Question 2

(25 marks, 45 Minutes)

ABC Company produces three products, A, B and C from one process. The process uses the following inputs in one month:

Direct materials

Labour

Manufacturing overheads

20 000 kgs 5 000 hours ')

The materials are sourced from a supplier based in Oshakati. The supplier charges N$30 per each kilogram bought. Since ABC is based in Windhoek and the supplier does not deliver to Windhoek, ABC uses Nampost courier to get all of its materials from Oshakati. Nampost courier charges N$10 for each kilogram transported. Employees are paid N$60 per hour and overtime (when worked) is paid at a time and a half. lt is company policy to absorb manufacturing overheads into production based on 10% of prime cost.

The output of A, B and C normally emerge in the ratio of 2:3:4 respectively. Normal loss is estimated at 1Oo/o of input weight and it is sold to a local small business for N$20 per kilogram. lt is company policy to deduct the net realisable value of losses from the totaljoint process costs before allocating the joint process costs to products A, B and C.

The finished products are sold at the following prices:

Product A

B

C

Required

N$ 100 110 130

Determine the total joint process costs that should be allocated to the three

2.1

products in one month.

Calculate the gross profit for each of the three products, using the following methods of allocating joint process costs.

2.2.1 physical units methods

2.2.2 Sales value at split off method.

111 Enterpnsestas offered to buy the whole output of product C after further processing. The further processing will cost N$60 per kilogram. There will be a 10% loss in the process (i.e. in further processing) and the new product will be

2.3 sold for N$150 per kilo. The loss incurred in further processing has no scrap

value.

2.3.1 Calculate the total profit for product C if further processing is carried out

Marks 5

6 5

3

2.2

(assLtme joint costs are allocated on physical unit basis). 3

Page 2 of 6

ifABcwantstoachievethesameprofitascalculatedi.n(2,2'1)above(i.e. same orofit when ioint costs are ailocated on physical units basis)'

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ln the context of process cosrlt19' E^Prarr I

2.4 abnormallossandstatehoweachoneistreatedinthecalculation units.

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