Question

In: Accounting

Homebase is a specialist manufacturer of different types of wall tiles; ceramic and stone. Homebase excavates...

  1. Homebase is a specialist manufacturer of different types of wall tiles; ceramic and stone. Homebase excavates blocks of granite from its quarry from its joint processes of quarry and cutting. Two joint products (ceramic and stone) are produced along with a by-product called Mutter.

Ceramic tiles are cut, polished, and engraved in a variety of standard shapes, sizes, and patterns and distributed to their different stores located throughout the UK for sale. The ceramic tiles are cut and polished to meet specifications of contractors who each year are ordered by contractors for office buildings. The small pieces of ceramic tiles resulting from the cutting and shaping process are crushed and sold to farm-supply outlets as poultry grit.

Homebase has provided the following costs and output information:

Process

Cost

(£)

Tons of Output

Quarry

Cutting

Ceramic

Stone

Grit

350,000

250,000

300,000

400,000

10,000

100,000

90,000

25,000

60,000

5,000

Quarry and Cutting are joint processes. A local farm-supply distributor purchases all of the grit that is produced at £40 per ton. Assume that Homebase uses the physical units method to allocate joint costs.

Required:

a) What would be the cost per ton of Ceramic and Stone slabs, assuming that the grit is accounted for as “other income”?

b What would be the cost per ton of Ceramic and Stone slabs assuming that the grit is accounted for as by-product revenue deducted from the main product cost?

Solutions

Expert Solution

Part(a)

Calculation of cost per ton of Ceramic &Stone slabs assuming that grit is accounted as Other income
Ceramic Stone
Specific cost           (A) £3,00,000 £4,00,000
Tons of out put      (B) £25,000 £60,000
Per unit cost (A/B) £12 £7
Add:Joint cost per ton £6.667 £6.6667
Total cost per unit £18.667 £13.667
Working notes
Process cost up to the point of seperation
Quarry            £3,50,000
Cutting £2,50,000
Total £6,00,000
As per physical unit method cost of Quarry and Cuttingto be devided based on the number of out put of Ceramic, Stone and grit
Tons of output
Ceramic 25000
Stone 60000
Grit 5000
Total 90000
calculation is as , (600000/90000) = 6.6667 per ton

Part(b)

Calculation of cost per ton of Ceramic &Stone slabs assuming that by-product revenue reduced from main product cost
Ceramic Stone
Specific cost           (A) £3,00,000 £4,00,000
Tons of out put      (B) £25,000 £60,000
Per unit cost (A/B) £12 £7
Add:Joint cost per ton £4.823 £4.8230
Total cost per unit £16.823 £11.823
Grit cost per ton £6.667
Grit sale price per ton £40
Total tons of grit 5000
Revenue(5000*40) £2,00,000
Less:Joint cost (5000*6.667) £33,335
Less:Specific cost of grit £10,000
Therfore
Profit on sale of grit £1,56,665
Working notes
Process cost up to the point of seperation
Quarry            £3,50,000
Cutting £2,50,000
Total £6,00,000
Less:Joint cost apportined to grit (5000*6.667) £33,335
Less:Profit on sale of grit £1,56,665
Total cost after deducting revenue of grit £4,10,000
cost of Quarry and Cuttingto be devided based on the number of out put of Ceramic and Stone
Tons of output
Ceramic 25000
Stone 60000
Total 85000
It is devided as follows
(410000/85000) = 4.823 per ton

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