In: Accounting
Berger Paint Pakistan limited produces three types of
joint products, Silver paint, Golden paint and Diamond paint.
During March, 2020, the following information was recorded:
Particulars Silver Paint Golden Paint Diamond Paint Total
Costs
Joint materials costs - - - Rs 960,000
Joint direct costs 555,000
Joint factory costs 490,000
Separable costs Rs 150,000 Rs 170,000 Rs 190,000
550,000
Production units 2,100 liters 2,500 liters 2,800 liters 7,400
liters
Sales units 1,900 liters 2,200 liters 2,400 liters 6,500
liters
Selling price per liter Rs 375 Rs 490 Rs 580 -
Additional information:
There was no beginning inventory as on 01/03/2020.
Required:
i). Compute total cost and unit cost of each type of above product,
using the Hypothetical market value method.
Marks: 6
ii). Compute closing inventory cost of each product and total
inventory costs as on 31/03/2020.
Marks: 2
iii). Define joint products and by-products. Also give logical
justification to treat any one of joint products as a
By-product.
During March, 2020, the following
information was recorded:
Particulars Silver Paint Golden Paint
Diamond Paint Total Costs
Joint materials costs - - - Rs
960,000
Joint direct costs
555,000
Joint factory costs
490,000
Separable costs Rs 150,000 Rs 170,000
Rs 190,000 550,000
Production units 2,100 liters 2,500
liters 2,800 liters 7,400 liters
Sales units 1,900 liters 2,200 liters
2,400 liters 6,500 liters
Selling price per liter Rs 375 Rs 490
Rs 580 -
.
Additional
information:
There was no beginning inventory as on
01/03/2020.
Required:
i). Compute total cost and unit cost
of each type of above product, using the Hypothetical market value
method.
.
Total joint cost =
Joint materials costs - - - Rs
960,000
Joint direct costs
555,000
Joint factory costs
490,000
Total joint cost = 2005000
.
.
Market value |
production qty |
Market value |
Separable costs |
Hypothetical market value |
Joint cost allocation |
Total cost |
Unit cost = Total cost / qty |
|
Silver Paint |
375 |
2100 |
787500 |
150000 |
637500 |
408824 |
558824 |
266 |
Golden Paint |
490 |
2500 |
1225000 |
170000 |
1055000 |
676563 |
846563 |
339 |
Diamond Paint |
580 |
2800 |
1624000 |
190000 |
1434000 |
919613 |
1109613 |
396 |
7400 |
3636500 |
3126500 |
2005000 |
2515000 |
*The joint cost is 64.13% ( 2005000 / 3126500 ) of the hypothetical market value
Hypothetical market value is equal to ultimate market value less separable processing cost.
Silver Paint = 637500 / 3126500 * 2005000 = 408824
Golden Paint = 1055000 / 3126500 * 2005000 =676563
Diamond Paint = 1434000 / 3126500 * 2005000 =919613
.
ii). Compute closing inventory cost of each product and total inventory costs as on 31/03/2020.
Closing inventory
product |
Total cost of produced units |
Units cost |
Produced units |
Sold units |
Closing inventory |
closing inventory cost = units* cost |
Silver Paint |
558824 |
266 |
2100 |
1900 |
200 |
53200 |
Golden Paint |
846563 |
339 |
2500 |
2200 |
300 |
101700 |
Diamond Paint |
1109613 |
396 |
2800 |
2400 |
400 |
158400 |
. |
. |
. |
. |
.. |
Total cost of closing inventory |
313300 |
.
iii). Define joint products and by-products. Also give logical justification to treat any one of joint products as a By-product.
.
joint products :- Joint products are product resulted from a joint process. In other word A joint product is a product that results jointly with other products from processing a common input. So When the production of two or more products of same value, are made together with same input and process, is known as joint product.
.
by-products:- By products are product which is incidentally produced, during the joint processing operation of other some product. Market value of by-product is relatively lower than the main product.
.
logical justification to treat any one of joint products as a By-product
> By product have relatively lower sales value compare to main product.
>Normally by product is Waste or scrap of the main product.
> by-product means a product which is incidentally produced, during the processing operation of another product.
> by-product means a product which is incidentally produced, during the processing operation of another product.
> The treatment are differentiated from main product.