Question

Ko-Ka-Ku Limited produces three main products from a joint manufacturing process. Fuel oil, gasoline, Kerosene and Crude-I are the products emerging from the joint manufacturing process. Crude-I is aby-product and is sold at split-off, while the joint products fuel oil, gasoline and kerosene need to be processed further. Additional inventory and sales volume information (all in litres) is as follows:

Products	Opening inventory	Sales units	Closing inventory
Fuel oil	1 000	10 000	2 000
Gasoline	2 000	12 000	3 000
Kerosene	3 000	15 000	4 000
Crude-I	-	5 000	-

The joint costs are N$248 000. The revenue from the sales of the by-product is used to reduce the joint costs. The company allocates joint costs using the physical measurement method. Crude-I incurred N$2 000 in other costs.

	Fuel Oil (N$)	Gasoline (N$)	Kerosene (N$)	Crude-I (N$)
Selling price per litre at split-off	20	30	35	10
Selling price per litre after further process	50	60	45	-
Further processing cost per litre	20	35	9	-

Required:

Calculate the joint cost to be allocated to product Kerosene

Answer 1

Ko- Ka -Ku
	Fuel Oil	Gasoline	Kerosene	Crude I
	Main	Main	Main	By Product
Opening	1000	2000	3000	-
Sale	10000	12000	15000	5000
Closing	2000	3000	4000	-
Production	11000	13000	16000	5000
Joint Cost	55000	65000	80000	0	200000	On Physical Measurement Basis
Other Cost	0	0	0	2000	2000
	Fuel Oil	Gasoline	Kerosene	Crude I
	Main	Main	Main	By Product
Sale	10000	12000	15000	5000
Split off	20	30	35	10
Joint Cost Allocated	200000	360000	525000	50000	248000
Joint Cost Allocated	36866	66359	96774	-	200000	Refer noTe
After Further Process	50	60	45	-
Incremental Earning	300000	360000	150000	-
Further processing cost	200000	420000	135000	-
Net Earning	100000	-60000	15000	-
noTe: Here the Joint cost 248000 should be alocated among other main product, Hence By product Sale value less cost incurred shall reduce the Joint cost of Three main Product . Hence 248000 - ( 50000 -2000) = 200000
Here Joint Cost Allocated is 96774