Pohjanmaan Oy processes an ore in Department 1, out of which come three products, L, W and X. Product L is processed further through Department 2. Product W is sold without further processing. Product X is considered a by-product and is processed further through Department 3. Costs in Department 1 are €800 000 in total; Department 2 costs are €100 000; and Department 3 costs are €50 000. Processing 600 000 kg in Department 1 results in 50 000 kg of product L, 300 000 kg of product W and 100 000 kg of product X. Product L sells for €10 per kg. Product W sells for €2 per kg. Product X sells for €3 per kg. The company wants to make a gross margin of 10% of sales on product X and also allow 25% for marketing costs on product X.
Required
1. Calculate unit costs per kilogram for products L, W and X, treating X as a by-product. Use the estimated NRV method for allocating joint costs. Deduct the estimated NRV of the by-product produced from the joint cost of products L and W.
2. Calculate unit costs per kilogram for products L, W and X, treating all three as joint products and allocating costs by the estimated NRV method.