Material 30,000
Direct Labour 9,600
Variable Overheads 12,000
Fixed Overheads 32,000

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Sales; A – 100 units @ ₹600 per unit; B – 120 units @ ₹200 per unit Apportion joints costson
the basis of;
a) Physical Quantity of each product.
b) Contribution Margin method, and
c) Determine Profit or Loss under both the methods.
(Nov. 2019, Modified MTP Dec 2021)
Sol. a) Apportionment of Joint Cost on the basis of Physical Quantity of each product;
− Total Cost = ₹ 30,000 + ₹ 9,600 + ₹ 12,000 + ₹ 32,000 = ₹ 83,600
− Total units = 100 units + 120 units
− = 220 units
100
− A = ₹ 83,600 × 220 = ₹ 38,000
120
− B = ₹ 83,600 × 220 = ₹ 45,600
b) Apportionment of Joint Cost on the basis of Contribution Margin Method;

Joint cost = 83,600, which includes,
− Total Variable Cost = ₹ 30,000 + ₹ 9,600 + ₹ 12,000 = 51,600
(Apportionment as per units)
100
− A = ₹ 51,600 × = ₹ 23,455
220
120
− B = ₹ 51,600 × = ₹ 28,145
220
- Fixed Cost = ₹ 32,000

(Apportioned over contribution margin)
Contribution = Sales – Variable cost
A = (600 X 100-23455) = 36,545
B = (200 X 120-28145) = -4,145
Fixed cost allocation-
*A = 32,000
B = Nil
*Since B does not have any contribution all the fixed cost is allocated to A only.
c) Profit or loss under both method;

1) Physical Quantity;
− A = (₹ 60,000 − ₹ 38,000) = 22,000
− B = (₹ 24,000 − ₹ 45,600) = (₹ 21,600)
2) Contribution Margin Method;
− A = (₹ 60,000 − ₹ 23,455 − ₹ 32,000) = ₹ 4,545
− B = (₹ 24,000 − ₹ 28,145) = (₹ 4,145) loss
9. 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 ata
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
200X-X1, the selling prices of the items and the total amounts sold were:

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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 followinginventories
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, 20X1, using Net realizable value (NRV) method of joint cost allocation.
(RTP Nov 2020, MTP May 2023–I)
Ans. Statement of Joint Cost allocation of inventories of X, Y and Z (By using Net Realizable
Value Method)
Products Total
X Y Z
(₹) (₹) (₹) (₹)
Final sales value, 10,98,000 13,20,750 11,41,500 35,60,250
of total
production (W.N- (366 × ₹3,000) (587 × ₹2,250) (761 × ₹1,500)
1)
Less: Additional -- -- (6,20,000) (6,20,000)
cost
Net realizable 10,98,000 13,20,750 5,21,500 29,40,250
value (at split-off
point)
Joint cost 4,66,797 5,61,496 2,21,707 12,50,000
allocated
(Working Note 2)
Cost of goods sold as on March 31, 20X1 (By using Net Realizable Value Method)
Products Total
X Y Z
(₹) (₹) (₹) (₹)
Allocated joint 4,66,797 5,61,496 2,21,707 12,50,000
cost
Additional costs -- -- 6,20,000 6,20,000
Cost of goods 4,66,797 5,61,496 8,41,707 18,70,000
available for sale
(CGAS)
Less: Cost of 2,29,571 57,385 27,692 3,14,648
ending inventory (CGAS×49.18%) (CGAS×10.22%) (CGAS×3.29%)
(Working Note 1)
Cost of goods 2,37,226 5,04,111 8,14,015 15,55,352
sold
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Working Notes
1) Total production of three products for the year 20X0-20X1
Products Quantity sold Quantity of Total Ending
in tones ending production inventory
inventory in percentage
tons (%)
(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 Realizable Value of each product
₹ 12,50,000
Total cost of Product X = ₹ 29,40,250 × ₹ 10,98,000 = ₹ 4,66,797
₹ 12,50,000
Total cost of Product Y = ₹ 29,40,250 × ₹ 13,20,750 = ₹ 5,61,496
₹ 12,50,000
Total cost of Product Z = ₹ 29,40,250 × ₹ 5,21,500 = ₹ 2,21,707
10. OPR Ltd. purchases crude vegetable oil. It does refine of the same. The refining process results
in four products at the split-off point – S, P, N and A. Product ‘A’ is fully processed at the split-
off point. Product S, P and N can be individually further refined into SK, PM, and NL
respectively. The joint cost of purchasing the crude vegetable oil and processing it were
₹40,000. Other details are as follows:
Product Further processing Sale at split-off Sales after further
costs (₹) point (₹) processing (₹)
S 80,000 20,000 1,20,000
P 32,000 12,000 40,000
N 36,000 28,000 48,000
A - 20,000 --
You are required to identify the products which can be further processed for maximizing
profits and make suitable suggestions.
(July 2021, ICAI SM)
Ans. Statement of Comparison of Profits before and after further processing
S (₹) P (₹) N (₹) A (₹) Total (₹)
A) Sales at split off point 20,000 12,000 28,000 20,000 80,000
B) Apportioned Joint Costs 10,000 6,000 14,000 10,000 40,000
(Refer Working Note)
C) Profit at split-off point 10,000 6,000 14,000 10,000 40,000
D) Sales after further 1,20,000 40,000 48,000 - 2,08,000
processing
E) Further processing cost 80,000 32,000 36,000 - 1,48,000
F) Apportioned Joint Costs 10,000 6,000 14,000 - -
(Refer Working Note)
G) Profit if further processing 30000 2,000 (-) 2,000 - -
(D – E - F)
H) Increase/ decrease in 20,000 - 4000 - 16,000 - -
profit after further
processing (G- C)

