Question

In: Accounting

Berger Paint Pakistan limited produces three types of joint products, Silver paint, Golden paint and Diamond...

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.

Solutions

Expert Solution

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.


Related Solutions

Lumiere Manufacturing Limited produces three products from a single output. Joint processing costs up to the...
Lumiere Manufacturing Limited produces three products from a single output. Joint processing costs up to the split off point total $350,000. The company allocates these costs based on the sales values at the split off point which are:             Product D        $240,000             Product K        $160,000             Product M       $100,000 Each product can be processed further after the split off point and the following are the costs and sales if they are processed further:                                                    Additional                        Sales...
Ko-Ka-Ku Limited produces three main products from a joint manufacturing process. Fuel oil, gasoline, Kerosene and...
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...
Kelp Company produces three joint products from seaweed. At the split-off point, three basic products emerge:...
Kelp Company produces three joint products from seaweed. At the split-off point, three basic products emerge: Sea Tea, Sea Paste, and Sea Powder. Each of these products can either be sold at the split-off point or be processed further. If they are processed further, the resulting products can be sold as delicacies to health food stores. Cost and revenue information is as follows. Sales Value and Additional Costs If Processed Further Product Pounds Produced Sales Value at Split-Off Final Sales...
Kelp Company produces three joint products from seaweed. At the split-off point, three basic products emerge:...
Kelp Company produces three joint products from seaweed. At the split-off point, three basic products emerge: Sea Tea, Sea Paste, and Sea Powder. Each of these products can either be sold at the split-off point or be processed further. If they are processed further, the resulting products can be sold as delicacies to health food stores. Cost and revenue information is as follows. Sales Value and Additional Costs If Processed Further Product Pounds Produced Sales Value at Split-Off Final Sales...
Center Company currently produces three products from a joint process. The joint process has total costs...
Center Company currently produces three products from a joint process. The joint process has total costs of $511,000 per month. All three products, A, B & C, are immediately saleable as they come out of the joint process. Alternatively, any of the products could continue on with additional processing and be sold as a more complete product. The following information is available: Units Immediate Sales Price Later Sales Price Unit Cost of Further Processing A 4,500 $ 18 $ 20...
Lido Products produces two products (A and B) from a joint process. The joint cost of...
Lido Products produces two products (A and B) from a joint process. The joint cost of production is $80 000. Five thousand units of Product A can be sold at split-off for $20 per unit or processed further at an additional cost of $20 000 and sold for $25 per unit. Ten thousand units of Product B can be sold at split-off for $15 per unit or processed further at an additional cost of $20 000 and sold for $16...
Lido Products produces two products (A and B) from a joint process. The joint cost of...
Lido Products produces two products (A and B) from a joint process. The joint cost of production is $80 000. Five thousand units of Product A can be sold at split-off for $20 per unit or processed further at an additional cost of $20 000 and sold for $25 per unit. Ten thousand units of Product B can be sold at split-off for $15 per unit or processed further at an additional cost of $20 000 and sold for $16...
Shaffner Corporation produces three products, Alfa, Beta and Gama. Alfa and Gama are joint products, while...
Shaffner Corporation produces three products, Alfa, Beta and Gama. Alfa and Gama are joint products, while Beta is a by-product of Alfa. There is no combined fee to be allocated to the by-product. The production process for the current year is as follows: a. In Department 1, 110,000 pounds of Rho raw material are processed, with a total cost of $ 120,000. After processing, 60% of the units are transferred to Department 2, and 40% of the units (now called...
Fantasy Manufacturing produces three products in a joint operation. Information regarding the products appears below: Item...
Fantasy Manufacturing produces three products in a joint operation. Information regarding the products appears below: Item 1 Item 2 Item 3 Total Units Produced 20,000 25,000 10,000 55,000 Sales Value at Split-off $ 150,000 $ 50,000 $ 20,000 $ 220,000 Additional costs if Processed further $ 10,000 $ 30,000 $ 5,000 $ 45,000 Sales Value if Processed Further $ 170,000 $ 90,000 $ 28,000 $ 288,000 Joint Costs $ 100,000 Required: Allocate the joint costs using the net realizable value...
Q 3 Abdelaziz Company produces 3 types of products. During the year the joint costs of...
Q 3 Abdelaziz Company produces 3 types of products. During the year the joint costs of processing the 3 products were $350,000.              Production and sales value information were as follows:                                              Sales Value Product         Units produced   at Split-Off          Separable Costs                      Selling Price Product A            400,000       $10 per unit           $6.00 per unit $40 per unit Product B            300,000        $9 per unit           $4.00 per unit $28per unit Product C            500,000        $6 per unit           $3.00 per unit $18 per unit a.   Allocate...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT