Example no1.

:
1 Joint Production Cost 120,000
2 Quantities produced:
A 20,000
B 15,000
C 10,000
D 15,000 60,000
3 Sale price at Split off point:
A 0.25
B 3.00
C 3.50
D 5.00
Solution:
MARKET OR SALE VALUE METHOD (AT SPLIT OFF POINT)

Product Qty Sale Market Ratio

Price Value

A 20,000 0.25 5,000 0.03125

B 15,000 3.00 45,000 0.28125
C 10,000 3.50 35,000 0.21875
D 15,000 5.00 75,000 0.46875
160,000 1.00

Particulars A B

Total units produced 20,000 15,000

Sold units 18,000 12,000
Ending units 2,000 3,000

Sale Price per unit 0.25 3.00

Cost price per unit 0.1875 2.2500

Gross profit per unit 0.0625 0.7500

Amount of gross profit 1,125 9,000

Gross profit percentage 25 25

ALLOCATION OF JPC BY MARKET VALUE METHOD (AFTER SPLIT OFF POINT)

Product Further Ultimate

Cost M.V
A 2,000 0.50
B 10,000 5.00
C 10,000 4.50
 D 28,000 8.00

Product Qty Ultimate Ultimate Further

M.V per unit M.V Cost
A 20,000 0.50 10,000 2,000
B 15,000 5.00 75,000 10,000
C 10,000 4.50 45,000 10,000
D 15,000 8.00 120,000 28,000

Particulars A B

Total units produced 20,000 15,000

Sold units 18,000 12,000
Ending units 2,000 3,000

Sale Price per unit 0.50 5.00

Joint production Cost 4,800 39,000

Further cost 2,000 10,000
Total Cost 6,800 49,000

Cost price per unit 0.3400 3.2667

Gross profit per unit 0.1600 1.7333

Amount of gross profit 2,880 20,800

Gross profit percentage 32.00 35

QUANTITATIVE UNIT METHOD:

Product QTY Distribution of Revised Qty Ratio Allocation

Waste to Good of JPC
output
Coke 1,320.00 69.4737 1,389.4737 0.6947 13.895
Coal Tar 120.00 6.3158 126.3158 0.0632 1.263
Benzol 21.90 1.1526 23.0526 0.0115 0.231
Sulfate 26.00 1.3684 27.3684 0.0137 0.274
Gas 412.10 21.6895 433.7895 0.2169 4.338
Waste / Water 100.00 - -
2,000.00 100.00 2,000.00 1.00 20.00
lbs
Note: 100 / 1900 = 0.05263
divided by 1900 instead of 2000 because on distribuiton
of 100 on 1900 good output

AVERAGE OF UNIT COST METHOD:

Consider Example 1:

Calculate average rate:

Average rate = Joint Production cost / Total nos. of unit produced

Average rate = $ 120,000 / 60,000 units
Average rate = $ 2 per unit

Product Qty Average cost Allocation

rate of JPC

A 20,000 2 40,000
B 15,000 2 30,000
C 10,000 2 20,000
D 15,000 2 30,000
60,000 120,000

Weighted Average Method:

Product Qty Point/ Weight Total Rate Allocation

Weight / Point of JPC
A 20,000 3 60,000 0.20 12,000
B 15,000 12 180,000 0.20 36,000
C 10,000 13.50 135,000 0.20 27,000
D 15,000 15 225,000 0.20 45,000
600,000 120,000

Weighted Average Rate = Amount of Joint Production cost / Total Weight

Weighted Average rate = $ 120,000 / 600,000 unit weight

Weighted Average rate = $0.20 per unit

Allocation of
JPC

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

C D

10,000 15,000
8,000 14,000
2,000 1,000

3.50 5.00

2.6250 3.7500

0.8750 1.2500

7,000 17,500

25 25
Hypothytical Ratio Allocation
Market Value of JPC
8,000 0.0400 4,800
65,000 0.3250 39,000
35,000 0.1750 21,000
92,000 0.4600 55,200
200,000 1 120,000

C D

10,000 15,000
8,000 14,000
2,000 1,000

4.50 8.00

21,000 55,200
10,000 28,000
31,000 83,200

3.1000 5.5467

1.4000 2.4533

11,200 34,347

31 31
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 Allocation

MV / unit units Market Market value %
produced Price

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

Y 25 10,000 250,000 70,000 180,000 60

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 of
Joint cost

80,000

120,000
200,000
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

21,600 0.20
108,000
Appropriation of
Joint Production cost

7,920

6,000

7,680
21,600

Appropriation of
Joint Production cost

7,200 7,200

6,400 6,400

8,000 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

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 produ
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 - WIP (at end) = 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
246,660 61,660

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 (48,000 lbs) 147,760
Less: Ending inventory (29,552)
COST OF GOODS SOLD
Gross Profit
W-1 Net realizable value of beta
Sales value of Beta (20,000 x 1.2) 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

arket 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