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Suggested Product to be further processed for maximizing profits:
On comparing the figures of "Profit if no further processing" and "Profits if further
processing", one observes that OPR Ltd. is earning more after further processing of ProductS
only i.e., ₹ 20,000. Hence, for maximizing profits, only Product S should be further processed
and Product P, N and A should be sold at split-off point.
Working Note:
Apportionment of joint costs on the basis of Sales Value at split -off point
Total joint Cost
Apportionment of joint cost = Total Sale Value at Split−off point × Sale value of each product
Where,
Total Joint cost = ₹ 40,000
Total sales at split off point (S, P, N and A) = 20,000 + 12,000 + 28,000 + 20,000 = ₹ 80,000
₹ 40,000
Share of S in joint cost = ₹ 80,000 × ₹20,000 = ₹10,000
₹ 40,000
Share of P in joint cost = × ₹12,000 = ₹6,000
₹ 80,000
₹ 40,000
Share of N in joint cost = ₹ 80,000 × ₹28,000 = ₹14,000
₹ 40,000
Share of A in joint cost = × ₹20,000 = ₹10,000
₹ 80,000
Alternative Solution
Decision for further processing of Product S, P and N
Products S (₹) P (₹) N (₹)
Sales revenue after further processing 1,20,000 40,000 48,000
Less: sales value at split-off point 20,000 12,000 28,000
Incremental Sales Revenue 1,00,000 28,000 20,000
Less: Further Processing cost 80,000 32,000 36,000
Profit/ loss arising due to further processing 20,000 (-)4,000 (-)16,000
Suggested Product to be further processed for maximizing profits:

On comparing the figures of "Profit if no further processing" and "Profits if further
processing", one observes that OPR Ltd. is earning more after further processing of ProductS
only i.e., ₹ 20,000. Hence, for maximizing profits, only Product S should be further processed
and Product P, N and A should be sold at split-off point.
11. Pokemon Chocolates manufactures and distributes chocolate products. It purchases Cocoa
beans and processes them into two intermediate products;
i) Chocolate powder liquor base.
ii) Milk-Chocolate liquor base.
These two intermediate products become separately identifiable at a single split off point.
Every 500 pounds of cocoa beans yields 20 gallons of chocolate-powder liquor base and 30
gallons of milk-chocolate liquor base.
The chocolate powder liquor base is further processed into chocolate powder. Every 20
gallons of chocolate-powder liquor base yields 200 pounds of chocolate powder. The milk-
chocolate liquor base is further processed into milk-chocolate. Every 30 gallons of milk-
chocolate liquor base yields 340 pounds of milk-chocolate.
Production and sales data for October, 20X2 are;

Cocoa beans processed 7,500 pounds.

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Costs of processing Cocoa beans to split off point;(Including purchase of beans) = ₹
7,12,500;
Particulars Production Sales Selling Price
✓ Chocolate Powder 3,000 pounds 3,000 pounds ₹ 190 per pound
✓ Milk Chocolate 5,100 5,100 ₹ 237.50
Pounds Pounds Per pound
The October, 202X separable costs of processing chocolate-powder liquor into chocolate
powder are ₹ 3,02,812.50. The October, 202X separable costs of processing milk-chocolate
liquor base into milk-chocolate are ₹ 6,23,437.50.
Pokémon fully processes both of its intermediate products into chocolate powder or milk-
chocolate. There is an active market for these intermediate products. In October, 202X,
Pokémon could have sold the chocolate powder liquor base for ₹ 997.50 a gallon and the milk-
chocolate liquor base for ₹ 1,235 a gallon.
Required: -
a) Calculate how the joint cost of ₹ 7,12,500 would be allocated between the chocolate
powder and milk-chocolate liquor bases under the following methods;
i) Sales value at split off point.
ii) Physical measure (gallons)
iii) Estimated net realizable value, (NRV) and
iv) Constant gross-margin percentage NRV.
b) What is the gross-margin percentage of the chocolate powder and milk-chocolate liquor
bases under each of the methods in requirement (i)?
c) Could Pokemon have increased its operating income by a change in its decision to fully
process both of its intermediate products? Show your computations.
(Nov. 2004)
Sol. a) Calculation of Allocation of Joint cost between Chocolate powder liquor base and
Milk-chocolate liquor base at split off point:
Total material introduced = 7500 pounds
Output of Chocolate powder liquor base = (7500 ÷ 500) × 20 = 300 gallonsOutput of milk
chocolate liquor base = (7500 ÷ 500) × 30 = 450 gallons
Sale value of Chocolate powder liquor base = 300 gallons × ₹ 997.50 per gallon = ₹
2,99,250
Sale value of Chocolate powder milk base = 450 gallons × ₹ 1235 per gallon = ₹ 5,55,750
Allocation of joint cost to Liquor base = ₹ 7,12,500 × (2,99,250 ÷ 8,55,000) = ₹ 2,49,375
Allocation of joint cost to milk base = ₹ 7,12,500 × (5,55,750 ÷ 8,55,000) = ₹ 4,63,125
Allocation of joint cost on the basis of Physical quantity:

