In: Accounting
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?
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 |