Q 1 MrAbdullah is having training in Omar Co. Omar Co produces three different p
ID: 2591581 • Letter: Q
Question
Q 1 MrAbdullah is having training in Omar Co.
Omar Co produces three different products which will be sold to XYZ company. The production size for each product, and the selling price per unit, is given below.
The joint costs of processing the 1,120,000 units of products were SAR 250,000.
Mr Abdullah collected the information related to production size, selling price per unit in the split-off point and Sales value at split – off, he prepared the following table for these informations.
Product
Production Size
(units)
Selling Price per unit in the split-off point
Total Sales Value at Split-Off
Product 1
603,680
0.75
452,760
Product 2
296,800
0.45
133,560
Product 3
219,520
0.25
54,880
Total
1,120,000
641,200
The work supervisor of Mr Abdullah requested him to allocate the joint costs to each product using the physical volume method. How the allocation of joint cost will be prepared by Mr Abdullah?
The academic supervisor of MrAbdullah discussed with him the arguments explaining why he will have to use this method for allocation of joint costs?
The academic supervisor requestedMrAbdullah also to describe the
split-offpoint and explain its significance for joint product costing.
What will be the answers of MrAbdullah to the questions of his
supervisor?
Product
Production Size
(units)
Selling Price per unit in the split-off point
Total Sales Value at Split-Off
Product 1
603,680
0.75
452,760
Product 2
296,800
0.45
133,560
Product 3
219,520
0.25
54,880
Total
1,120,000
641,200
Explanation / Answer
1…. Product Production Size Selling Price per unit in the split-off point Total Sales Value at Split-Off Allocation of Joint costs of 250000 Profit (units) Product 1 603,680 0.75 452,760 250000/1120000*603680= 134750 318,010 Product 2 296,800 0.45 133,560 250000/1120000*296800= 66250 67,310 Product 3 219,520 0.25 54,880 250000/1120000*219520= 49000 5,880 Total 1,120,000 641,200 250000 391,200 2. Physical characteristics such as individual volume or weight or no.of units of products produced at split-off point ,relative to the total , is sometimes used to allocate joint costs incurred upto this point . Formula of costs allocated to a product=( Volume/Weight/no.of units of the product at split-off/Total volume/wt./no.of units )*Total Joint costs This method is used when there is some well-defined relationship between that physical charateristic & costs incurred. 3. Split-off point is a stage in joint-products manufacturing ,at which different products emerge from the process,which can be sold as it is or further processed , to sell at a higher price.At this stage ,all such products have some sale value.The management compares further costs with the additional sales value possible and comes to a decision whether to sell at split-off or further process & sell at a higher price Costs upto this point are allocated as per the physical volume or as per the sale value realisable. Costs after this point are called further-processing costs that can be accurately identified with each product. Thus the split-off point is very integral to joint-product costing.
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