Joint cost for Liquor base = ₹ 7,12,500 × (300/750) = ₹ 2,85,000Joint cost for milk base = ₹
7,12,500 × (450/750) = ₹ 4,27,500
Allocation of joint cost on the basis of net Realisable value: Calculation of Net
Realizable value
Net Realizable value = Sales – Further processing Cost
Net Realizable value of Liquor base = (3,000 pounds × ₹ 190 per pound) – ₹ 3,02,812.50
Net Realizable value of Liquor base = ₹ 5,70,000 – ₹ 3,02,812.50 = ₹ 2,67,187.5
Net Realizable value of milk base = (5100 pounds × ₹ 237.50 per pound) – ₹ 6,23,437.50
Net Realizable value of Liquor base = ₹ 12,11,250 – ₹ 6,23,437.50 = ₹ 5,87,812.5Allocation
of joint cost to liquor base = ₹ 7,12,500 × (₹ 2,67,187.5 ÷₹ 8,55,000) Allocation of joint cost

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to liquor base = ₹ 2,22,656.25
Allocation of joint cost to milk base = ₹ 7,12,500 × (₹ 5,87,812.5 ÷₹ 8,55,000)
Allocation of joint cost to milk base = ₹ 4,89,843.75
Calculation of gross margin percentage to Net Realizable method:

Total sales value = (3,000 × 190) + (5,100 × 237.50)
Total sales value = ₹ 17,81,250
Total cost = ₹ 7,12,500 + ₹ 6,23,437.5 + 3,02,812.5 = ₹ 16,38,750
Profit = ₹ 17,81,250 – ₹ 16,38, 750 = ₹ 1,42,500
Gross percentage margin = (1,42,500 ÷ 17,81,250) x 100 = 8%
Sale value for liquor base = ₹ 5,70,000
Gross margin = 5,70,000 × 8% = 45,600
Cost of goods sold = 5,70,000 – 45,600 = ₹ 5,24,400
Joint cost allocable for liquor base = ₹ 5,24,400 – ₹ 3,02,812.50 = ₹ 2,21,587.50
Joint cost for milk base = 12,11,250 – (8% of 12,11,250) – 6,23,437.50 = ₹ 4,90,912.50
b) Chocolate powder liquor base (Amount in ₹)

Particulars Sales Physical Estimated Constant
value at Measure net Gross
Split off Realisable Margin
Value NRV
Final sale value 5,70,000 5,70,000 5,70,000 5,70,000
of Chocolate
powder
Less: Separable 3,02,812.5 3,02,812.50 3,02,812.50 3,02,812.50
costs 0
Less: Joint costs 2,49,375 2,85,000 2,22,656.25 2,21,587.50
Gross Margin 17,812.50 -17,812.50 44,531.25 45,600
Gross Margin % 3.13% -3.13% 7.81% 8.00%
Milk chocolate liquor base (Amount in ₹)

Particulars Sales value Physical Estimated Constant
at split off measure net Grossmargin
realisable NRV
Final sale value of 12,11,250 12,11,250 12,11,250 12,11,250
milk chocolate
Less: Separable 6,23,437.50 6,23,437.50 6,23,437.50 6,23,437.50
costs
Less: Joint costs 4,63,125 4,27,500 4,89,843.75 4,90,912
Gross Margin 1,24,687.50 1,60,312.50 97,968.75 96,900.50
Gross Margin % 10.29% 13.24% 8.09% 8.00%
c) Further processing of Chocolate powder liquor base into Chocolate powder

Particulars Amount in
(₹)
Incremental revenue {₹ 5,70,000 - (₹ 997.50 × 300 gallon)} 2,70,750
Less: Incremental costs 3,02,812.50
Incremental operating income (32,062.50)

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Further processing of Milk Chocolate liquor base into Milk Chocolate.
Particulars Amount in
(₹)
Incremental revenue {₹12,11,250 - (₹ 1,235 × 450 gallon)} 6,55,500.00
Less: Incremental cost 6,23,437.50
Incremental operating income 32,062.50
The above computations show that Pokemon Chocolates could increase operating income
by ₹32,062.50 if chocolate liquor base is sold at split off point and milk chocolate liquor base is
processed further.
12. A Company produces two joint products A and Q in 70 : 30 ratio from basic raw materials in
department A. The input output ratio of department P is 100 : 85. Product P can be sold at the
split of stage or can be processed further at department B and sold as product AR. The input
output ratio is 100 : 90 of department B. The department B is created to process product A
only and to make it product AR.
The selling prices per kg. are as under;

Particulars (₹)
Product P 85
Product Q 290
Product AR 115
The production will be taken up in the next month.

Raw materials 8,00,000 kgs.
Purchase price ₹ 80 per kg.
Particulars Deptt. A Deptt. B
(₹ in Lacs) (₹ in Lacs)
Direct Materials 35.00 5.00
Direct Labour 30.00 9.00
Variable Overheads 45.00 18.00
Fixed Overheads 40.00 32.00
Total 150.00 64.00
Selling Expenses;
Particulars (₹) in Lacs
✓ Product P 24.60
✓ Product Q 21.60
✓ Product AR 16.80
Required: -
a) Prepare a statement showing the apportionment of joint costs.
b) State whether it is advisable to produce product AR or not. (May 2007)
Ans. − Input in Department ‘A’ is 80,000 kgs, & Yield is 85%
− ∴ Output = 85% of 8,00,000 = 6,80,000 kgs.
− Ratio of output for P and Q = 70 : 30.
− Product of P = 70% of 6,80,000 = 4,76,000 kgs.
− Product of Q = 30% of 6,80,000 = 2,04,000 kgs.

