CLEAN AND SPOTLESS (PTY) LTD

Clean and Spotless (Pty) Ltd operates a plant that produces four different liquid cleaning soaps, namely Dishwasher, Pine cleaner, Hand soap and Citrus cleaner, from the input of one type of raw material and water. Budgeted information for the forthcoming 2022 financial year is as follows:

Product Type Output in litres Further processing costs (R) Total sales value (R)

Dishwasher 450 000 180 000 864 000

Pine cleaner 127 500 172 500 321 750

Hand soap 9000 0 63675

Citrus cleaner 16000 15000 476 475

Joint costs for the 2022 financial year are budgeted to consist of the following:

Raw material costs R375 000

Initial processing costs R591 000

Selling costs amount to R0,30 per unit for all soap types irrespective of whether a soap is sold at split- off point or after further processing.

The company policy is to apportion joint costs at the split-off point based on the net realisable value (NRV) at split-off point method. Currently, the intention is to sell Hand soap without further processing but to process the other three soaps further after the split-off point. However, it was proposed that an alternative strategy would be to sell all four liquid cleaning soaps at the split-off point without further processing. If the proposed alternative strategy was to be adopted, the selling prices per unit obtainable would be as follows:

Product Selling price per unit

Dishwasher R1,50

Pine cleaner R2,40

Hand soap R9,00

Citrus cleaner R30,00

QUESTIONS

a) Calculatethe budgeted profit or loss for Pine cleaner and Citrus cleaner if the current intention is proceeded with and joint costs are apportioned using the NRV at split-off point method.

(b)Calculatethe budgeted total costs associated with Hand soap if the alternative strategy is used and the NRV at split-off point is still used to allocate joint costs.