Question

PT TOBA produces two types of products both TAKO and TAKI through joint production process. Both products must be further processed and then it can be sold. In April 2016 the production cost incurred consisted of a prime cost of $ 10,000, a direct labor cost of $ 4,000 and a conversion cost of $ 14,000. The production process in April produced 500 units of TAKO and 2,000 TAKI units. The cost for further processing TAKO is $ 5 per unit and TAKI $ 10 per unit. The selling price of TAKO and TAKI per unit is $ 25 and $ 20.

Requested: Calculate the cost per unit of TAKO and TAKI by using Physical measure method, NRV method, and Constant gross margin percentage NRV method.

Answer 1

Solution:

Total joint cost = $10,000 + $4,000 + $14,000 = $28,000

Computation of cost per unit - Physical measure method
Particulars	TAKO	TAKI	Total
Output at split off point	500	2000	2500
Allocation of Joint Cost (5:20) Tako - 28000*5/25 Taki - 28000*20/25	$5,600.00	$22,400.00	$28,000.00
Further processing cost	$2,500.00	$20,000.00	$22,500.00
Total Cost	$8,100.00	$42,400.00	$50,500.00
Cost per unit	$16.20	$21.20

Computation of cost per unit - NRV method
Particulars	TAKO	TAKI	Total
Sale Value after further processing	$12,500.00	$40,000.00	$52,500.00
Further Processing Cost	$2,500.00	$20,000.00	$22,500.00
Net Realisable Value	$10,000.00	$20,000.00	$30,000.00
Allocation of Joint Cost (10:20) Tako - 28000*10/30 Taki - 28000*20/30	$9,333.00	$18,667.00	$28,000.00
Further processing cost	$2,500.00	$20,000.00	$22,500.00
Total Cost	$11,833.00	$38,667.00	$50,500.00
Cost per unit	$23.67	$19.33

Constant gross margin percentage NRV method:

Final sale value of product = $12,500 + $40,000 = $52,500

Joint and separable cost = $28,000 + $22,500 = $50,500

Gross margin = $52500 - $50,500 = $2,000

Gross Margin percentage = $2,000 / $52,500 = 3.8095%

Computation of cost per unit - Constant gross margin percentage NRV method.
Particulars	TAKO	TAKI	Total
Sale Value of total product	$12,500.00	$40,000.00	$52,500.00
Gross Margin	$476.19	$1,523.81	$2,000.00
Total Production cost	$12,023.81	$38,476.19	$50,500.00
Cost per unit	$24.05	$19.24