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a) Statement showing apportionment of joint cost
Particulars P Q Total
✓ Product kgs. 4,76,000 2,04,000
✓ Selling price per kg. 85.00 290.00
(₹) in Lacs (₹) in Lacs (₹) in Lacs
✓ Sales 404.60 591.60 996.20
✓ Less: Selling expenses 24.60 21.60 46.20
✓ Net sales 380 570 950
✓ Ratio in (%) 40% 60% 100%
Particulars (₹) in Lakhs

✓ Raw Materials (8,00,000 kgs. × ₹ 80) 640
✓ Process cost of department ‘A’ 150
790
Apportionment of Joint Cost (In the ratio of Net Sales i.e., P:Q., is 40% : 60%)
− ∴ Joint Cost of ‘P’ = ₹ 316 Lakhs
− ∴ Joint Cost of ‘Q’ = ₹ 474 Lakhs
b) Statement showing the profitability of further processing of

Product ‘P’ and converted into product ‘AR’
Product AR;
✓ Output 90% of 4,76,000 kgs. = 4,28,400 kgs.
✓ Joint costs 316.00
✓ Cost of Department B 64.00
✓ Selling expenses 16.80
Total Cost 396.80
✓ Sales Value (₹ 115 × 4,28,400) 492.66
✓ Profit (SV – TC) (492.66 – 396.80) 95.86
If ‘P’ is not processed, then profitability is as under;

Sales 380.00
Less: Joint expenses 316.00
Profit 64.00
Advice: -
*Further processing of product ‘P’ and converting into product ‘AR’ is beneficial to the
company because the profit increases by ₹ 31.86 lakhs (i.e., 95.86 – 64.00).
13. A factory producing article A also produces a by-product B which is further processed into
finished product. The joint cost of manufacture is given below;
Material ₹ 5,000
Labour ₹ 3,000
Overhead ₹ 2,000
₹ 10,000

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Subsequent cost in ₹ are given below;
Particulars A B
Material 3,000 1,500
Labour 1,400 1,000
Overhead 600 500
5,000 3,000
Selling prices are A ₹ 16,000

B ₹ 8,000
Estimated profit on selling prices is 25% for A and 20% for B.
Assume that selling and distribution expenses are in proportion of sales prices. Show how
you would apportion joint costs of manufacture and prepare a statement showing cost of
production of A and B.
(May 2016)
Ans. Statement Showing the Apportionment of Joint Cost;
Particulars A B Total
✓ Sales value after further processing 16,000 8,000 24,000
✓ Less: Estimated Profit 4,000 1,600 5,600
✓ Total Cost of Sales 12,000 6,400 18,400
✓ Less: Selling & Distribution Expenses 266.67 133.33 400
✓ Total Cost of Good sold 11,733.33 6,266.67 18,000
✓ Less: Further Processing Costs 5,000 3,000 8,000
✓ Joint Cost 6,733.33 3,266.67 10,000
Statement Showing Cost of Production

Particulars A B Total
✓ Joint Costs 6,733.33 3,266.67 10,000
✓ Further Processing Cost 5,000.00 3,000.00 8,000
✓ Cost of Production 11,733.33 6,266.67 18,000
✓ Add: Selling Expenses 266.67 133.33 400
Cost of Sales 12,000.00 6,400.00 18,400.00
Working Note:
Calculation of selling & Distribution expenses:
Total sales (16,000 + 8,000) = 24,000
Less: Profit (4,000 +1,600) = 5,600
Cost of sales = 18,400
Less: Cost of production
Joint cost (10,000)
Further processing cost (8,000)
Selling & Distribution expenses = 400
14. A Company’s plant processes 6,750 units of a raw material in a month to produce two
products ‘M’ and ‘N’.
The process yield is as under;
Product M - 80%
Product N - 12%
Process Loss - 8% The cost of raw material is ₹ 80 per unit.
Processing cost is ₹ 2,25,000 of which labour cost is accounted for 66%. Labour is chargeable
to products ‘M’ and ‘N’ in the ratio of 100: 80.

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Prepare a Comprehensive Cost Statement for each product showing;
a) Apportionment of joint cost among products ‘M’ and ‘N’ and
b) Total cost of the product’s ‘M’ and ‘N’.
(Nov. 2020)
Ans. a) Apportionment of joint costs between the joint products
Labour cost in the ratio of 100:80 1,48,500 82,500 66,000
1,48,500 × 100 1,48,500 × 80
( ) ( )
180 180
Other joint costs (including 6,16,500 5,36,087 80,413
material) [(6,750X80)+(225000-
148500)]
In the ratio of output (5,400:810) 6,16,500 × 5,400 6,16,500 × 810
( ) ( )
6,210 6,210
b) Total product cost 7,65,000 6,18,587 1,46,413
*No. of units produced of Product M = 6750 units × 80% = 5400 units.

