Q 1 Mr Abdullah is having training in Omar Co. Omar Co produces three different
ID: 2592519 • Letter: Q
Question
Q 1 Mr Abdullah 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 Mr Abdullah discussed with him the arguments explaining why he will have to use this method for allocation of joint costs?
The academic supervisor requested Mr Abdullah also to describe the
split-off point and explain its significance for joint product costing.
What will be the answers of Mr Abdullah 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
Allocation of joint costs: Physical volume method
The physical volume method allocates the total costs equally to all units produced of all products. The total joint costs are allocated to various products on the basis of their weight, volume, or some other physical characteristic to the total produced. It does not consider the sales value of individual products.
The split-off point is a stage in the manufacturing process where several joint products are formed. From the split-off point stage, the costs incurred in further processing the joint products are separately identifiable while upto the split-off point, the joint costs incurred are required to be allocated to the joint products on some basis such as the physical measurement or sales value at split-off.
Product Production Size(Units) Percent of total production Joint
Costs $ Product 1 603680 53.90% 134750 Product 2 296800 26.50% 66250 Product 3 219520 19.60% 49000 Total 1120000 100.00% 250000
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