MANAGEMENT ACCOUNTING (PMA2043)

NAME OF LECTURER : MDM SURIANA LAUDANAME OF MEMBERS : NORYATI ABD MAJID (PTM120700623)

MOHD HARUL MOHD SALLEH (PTM120700474)

NUR SYAKINAH SAID (PTM120700452)

SECTION 6

CHAPTER 6 : RELEVANT COST AND PRICING

DECISION

SELL OR PROCESS

FURTHER OF PRODUCT

JOINT PRODUCT COSTS

• Joint production process~ result in two or more product, example processing

cocoa bean into cocoa powder and cocoa butter.• Joint cost ~ the term joint cost is used to describe those costs

that are incurred up to the split-off point.• Split-off point~ the point in the production process where the joint

products are identifiable as separate product.

EXAMPLE Cembol Sawmill buys logs and then runs them through a saw that produces unfinished lumber and scrap (i.e. sawdust, chips and barks). The unfinished lumber can be sold ‘as is’ or process further into finished lumber. The scrap can also be sold ‘as is’ to gardening supply wholesalers or processed further into prestologs. Data concerning these joint products appear below:

Lumber Scraps

Sales value at the split-off point RM140 RM5

Sales value after further processing RM270 RM20

Allocated joint costs* RM176 RM24

Cost of further processing RM50 RM4

SOLUTIONAnalysis of Sell or Process Further

Lumber Scraps

Sales value after further processing

270 20

(-) Sales value at the split-off point

140 5

Incremental revenue 130 15

(-) Cost of further processing

50 4

Profit from further processing

80 11

QUESTION 1

International Chocolate Company decide whether a product should be sold at the split-off point or processed further before being sold.

COCOA BEANS

costing $500 per 1-tonne

batch

Instant cocoa mix sales

value : $2000 for 250 kg

COCOA POWDER

sales value : $500 for 250

kg

Joint Production

process costing $600

per tonne

COCOA BUTTER sales value : $750 for 750 kg

Separable process costing $800

Process cocoa powder into instant cocoa mix

Sell cocoa powder at split-off point

Differential amount(a) – (b)

Sales revenue :

Cocoa butter $750 $750 0

Instant cocoa mix 2 000

$ 1 500 Cocoa powder 500

Less : Costs

Joint cost ( 1 100 ) ( 1 100 ) 0

Separable cost of processing Cocoa powder into instant cocoa mix

( 800 ) 0 ( 800 )

Total $ 850 $ 150 $ 700

QUESTION 2Ron Chemicals produces four products from a joint process costing $150,000 per month. After leaving the joint process , the products must be further refined before they are separable. You have been provided with the following information :

Product Volume Further processing

process Selling price per

unitA-1 15 000 $350 000 $80

B-3 25 000 400 000 40

C-2 10 000 100 000 22

Q-9 50 000 250 000 10

ANSWER SELL

A-1 B-3 C-2 Q-9

Sales 80 x 15 000= 1 200 000

40 x 25 000= 1 000 000

22 x 10 000= 250 000

10 x 50 000= 500 000

(-) Cost 15/100 x 150 000= 22 500

25/100 x 150 000= 37 500

10/100 x 150 000= 15 000

50/100 x 150 000= 75 000

Total 1 177 500 962 500 235 000 425 000

Further ProcessA-1 B-3 C-2 Q-9

Sales 1 200 000 1 000 000 250 000 500 000

(-) Joint cost 22 500 37 500 15 000 75 000

(-) Further cost 15 000/100 000 x 350 000= 52 500

25 000/100 000 x 400 000= 100 000

10 000/100 000 x 100 000= 10 000

50 000/100 000 x 250 000= 125 000

Total 1 125 000 862 500 225 000 300 000

QUESTION 3Ottawa Corporation produces two products from a joint process information about the two joint products is as follows :

Product X Product Y

Anticipated production (in pounds) 2 000 4 000

Selling price per pound at split-off RM30 RM16

Selling price per pound after further processing

RM40 RM50

Additional processing costs per pound after split-off (all variables)

RM15 RM30

The cost of the joint process is RM85,000

Required :a) Determine which of Ottawa’s joint

products should be sold at split-off?b) Determine which of Ottawa’s joint

products should be processed further?c) Ottawa currently sells both products at

the split-off point. If Ottawa makes decisions that maximize profit, Ottawa’s profit will increase by how much?

SOLUTION

a)

Product X Product Y

Selling price at split off point x anticipated

production

30 x 2 000 = 6 000

16 x 4 000= 64 000

(-) production of product X / total of production X cost of

joint process

Total

2/6 x 85 000= 28 333.33

31 666.67

4/6 x 85 000= 56 666.67

7 333.33

b)Product X Product Y

Selling price after further X anticipated production

40 x 2 000= 80 000

50 x 4 000= 200 000

(-) production of product X / total of production X cost of

joint process

2/6 x 85 000=28 333.33

4/6 x 85 000= 56 666.67

(-) additional processing cost after split-off point X

anticipated production

15 x 2 000= 30 000

30 x 4 000= 120 000

Total = 21 666.67 = 23 333.33

c) Further = 55 000 (31 666.67 + 23 333.33)

Split-off point = 39 000 (31 666.67 + 7 333.33)

Profit increase55 000 – 39 000 = 16 000

Ottawa Corporation should sold a product X at the split-off point and product Y must be processed further before being sold.