Allocation of Cost to by-Product Z by Reversal Cost Method

Operating Profit per unit 1

Add: Operating Expenses:
Marketing and Administrative expenses per unit 1

GROSS PROFIT per unit 2

Sales price per unit 5

Less: Gross profit per unit (2)

COST OF GOODS SOLD per unit 3

Less: Further processing cost per unit (1)

COST OF GOODS SOLD per unit

(at split off point) 2

Cost of Z Product = 2,000 units x Rs. 2 = Rs 4,000

ALLOCATION OF JOINT PRODUCT COST TO X and Y (by Market value method.

Product Ultimate Nos. of Ultimate Processing cost Hypothetical

MV / unit units Market Market value
produced Price

X 20 8,000 160,000 40,000 120,000

Y 25 10,000 250,000 70,000 180,000

300,000

Allocation of Joint Production Cost to X and Y is now Rs. 200,000

because Rs. 4,000 charged to Product Z which deduct from total
cost of Rs. 204,000
 Allocation Allocation of
% Joint cost

40 80,000

60 120,000
200,000

w Rs. 200,000
duct from total
Required no. 1: Market Value method

Product Units Sales price Total Market Value Allocation

per unit %

Buildon 6,000 2.20 13,200 36.67

Buildeze 8,000 1.25 10,000 27.78

Buildrite 10,000 1.28 12,800 35.56

36,000 100

Required no. 2: Weighted Average method

Product Units Weight Weighted Allocation

per unit Units %

Buildon 6,000 6 36,000 33.33

Buildeze 8,000 4 32,000 29.63

Buildrite 10,000 4 40,000 37.04

108,000 100
Appropriation of
Joint Production cost

7,920

6,000

7,680
21,600

Appropriation of
Joint Production cost

7,200

6,400

8,000
21,600
Required no. 1: Average unit cost method

Product Unit Allocation Allocation of Additional Total Cost

Produced % Joint production cost Cost

X 6,000 50.00 30,000 9,000 39,000

Y 4,000 33.33 20,000 7,000 27,000

Z 2,000 16.67 10,000 5,000 15,000

12,000 100 60,000 21,000 81,000

Required no: 2: Market Value method

 Total joint production cost 120,000
Units Sales price
at split off

A 20,000 0.25
B 15,000 3.00
C 10,000 3.50
D 15,000 5.00

ALLOCATION OF JOINT PRODUCTION COST (AT SPLIT OFF POINT)

Joint No. of Sales price Total M. Percentage Allocation of

Product units at split off Value Joint cost
produced

A 20,000 0.25 5,000 3.125 3,750

B 15,000 3.00 45,000 28.125 33,750
C 10,000 3.50 35,000 21.875 26,250
D 15,000 5.00 75,000 46.875 56,250
160,000 100 120,000

Total A B C D
Total unit 60,000 20,000 15,000 10,000 15,000

Sales (in 52,000 18,000 12,000 8,000 14,000

Ending un 8,000 2,000 3,000 2,000 1,000

Sales (in 138,500 4,500 36,000 28,000 70,000

Cost 120,000 3,750 33,750 26,250 56,250

Less: end (16,125) (375) (6,750) (5,250) (3,750)

COGS 103,875 3,375 27,000 21,000 52,500

Gross Prof 34,625 1,125 9,000 7,000 17,500

GP perce 25 25 25 25 25

ALLOCATION OF JOINT PRODUCTION COST (AFTER SPLIT OFF POINT SALES VALUE)
 Product Ultimate M.V Unit Ultimate Processing Hypothetical
per unit Produced M.V Cost after Market
split off point Value

A 0.50 20,000 10,000 2,000 8,000

B 5.00 15,000 75,000 10,000 65,000
C 4.50 10,000 45,000 10,000 35,000
D 8.00 15,000 120,000 28,000 92,000
250,000 50,000 200,000

Section A Sat 8:30 -10

Section B Sat 10- 11:30

0.19
2.25
2.63
3.75
% of Allocation of Total
Joint Cost Joint Production Cost
Allocation Cost

4.00 4,800 6,800

32.50 39,000 49,000
17.50 21,000 31,000
46.00 55,200 83,200
100 120,000 170,000
Dept no.1: Dept no.2

Input 110,000 Receiving from dept 1 66,000

Cost 120,000 Additional cost 38,000

19,800 BETA
(30% of 66,000 units)
No additional cost & Joint produc
Market expenses
Sales value 1.20 per unit

46,200 APLHA Transfer to Dept 4

(70% of 66,000 units)

Additional cost 23,660

Sale value Rs. 5 / unit

Dept No. 3
Receiving from dept 1 44,000 (40 % of input in dept 1)

(4,000) (10% of good output)

40,000 Good output

Additional cost 165,000

Sales value 12 per unit

Let good output is X

Input - Loss = Good output

44000 - 0.1 of x = x
44000 = x + 0.1 x
44000 = 1.1 x

x = 44000 / 1.1

X = good out put = 40,000 units

Req no: 1 Allocation of Joint Production Cost

Product M.V. per Nos. of Market Processing Hypothetical Allocation
unit units Value Cost M.V %
produced

Aplha 5 46,200 231,000 38,000 185,000 37

15,660 23,660

Gamma 12 40,000 480,000 165,000 315,000 63

500,000 100

W-1: Calculation of net realizable value method

Sales revenue of Beta (19,800 units x 1.20) 23,760

Less: Marketing expenses (8,100)
Net Realizable Value of beta 15,660

Required no: 2: Gross profit of Alpha

Sales (48,000 x 80% = 38,400 units x Rs. 5)

Less: Production Cost

Joint cost allocation to Alpha 102,000
Additional cost:
Department no. 2 38,000
Department no. 4 23,660 61,660

Total Production Cost 163,660

Less: Net Realizable value of beta (15,900)

Net Production Cost 147,760

Less: Ending inventory (29,552)

COST OF GOODS SOLD

Gross Profit
W-1 Net realizable value of beta
Sales value of Beta 24,000
Less: Marketable value (8,100)
NRV 15,900

W-2 Cost of ending inventory

Cost of ending inventory = Net production cost x % of ending inventory

=147,760 x 20%
29,552
 (60 % of input in dept 1) APLHA
BETA

o additional cost & Joint production cost

Market expenses 8,100
ales value 1.20 per unit

GAMMA

Loss
Allocation
of Joint
Production cost

44,400

75,600
120,000

192,000

(118,208)

73,792