Apportionment of joint costs
The marketing director of your company has expressed concern about product X, which for some time has shown a loss, and has stated that some action will have to be taken. Product X is produced from material A which is one of two raw materials jointly produced by passing chemicals through a process.
Representative data for the process is as follows:
| Output (kg): | |
| Material A | 10 000 |
| Material B | 30 000 |
| Process B (£): | |
| Raw material | 83 600 |
| Conversion costs | 58 000 |
Joint costs are apportioned to the two raw materials according to the weight of output. Production costs incurred in converting material A into product X are £1.80 per kg of material A used. A yield of 90% is achieved. Product X is sold for £5.60 per kg. Material B is sold without further processing for £6.00 per kg.
Required:
(a) Calculate the profit/loss per kg of product X and material B, respectively.
(b) Comment upon the marketing director’s concern, advising him whether you consider any action should be taken.
(c) Demonstrate an alternative joint cost apportionment for product X an comment briefly upon this alternative method of apportionment.
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