Advanced: Joint cost apportionment and decision-making Hawkins Ltd produces two joint products, Boddie and Soull. A further product, Threekeys, is also made as a by-product of one of the processes for making Soull. Each product is sold in bottles of one litre capacity.

It is now January 2001. You are a cost accoun¬ tant for Hawkins Ltd. You have been instructed to allocate the company’s joint costs for 2000 between Boddie and Soull, but not to the by-product Three- keys.

During 2000, 2 000 000 litres of a raw material, Necktar, costing £3 000 000, were processed in Department Alpha with no wastage. The proces¬ sing costs were £1 657 000.

50% of the output of Department Alpha was unfinished Boddie, for which there was no external market. It was transferred to Department Beta, where it was further processed at an additional cost of £8 100000. Normal wastage by evaporation was 16% of the input of unfinished Boddie. The remaining good output of finished Boddie was sold for £10 per litre in the outside market.

The other 50% of the output from the joint process in Department Alpha was in the form of processed Necktar. It was all transferred to Depart¬ ment Gamma, as there was no outside market for processed Necktar. In Department Gamma it was further processed, with no wastage, at a cost of £30900000. 72% of the output of Department Gamma was in the form of unfinished Soull, for which there was no external market. It was transferred to Depart¬ ment Delta, where it was subjected to a finishing process at a further cost of £719 000. Normal spoilage of 16|% of the input to the finishing process was experienced. The spoiled material was disposed of without charge, as effluent. The remaining finished Soull was sold in the outside market for £60 per litre.

The remaining 28% of the output of Department Gamma was in the form of finished Threekeys, the by-product. It was sold in the outside market for £8 per litre, but due to its dangerous nature special delivery costs of £70000 were incurred in respect of it.

You are required:

(a) to allocate the appropriate joint costs between Boddie and Soull on the basis of relative sales value, treating the net realizable value of Threekeys as an addition to the sales value of Soull, (6 marks)

(b) to prepare a statement showing the profit or loss attributed to each of the three products and the total profit or loss, for 2000, on the basis of the information above and allocating joint costs as in

(a) above, (4 marks)

(c) to show with reasons whether Hawkins Ltd should continue to produce all three products in 2001, assuming that input/output relation¬ ships, prices and sales volumes do not change.