No. of units produced of Product N = 6750 units × 12 % = 810 units.
Comprehensive Cost Statement;
Particulars Total Cost Product- Product-N (₹)
(₹) M (₹)
✓ No. of units produced * 5,400 units 810 units
✓ Cost of raw material (₹ 80 × 6,750 5,40,000
units)
✓ Processing cost
✓ Labor cost (₹ 2,25,000 × 66%) 1,48,500
✓ Other costs (₹2,25,000 – 76,500
1,48,500)
Total Joint Cost 7,65,000
15. Mayura Chemicals Ltd buys a particular raw material at ₹ 8 per litre. At the end of the
processing in Department-I, this raw material splits-off into products X, Y and Z. Product X is
sold at the split-off point, with no further processing. Products Y and Z require further
processing before they can be sold. Product Y is processed in Department-2, and Product Z is
processed in Department-3. Following is a summary of the costs and other related data for
the year 202X-X1;
Particulars Department
1 2 3
Cost of Raw Material ₹ 4,80,000 ---- ----
Direct Labour ₹ 70,000 ₹ 4,50,000 ₹ 6,50,000
Manufacturing Overhead ₹ 48,000 ₹ 2,10,000 ₹ 4,50,000
Particulars Product
X Y Z
Sales (litres) 10,000 15,000 22,500
Closing inventory (litres) 5,000 ---- 7,500
Sale price per litre (₹) 30 64 50
There were no opening and closing inventories of basic raw materials at the beginning as well
as at the end of the year. All finished goods inventory in litres was complete as to processing.
The company uses the Net-realisable value method of allocating joint costs.

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You are required to prepare;
a) Statement showing the allocation of joint costs.
b) Calculate the Cost of goods sold of each product and the cost of each item ininventory.
c) A comparative statement of Gross profit.
(Jan 2021)
Ans. a) Statement showing the allocation of joint cost by using the NRV method;
Particulars Product X Product Y Product Z
✓ Sales (Litres) (a) 10,000 15,000 22,500
✓ Selling Price (₹) (b) 30 64 50
✓ Sales Value (₹) (a × b) 3,00,000 9,60,000 11,25,000
✓ Less: Further Processing cost
✓ Direct labour ---- 4,50,000 6,50,000
✓ Manufacturing overheads ---- 2,10,000 4,50,000
✓ Net Realisable value 3,00,000 3,00,000 25,000
✓ Allocation of Joint cost (12:12:1) (₹) 2,87,040 2,87,040 23,920
− Total joint cost = 4,80,000 + 70,000 + 48,000 = ₹ 5,98,000

12
− Joint cost for Product X = ₹ 5,98,000 × 25 = ₹ 2,87,040
12
− Joint cost for Product Y = ₹ 5,98,000 × = ₹ 2,87,040
25
1
− Joint cost for Product Z = ₹ 5,98,000 × 25
= ₹ 23,920
b) Statement showing the computation of cost of each item in Inventory;
✓ Joint cost 2,87,040 2,87,040 23,920
✓ Add: Further Processing cost
✓ Direct labour ---- 4,50,000 6,50,000
✓ Manufacturing Overheads ---- 2,10,000 4,50,000
Total cost (a) (₹) 2,87,040 9,47,040 11,23,920
✓ Quantity Produced * (Litres) (b) 15,000 15,000 30,000
(Sales + Closing Stock) (10,000+5000) (15,000+0) (22,500+7,500)
✓ Cost per litre (a ÷ b = c) (₹) 19.136 63.136 37.464
✓ Quantity in closing stock (d) 5,000 NIL 7,500
✓ Value of closing stock (d × c) (₹) 95,680 NIL 2,80,980
*Quantity Produced = Sales + Closing stock
Statement Showing the computation of cost of goods sold;
✓ Quantity Sold (Litres) (a) 10,000 15,000 22,500
✓ Cost per unit (₹) (b) 19.136 63.136 37.464
✓ Cost of goods sold (₹) (a × b) 1,91,360 9,47,040 8,42,940
c) Statement showing the computation of Gross profit;

Particulars Product Product Product
X Y Z
✓ Quantity Sold (Litres) (a) 10,000 15,000 22,500
✓ Cost per unit (₹) (b) 19.136 63.36 37.464
✓ Cost of goods sold (₹) (a × b) (₹) 1,91,360 9,47,040 8,42,940
✓ Sale value (computed above) (₹) 3,00,000 9,60,000 11,25,000
✓ Gross profit (Sales – COGS) (₹) 1,08,640 12,960 2,82,060

