Intermediate: Joint cost apportionment and a decision on further processing QR Limited operates a chemical process which produces four different products Q, R, S and T from the input of one raw material plus water. Budget information for the forthcoming financial year is as follows:

The company policy is to apportion the costs prior to the split-off point on a method based on net sales value.
Currently, the intention is to sell product S without further processing but to process the other three products after the split-off point. However, it has been proposed that an alternative strategy would be to sell all four products at the split-off point without further processing. If this were done the selling prices obtainable would be as follows:

You are required:

(a) to prepare budgeted profit statement showing the profit or loss for each product, and in total, if the current intention is proceeded with;
(10 marks)

(b) to show the profit or loss by product, and in total, if the alternative strategy were to be adopted; (6 marks)

(c) to recommend what should be done and why, assuming that there is no more profi¬ table alternative use for the plant.

Transcribed Image Text:

(000) 268 Raw materials cost Initial processing cost 464 Additional Output in processing Product litres Sales cost (1000) (000) ORST Q 400 000 768 160 90000 232 128 5000 32 9000 240 8