Intermediate: Calculation of cost per unit and decision on further processing A chemical company carries on production opera¬ tions in two processes. Materials first pass through process I, where a compound is produced. A loss in weight takes place at the start of processing. The following data, which can be assumed to be rep¬ resentative, relates to the month just ended:

Any quantity of the compound can be sold for £1.60 per kg. Alternatively, it can be transferred to process II for further processing and packing to be sold as Starcomp for £2.00 per kg. Further materi¬ als are added in process II such that for every kg of compound used, 2 kg of Starcomp result.
Of the 160 000 kg per month ofwork completed in process I, 40 000 kg are sold as compound and 120 000 kg are passed through process II for sale as Starcomp. Process II has facilities to handle up to 160000 kg of compound per month if required. The monthly costs incurred in process II (other than the cost of the compound) are:

Required:

(a) Determine, using the average method, the cost per kg of compound in process I, and the value of both work completed and closing work in process for the month just ended.
(11 marks)

(b) Demonstrate that it is worth while further processing 120000 kg of compound.
(5 marks)

(c) Calculate the minimum acceptable selling price per kg, if a potential buyer could be found for the additional output of Starcomp that could be produced with the remaining compound.

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Quantities (kg): Material input Opening work in process (half processed) Work completed Closing work in process (two-thirds processed) Costs (): Material input Processing costs Opening work in process: Materials Processing costs 200 000 40000 160 000 30000 75000 96000 20 000 12 000