Joint costs and by-products. (W. Crum, adapted) (35-45 minutes)

Pohjanmaan, Oy, processes an ore in Department 1, out of which come three products, L, W and X. Product L is processed further through Department 2. Product W is sold without further processing. Product X is considered a by-product and is processed further through Department 3.

Costs in Department 1 are FMk 800,000 in total; Department 2 costs are FMk 100,000; and Department 3 costs are FMk 50,000. Processing 600,000 kg in Department 1 results in 50,000 kg of product L, 300,000 kg of product W and 100,000 kgs of product X.

Product L sells for FMk 10 per kg. Product W sells for FMk 2 per kg.

Product X sells for FMk 3 per kg. The company wants to make a gross margin of 10% of sales on product X and also allow 25% for marketing costs on product X. kio5 REQUIRED 1. Calculate unit costs per kg for products L,W and X, treating X as a by-product.

Use the estimated NRV method for allocating joint costs. Deduct the estimated NRV of the by-product produced from the joint cost of products L and W.

2. Calculate unit costs per kg for products L,W and X, treating all three as joint products and allocating costs by the estimated NRV method.