Colorful Paint Company (Colorful) manufactures two paint products Elegant and Fresh. A joint process at the cost of $900,000 results in 60,000 litres of Elegant and 100,000 litres of

Fresh. Elegant is sold for $100 per litre and Fresh is sold for $20 per litres point.

Required:

(a) Assume that no further processing occurs after the split-off point; allocate the joint costs to Elegant and Fresh by using:

1. the physical-measure method; and

2. the sales-value at split-off point method

(b) Assume that Elegant is not marketable at the split-off point and a further processing cost of $320,000 is required. The further processing will also result in a loss of 500 litres. The final selling price of Elegant is $320 per liter. Although Fresh can be sold at split-off point, if a further processing cost of $170,000 is incurred, Fresh can be sold at $22.5 per liter. Using the net realizable value (NRV) method, allocate the joint cost to Elegant and Fresh and calculate the total costs for Elegant and Fresh if Elegant and Fresh are further processed after the split-off point.

(c) Should Colorful choose to further process Fresh after the split-off point?

(d) When making decisions about selling at splitoff or processing further, we should consider only additional revenues and separable costs. Do you agree with that statement? Explain.

at the split-off

Question 2 (25 marks) Colorful Paint Company (Colorful) manufactures two paint products - Elegant and Fresh. A joint process at the cost of $900,000 results in 60,000 litres of Elegant and 100,000 litres of Fresh. Elegant is sold for $100 per litre and Fresh is sold for S20 per litres at the split-off point. Required (a) Assume that no further processing occurs after the split-off point; (4 marks) (4 marks) (b) Assume that Elegant is not marketable at the split-off point and a 8 marks) allocate the joint costs to Elegant and Fresh by using 1. the physical-measure method; and 2. the sales-value at split-off point method further processing cost of $320,000 is required. The further processing will also result in a loss of 500 litres. The final selling price of Elegant is S320 per liter. Although Fresh can be sold at split-off point, if a further processing cost of $170,000 is incurred, Fresh can be sold at $22.5 per liter. Using the net realizable value (NRV) method, allocate the joint cost to Elegant and Fresh and calculate the total costs for Elegant and Fresh if Elegant and Fresh are further processed after the split-off point. (c) Should Colorful choose to further process Fresh after the split-off 5 marks) po int? (d) "When making decisions about selling at splitoff or processing further, we should consider only additional revenues and separable costs". Do you agree with that statement? Explain (4 marks)