(a) Polimur Ltd operates a process which produces three joint products, all in an unrefined condition. The operating results of this process, for October 19X9, are shown below:

Output from process:

Product A

8 c Kg 10000 80000 80000 The month's operating costs were $1300.00. The closing stocks were A 20000 kg, 8 15000 kg, C 5000 kg. The value of the closing stock is calculated by apportioning costs according to weight of output. There were no opening stocks, and the balance of the output was sold to a refining company at the following prices:

REQUIRED Product A 5 8 4 c 9

$Per kg 5

4 9

Prepare an operating statement showing the relevant trading results for October 19X9.

(b) The management of Polimur Ltd have been considering a proposal to establish their own refining operations.

The current market prices of the refined products are:

Product $ Per kg 17 17.00 14 14.00 20.50 20.50 The estimated unit costs of the refining operations are:
Product A 8 c $per kg $per kg $per kg Direct materials 0.50 0.75 2.50 Direct labour 2.00 3.00 4.00 Variable overhead 1.50 2.25 5.50 Prime costs would be variable. Fixed overheads, which would be $700000 monthly, would be direct to the refining operation. Special equipment is required for refining Product B, and this would be rented at a cost (not included in the above figures) of $360000 per month. It may be assumed that there would be no weight loss in the refining process, and that the quantity refined each month would be similar to October's output shown in

(a) above.
REQUIRED Prepare a statement which will assist management to evaluate the proposal to commence refining operations. Include in your answer any comment you consider relevant.
ACA, FE, Part B, Paper 6, Accounting 2, Costing, December 1979.