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16. JKL Limited produces two products---J and K --- together with a by-product L from a single
main process (process I). Product J is sold at the point of separation for ₹ 55 per kg. whereas
product k is sold for ₹ 77 per kg after further processing into product k2. By-product L is sold
without further processing for ₹ 19.25 per kg.
Process I is closely monitored by a team of chemists, who planned the output per 1,000 kgof
input materials to be as follows;
Product J - 500 kg
Product K - 350 kg
Product L - 100 kg
Toxic waste - 50 kg
The toxic waste is disposed at a cost of ₹16.50 per kg, and arises at the end of processing.
Process II which is used for further processing of product K into product K2, has thefollowing
cost structure.
Fixed costs ₹ 2,64,000 per week
Variable cost ₹ 16.50 per kg processed
The following actual data relate to the first week of the month;
Process I;
Opening work-in-progress Nil
Material input 40,000 kg costing ₹
6,60,000
Direct Labour ₹ 4,40,000
Variable Overheads ₹ 1,76,000
Fixed Overheads ₹ 2,64,000
Outputs;
Product J 19,200 kg
Product K 14,400 kg
Product L 4,000 kg
Toxic waste 2,400 kg
Closing Work-in-progress Nil
Process II;
Opening Work-in-progress Nil
Input of product K 14,400 kg
Output of product K 13,200 kg
Closing Work-in-progress (50% converted and 1,200 kg
conversion costs were incurred in accordance with the
planned cost structure)
Required: -
a) Prepare Process I account for the first week of the month using the final sales value
method of attribute the pre-separation costs to join products.
b) Prepare the toxic waste account and Process II account for the first week of themonth.
c) Comment on the method used by the JKL Limited to attribute the pre-separationcosts
to joint products.
d) Advise the management of JKL Limited whether or not, on purely financial grounds, it
should continue to process product K into product, K2;
i) If product K could be sold at the point of separation for ₹ 47.30 per kg; and
ii) If the 60% of the weekly fixed costs of Process II were avoided by not processing
product K further.
(May 2004)

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Ans. a)
Dr. Process – I A/c Cr.
Particulars Unit Rate Amount Particulars Unit Rate Amount
To Material 40,000 16.50 6,60,000 By Product 4,000 19.25 77,000
Input L Sales
To Direct ---- ---- 4,40,000 By Normal 2,000 16.50 (33,000)
labour loss
To Variable ---- ---- 1,76,000 By 400 44 17,600
overheads Abnormal
loss
To Fixed ---- ---- 2,64,000 By Joint 19,200 7,21,171
Overheads production j
(W.N.3)
By Joint 14,400 7,57,229
Production
K (W.N.3)
40,000 15,40,000 40,000 15,40,000
Valuation of abnormal loss per kg;

− (Using physical measure method)
15,40,000−77,000 + 33,000
− =
40,000 kg ×0.85
₹14,96,000
− = 34,000 𝑘𝑔
− = ₹44 kg.
b)
Dr. Toxic waste A/c Cr.
To Process 2,000 16.50 (-) By Balance 2,000 16.50 (-)
I A/c 33,000 33,000
Dr. Process – II A/c Cr.

To Process I 14,400 52.585 7,57,229 By Product 13,200 11,73,918
A/c k2 A/c
(Production (W.N-5)
of k)
To variable 2,37,600 By Closing 1,200 84,911
O/Hs WIP (W.N.4)
To fixed its 2,64,000
14,400 12,58,829 14,400 12,58,829
Working Notes: -
1) Calculation of joint cost of the output;

= ₹ 15,40,000 − ₹ 77,000 − ₹ (−) 33,000 − ₹ 17,600
= ₹ 14,78,400.

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2)
Statement of Equivalent Production-
Input Particulars Output Material Lab & oh.
% 1 Unit % 1 Unit
14,400 Input
WIP 1,200 100% 1,200 50% 600
Finished 13,200 100% 13,200 100% 13,200
goods
14,400 14,400 14,400 13,800
3) Allocation of joint cost over joint products J & K;

Products Units (₹) Salves Value Joint Cost
J 19,200 10,56,000 7,21,171
K (19,200 × 55)
14,400 1,108,800 7,57,229
(14,400 × 77)
21,64,800 14,78,400
4) Valuation of 1200 kgs of closing WIP;

Material I 100% Complete ₹63,102
(1,200 kg × ₹52.585)
Fixed & Variable O/H ₹5,01,600 ₹21,809
( × 600 𝑢𝑛𝑖𝑡𝑠)
13,800
Total value of 1,200 kgs of closing WIP 84,911
5) Valuation of Finished goods of 13,200 Kg’s –

Material 100% Complete ₹6,94,122
(13,200 kg × ₹52.585)
Fixed & Variable O/H ₹5,01,600 ₹4,79,796
(
13,800
× 13200 𝑢𝑛𝑖𝑡𝑠)
Total value of 1,200 kgs of closing WIP 11,73,918
c) Comment on the method used by the JKL Ltd;

(For attribute the pro-separation costs to joint Products) attributing the joint costs over
joint products J & K, L Ltd used the basis of final sales value. This is one of the popular
method used in the industry.
Other methods can also be used for the purpose, some are;
− Physical Measure method (if both products are equally complex)
− Constant gross margin (%) method.
− Net realizable value method.
d) Advise to the Management of JKL Ltd.

Particulars (₹)
Incremental sales revenue/kg from further processing 29.70
Less: Incremental variable cost/kg from further processing 16.50
Incremental contribution/kg from further processing 13.20

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At an output of 14,4,000 kgs the incremental contribution (14,400 × 13.20) 1,90,080
Less: Avoidable fixed cost 1,58,400
(60% of 264000)
Net benefit 31,680
Avoidable Fixed Cost

