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.

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