Question 3

Real ltd also provide race fuels for all its race teams, they are however not a refinery and has outsourced the processing to Worthington Refinery a recent subsidiary of Real ltd, located in Texas. Worthington manufacturers its Ethanol fuels into two grades (Grade A and Grade B) in a single process.

The normal loss in refining is 2% of input and process costs are apportioned to the joint products on the basis of volume of output. The following information is provided for the period just ended:

Input of crude oil 800,000 litres at a cost of $130,000

Conversion costs $105,200

Output of Grade A 468,000 litres, sold for $280,800

Output of Grade B 312,000 litres, sold for $87,360

There was no opening or closing inventory in the period and losses of raw material have no value.

Required:

For the period just ended:

1. Prepare the process account, showing both litres and value. (10 marks)
2. Prepare a statement showing the sales, joint costs and gross profit/(loss) of each product and in total. (10 marks)

(Total 20 Marks)