Break-even point =
Incremental Contribution/kg
1,58,400
= ₹13.20
= 12,000 kg
*Hence, further processing should be undertaken only if output is expected to exceed 12,000
kgs per week.
17. A Coke Manufacturing Company produces the following products by using 5,000 tons of coal
@ ₹ 1,100 per ton into a common process.
Coke 3,500 tons
Tar 1,200 tons
Sulphate of ammonia 52 tons
Benzol 48 tons
Prepare Statement apportioning the joint cost amongst the products on the basis of the
physical unit method. (ICAI SM)
Ans. Particulars Products Total
Coke Tar Sulphate Benzo Wast
of le age
ammonia
✓ Output (in ton) 3,500 1,200 52 48 200 5,000
✓ Wastage (in ton) 146 50 2 2 (200) ----
(Refer Note-1)
✓ Input (in-ton) 3,646 1,250 54 50 ---- 5,000
✓ Share of Joint Cost 40,10,600 13,75,000 59,400 55,000 ---- 55,00,000
@ ₹ 1,100 per ton
(in ₹)
Note: Apportionment of wastage of 200 tons over the four products on the basis of physical
weights (3,500; 1,200; 52;48) is as follows;
200
✓ Coke; 4,800
× 3,500 𝑡𝑜𝑛𝑠 = 146 𝑡𝑜𝑛𝑠
200
✓ Tar; 4,800
× 1,200 𝑡𝑜𝑛𝑠 = 50 𝑡𝑜𝑛𝑠
200
✓ Sulphate of ammonia; 4,800
× 52 𝑡𝑜𝑛𝑠 = 2 𝑡𝑜𝑛𝑠
200
✓ Benzole; 4,800
× 48 𝑡𝑜𝑛𝑠 = 2 𝑡𝑜𝑛𝑠
18. Find out the cost of joint products A, B and C using average unit cost method from the
following data;
i) Pre-Separation Joint Cost ₹ 60,000
ii) Production data
Products Units Produced
A 500
B 200
C 300
1,000
(ICAI SM)

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Ans. Average Cost per unit =
𝑇𝑜𝑡𝑎𝑙 𝐽𝑜𝑖𝑛𝑡 𝐶𝑜𝑠𝑡𝑠
=
₹60,000
= ₹60
𝑈𝑛𝑖𝑡𝑠 𝑃𝑟𝑜𝑑𝑢𝑐𝑒𝑑 1,000 𝑢𝑛𝑖𝑡𝑠
The Joint costs apportioned @ ₹ 60 are as follows: -
Products Units Cost per unit (₹) Value (₹)
A 500 60 30,000
B 200 60 12,000
C 300 60 18,000
60,000
19. A factory is engaged in the production of Bomex and in the course of its manufacture a by-
product Cromex is produced which after further processing has a commercial value. For the
month of April 20X1 the following are the summarized cost date:
Joint Expenses (₹) Separate Expenses (₹)
Bomex Cromex
Material 1,00,000 6,000 4,000
Labour 50,000 20,000 18,000
Overheads 30,000 10,000 6,000
Selling Price per unit 100 40
Estimated profit per unit on 5
sale of Cromex
Number of units produced 2,000 units 2,000 units
The factory uses net realizable value method for apportionment of joint cost to by-products.
You are required to prepare statements showing:
i) Joint cost allocation to Cromex
ii) Product wise and overall profitability of the factory for April 20X1
(May 2019)
Ans. i) Statement Showing Joint Cost Allocation to ‘Cromex’
Particulars Cromex (₹)
Sales (₹40 × 2,000 units) 80,000
Less: Post Split Off Costs (28,000)
(4,000 + 18,000 + 6,000)
Less: Estimated Profit (₹5 × 2,000 units) (10,000)
Joint cost allocable to Cromex 42,000
ii) Statement Showing Product Wise and Overall Profitability

Particulars Bomex (₹) Cromex (₹) Total (₹)
Sales 2,00,000 80,000 2,80,000
Less: Share of Joint Expenses *1,38,000 42,000 **1,80,000
Less: Post Split Off Costs 36,000 28,000 64,000
Profit 26,000 10,000 36,000
(*) 1,80,000 – 42,000 (**) 1,00,000 + 50,000 + 30,000
Student Note: The question says that, “The factory uses net realizable value method for
appointment of joint cost to by-products”. However, the answer of ICAI is based on “Reverse
Cost Method.” This method is now deleted from the ICAI module, but it is used here.
20. ASR Ltd. mainly produces Product ‘L’ and gets a by-product ‘M’ out of a joint process. The net
realizable value of the by-product is used to reduce the joint production costs before the joint
costs are allocated to the main product. During the month of October 2022, company incurred
joint production costs of ₹4,00,000. The main Product ‘L’ is not marketable at the split off

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point. Thus, it has to be processed further. Details of company’s operation are as under:
Particulars Product L By-Product M
Production (units) 10,000 200
Selling pricing per kg. ₹45 ₹5
Further processing cost ₹1,01,000 --
You are required to find out:

