QUESTION 2 25 MARKS Green Enterprise Ltd is in the business of recycling used automotive batteries and has seen a huge surge in business due to the recent focus on environmental awareness. Green Enterprise Ltd purchases used batteries from suppliers, which are then transported to their premises at the company's expense. The total transport costs for the month amounted to N$ 12 000. Green Enterprise Ltd mainly uses the plastic casings and covers of the batteries to manufacture plastic crates and shopping bags. A typical battery weighs six kilograms and consists of the following components: 80% Plastic casings and covers 15% Battery acid 5% Various small metal parts Once at the processing plant, batteries are forwarded to the dismantling department. During this process, the batteries are separated into their different components by highly specialised employees. These employees are paid a wage of N$ 25 for every battery separated. The specialised equipment used in this process is leased from the United States at a cost of N$ 25 000 per month. The metal parts are cast into 1kg blocks at a cost of N$ 2.50 per block, and then sold to the dental industry for the manufacture of tooth fillings. The acid is bottled in Skg containers at a fixed monthly cost of N$ 6 750 and sold to schools for use in science experiments. The plastic casings and covers are forwarded to the furnace department for further processing. The battery acid and metal parts are regarded as by- products in the process. Once in the furnace department, the plastic is heated at extreme temperatures until the mixture obtains a liquid consistency. The furnace consumes an average of N$ 20 000 worth of electricity per month. The mixture is then cleaned to remove any remaining impurities, before 70 % of the mixture is used to manufacture crates and the remaining 30 % of the mixture is used to manufacture shopping bags. It costs the company N$ 2 to clean a kilogram of the mixture. A hardening agent is added to the crate mixture before it is moulded. The hardening agent costs N$ 2.75 per kilogram plastic moulded. The moulding costs for the month for shopping bags and crates were NS 118 000 and NS 243 000, respectively Page 10 of 14 Due to the lightweight nature of the products, both shopping bags and crates are packaged and sold per kilogram. During October 2017, a total of 5 000 batteries were purchased at an average price of NS 50 per battery. The following sales information is applicable for October 2017: Sales price Sales quantity NS 65/kg 8 500 kilograms Shopping bags N$ 44/kg 19 000 kilograms Crates NS 20 per container 800 containers Acid (By-Product) 1 200 blocks NS 7 per block Metal blocks (By-Product) On 1 October 2017, there were 2 800 kilograms of shopping bags in stock, valued at NS 56 420. There were also 4 200 kilograms of crates in stock, valued at N$ 45 990. There were no acid or metal blocks in stock at the beginning of the month It is the policy of Green Enterprise Ltd to deduct the net realisable value of by-products manufactured from the production cost of the joint products REQUIRED 2.1 Define the following terms a) By-product b) Split-off point (1) (1) (1) c) Net realisable value 2.2 Prepare a schedule showing the allocation of joint cost to the joint products for each of the following methods a) The physical units method. (12) (6) The net realisable value method b) Page 11 of 14