6.

14 Intermediate: Process Costing and a decision on further processing

(a) Prepare the process K account for last month in which both the output volumes and v
further process product P1 in process L to create product XP1 at an incremental cost o
In process L a normal loss of 8% of input is incurred which has no

Products Output Joint Cost (£) Sales value per unit (£) Sales (£)
P1 56,800 432,000 25 1,420,000
P2 28,400 216,000 40 1,136,000
Total 85,200 648,000 2,556,000

Joint Costs (£):

Input 90,000 Raw material
Normal loss 3,600 Conversion costs
Expected Output 86,400 Total
Abnormal loss 1,200 Sales Value of Spoiled Goods
Actual Output 85,200 Joint Costs to be allocated

Further Processing of P1 in Process L to Create XP1

Sales of XP1 £ 1,704,000
Normal loss 8.00%
Total Sales of XP1 1,567,680
Sales of P1 (1,420,000)
Costs of further processing (170,400)
Loss from processing XP1 (£) (22,720)

(b) Based on financial considerations only, determine, with supporting calculations, whether p

Product 1 should not be processed in process L to create product XP1 such that incurring additional co
output volumes and values for each joint product are shown separately. The company could
an incremental cost of 3 per litre input. Process L is an existing process with spare capacity.
ncurred which has no value. Product XP1 could be sold for 30 per litre.

Ratio Allocated Costs (£)

0.56 355,000
0.44 284,000
639,000

450,000 Joint Costs to be allocated 648,000

216,000 Expected Output 86,400
666,000 Cost per unit output 7.50
(18,000) Actual Output 85,200
£ 648,000 Total £ 639,000

alculations, whether product P1 should be further processed in process L to create product XP1.

ncurring additional cost to process further will result to loss amounting to 22, 720.
could
acity.

duct XP1.