Pancake Company produces two main products and a by-product out of a joint process. The ratio of output quantities to input quantities of direct materials used in the joint process remains consistent from month to month. Pancake has employed the physical measures method to allocate joint production costs to the two main products. The net realizable value of the by-products is used to reduce the joint production costs before the joint costs are allocated to the main products. Data regarding Pancake's operations for the current month are presented in the table below. During the month, Pancake incurred joint production costs of £2,520,000. The main products are not marketable at the split-off point and, therefore, have to be processed further. First Main Second Product Monthly outputs (kgs) 90,000 £30 I Selling price per kg Separable process costs Required: Main Product 150,000 £14 £540,000 £660,000 By-product 60,000 £2 1. Calculate the net realizable value of the by-product. What is the total joint cost to be allocated? 2. Calculate the amount of joint production cost that Pancake would allocate to (a) the first main product and (b) the second main product by using the physical measures method to allocate the joint production costs. (CMA adapted)
Pancake Company produces two main products and a by-product out of a joint process. The ratio of output quantities to input quantities of direct materials used in the joint process remains consistent from month to month. Pancake has employed the physical measures method to allocate joint production costs to the two main products. The net realizable value of the by-products is used to reduce the joint production costs before the joint costs are allocated to the main products. Data regarding Pancake's operations for the current month are presented in the table below. During the month, Pancake incurred joint production costs of £2,520,000. The main products are not marketable at the split-off point and, therefore, have to be processed further. First Main Second Product Monthly outputs (kgs) 90,000 £30 I Selling price per kg Separable process costs Required: Main Product 150,000 £14 £540,000 £660,000 By-product 60,000 £2 1. Calculate the net realizable value of the by-product. What is the total joint cost to be allocated? 2. Calculate the amount of joint production cost that Pancake would allocate to (a) the first main product and (b) the second main product by using the physical measures method to allocate the joint production costs. (CMA adapted)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Pancake Company produces two main products and a by-product out of a joint
process. The ratio of output quantities to input quantities of direct materials
used in the joint process remains consistent from month to month. Pancake has
employed the physical measures method to allocate joint production costs to the
two main products. The net realizable value of the by-products is used to
reduce the joint production costs before the joint costs are allocated to the main
products. Data regarding Pancake's operations for the current month are
presented in the table below. During the month, Pancake incurred joint
production costs of £2,520,000. The main products are not marketable at the
split-off point and, therefore, have to be processed further.
First Main Second
Product
Monthly outputs (kgs) 90,000 I
Selling price per kg
£30
Separable process
costs
Required:
£540,000
Main Product
150,000
£14
£660,000
By-product
60,000
£2
1.
Calculate the net realizable value of the by-product. What is the total joint
cost to be allocated?
2.
Calculate the amount of joint production cost that Pancake would allocate
to (a) the first main product and (b) the second main product by using the physical
measures method to allocate the joint production costs. (CMA adapted)
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