QR Limited operates a chemical process which produces four different products Q, R, S and T from the input of one raw material plus water. Budget information for the forthcoming financial year is as follows:

The company policy is to apportion the costs prior to the split-off point on a method based on net sales value.
Currently, the intention is to sell product S without further processing but to process the other three products after the split-off point. However, it has been proposed that an alternative strategy would be to sell all four products at the split-off point without further processing. If this were done the selling prices obtainable would be as follows:

You are required:
(a) To prepare budgeted profit statement showing the profit or loss for each product and in total, if the current intention is proceeded with;
(b) To show the profit or loss by product and in total, if the alternative strategy were to be adopted;
(c) To recommend what should be done and why, assuming that there is no more profitable alternative use for the plant.

Transcribed Image Text:

E000) Raw materials cost Initial processing cost 268 464 Additional processing cost (£000) 160 128 Output in itres Product Sales (£1000) 400000 90000 5000 9000 768 232 32 240 Per litre (£) 1.28 1.60 6.40 20.00