Joint cost apportionment and decisions of further processing
A process costing £200 000 produces 3 products- A, B and C. Output details are as follows:
|
Product A |
6 000 litres |
|
Product B |
10 000 litres |
|
Product C |
20 000 tonnes |
Each product may be sold at the completion of the process as follows;
|
Sales value at the end of the first process |
|
|
Product A |
£10 per litre |
|
Product B |
£4 per litre |
|
Product C |
£10 per tonne |
Alternatively, further processing of each individual product can be undertaken to produce an enhanced product thus:
|
Subsequent processing costs |
Sales value after final process |
|
|
Enhanced Product A |
£14 per litre |
£20 per litre |
|
Enhanced product B |
£12 per litre |
£8 per litre |
|
Enhanced product C |
£6 per tonne |
£16 per tonne |
Required:
(a) Explain the following terms:
(i) Normal process loss;
(ii) Joint product;
(iii) By-product;
And state the appropriate costing treatments for normal process loss and for by-products.
(b) Calculate the apportionment of joint process costs to products A,B and C above.
(c) Explain whether the initial process should be undertaken and which, if any, of the enhanced products should be produced.
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