i) Profit earned to from Product ‘L’
ii) Selling price per kg of product ‘L’, if the company wishes to earn a profit of ₹1,00,000 from
the above production.
(Nov. 2022)
Ans. i) Cost Sheet for Main Product
Quantity Produced and sold 10,000 units
Total
Joint Production Cost 400,000
(-) Net Realizable Value of By Product (200 × 5) (1000) 3,99,000
(+) Further Processing Cost 1,01,000
COP/COGS/COS 5,00,000
(+) Profit/(loss) (50,000)
Sales 4,50,000
ii) SP to get profit of ₹100,000
Cost as above 5,00,000
(+) Profit 1,00,000
Sales 6,00,000
÷ Number of units 10,000
SP 60
21. ABC Company produces a Product ‘X’ that passes through three processes: R, S and T. Three
types of raw materials, viz., J, K, and L are used in the ratio of 40:40:20 in process R. The
output of each process is transferred to next process. Process loss is 10%% of total input in
each process. At the stage of output in process T, a by–product ‘Z’ is emerging and the ratio of
the main product ‘X’ to the by–product ‘Z’ is 80:20. The selling price of product ‘X’ is ₹60 per
kg.
The company produced 14,580 kgs of product ‘X’.
Material price: Material J @ ₹15 per kg; Material K @ ₹9 per kg; Material L@ ₹7 per kg. Process
costs are as follows:
Process Variable costs per kg (₹) Fixed cost of Input (₹)
R 5.00 42,000
S 4.50 5,000
T 3.40 4,800
The by–product ‘Z’ cannot be processed further and can be sold at ₹30 per kg at the split–off
stage. There is no realizable value of process losses at any stage.
Required:
Present a statement showing the apportionment of joint costs on the basis of the sales value
of product ‘X’ and by–product ‘Z’ at the split–off point and the profitability of product ‘X’ and
by–product ‘Z’.
(May 2023)

26
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Ans. Statement showing apportionment of joint cost (Basis of Sale value at split off point)
Joint costs:
Particulars Amount
Material – (W.N)
J - 10,000 X 15 1,50,000
K – 10,000 X 9 90,000
L – 5,000 X 7 35,000
Total Material cost 2,75,000
Variable cost -
R – 25,000 X 5 1,25,000
S – 22,500 X 4.5 1,01,250
T – 20,250 X 3.4 68,850
Total variable costs 2,95,100
Fixed cost
R- 42,000
S- 5,000
T- 4,800
Total Fixed cost 51,800
Total Joint cost 6,21,900
Apportionment:
Particulars Product X By product Z
Sale value 8,74,800 1,09,350
(14,580 X 60) (*3,645 X 30)
Joint cost apportioned 5,52,800 69,100
(Ratio = 874800:109350)
*14,580/80% X 20% = 3,645
Statement showing profitability:

Particulars Product X By product Z
Sale value 8,74,800 1,09,350
(14580 X 60) (*3645 X 30)
Less: Joint cost apportioned 5,52,800 69,100
(Ratio = 874800:109350)
Profit 3,22,000 40,250
Working Note:
Calculation of Material at the beginning –
R S T
Output at process T 18,225
(Equivalent to 90%) (14,580+3,645)
Output at process S 20,250
(18225 / 90%)
Output at process R 22,500
(20250/90%)
Material Input at process R = 22,500 / 90% = 25,000 Kg’s

J – 40% = 10,000
K – 40%= 10,000
L -20% = 5,000

27

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Q. Questions and Answer

The details of sales during the year;

Apportionment of joint cost to product X = ₹ 8,75,000 × (4/5) = ₹ 7,00,000

Apportionment of joint cost to product Y = ₹ 8,75,000 × (1/5) = ₹ 1,75,000

888 888 0402 support@escholars.in

Processing cost per unit

3) Statement showing the product wise profit for the year:

Profit for Y = ₹ 4,60,000 – ₹ 3,11,458 = ₹ 1,48,452

4) Calculation of Profit before and after further processing:

Calculation of profit before further processing:

888 888 0402 support@escholars.in

*Overall profit = ₹ 5,36,250 + ₹ 60,000 + ₹ 18,750

888 888 0402 support@escholars.in

✓ Apportionment of Joint Cost;

888 888 0402 support@escholars.in

ii) Physical Measures Method: -

✓ Apportionment of Joint Cost;

iii) Estimated Net Realisable Value Method: -

b) Incremental Revenue from further processing of Chlorine into PVC;

888 888 0402 support@escholars.in

Suggested Production plan for maximising profits: -

888 888 0402 support@escholars.in

✓ Total Joint Cost = Raw Material Cost + Manufacturing Expenses

888 888 0402 support@escholars.in

888 888 0402 support@escholars.in

888 888 0402 support@escholars.in

b) Apportionment of Joint Cost on the basis of Contribution Margin Method;

- Fixed Cost = ₹ 32,000

c) Profit or loss under both method;

888 888 0402 support@escholars.in

2) Joint cost apportioned to each product:

888 888 0402 support@escholars.in

Suggested Product to be further processed for maximizing profits:

Production and sales data for October, 20X2 are;

888 888 0402 support@escholars.in

Allocation of joint cost on the basis of Physical quantity:

888 888 0402 support@escholars.in

Calculation of gross margin percentage to Net Realizable method:

b) Chocolate powder liquor base (Amount in ₹)

Milk chocolate liquor base (Amount in ₹)

c) Further processing of Chocolate powder liquor base into Chocolate powder

888 888 0402 support@escholars.in

The selling prices per kg. are as under;

The production will be taken up in the next month.

888 888 0402 support@escholars.in

Particulars (₹) in Lakhs

b) Statement showing the profitability of further processing of

If ‘P’ is not processed, then profitability is as under;

888 888 0402 support@escholars.in

Selling prices are A ₹ 16,000

Statement Showing Cost of Production

888 888 0402 support@escholars.in

*No. of units produced of Product M = 6750 units × 80% = 5400 units.

888 888 0402 support@escholars.in

− Total joint cost = 4,80,000 + 70,000 + 48,000 = ₹ 5,98,000

c) Statement showing the computation of Gross profit;

888 888 0402 support@escholars.in

888 888 0402 support@escholars.in