Intermediate: Product profit calculations and apportionment of joint costs The marketing director of your company has expressed concern about product X which for some time has shown a loss, and has stated that some action will have to be taken.

Product X is produced from material A which is one of two raw materials jointly produced by passing chemicals through a process.

Representative data for the process is as follows:

Joint costs are apportioned to the two raw materials according to the weight of output.
Production costs incurred in converting material A into product X are £1.80 per kg of material A used. A yield of 90% is achieved.
Product X is sold for £5.60 per kg. Material B is sold without further processing for £6.00 per kg.
Required:

(a) Calculate the profit/( loss) per kg of product X and material B respectively (7 marks)

(b) Comment upon the marketing director's concern, advising him whether you consider any action should be taken.
(7 marks)

(c) Demonstrate for product X, and comment briefly upon, an alternative method of cost apportionment.

Transcribed Image Text:

Output (kg): Material A Material B 10000 30 000 Process costs () Raw material 83 600 Conversion costs 58 000