Excel Ltd operates a process that produces three joint products , all in an unrefined condition. The
Question:
Excel Ltd operates a process that produces three joint products , all in an unrefined condition. The operating results of the process for August, 2022 are shown below. Output from process: Product A 200 kg. Product B 120 kg. Product C 80 kg. The month’s operating costs were sh. 2000,000. The output was sold to a refinery at the following prices:
Product A sh. 50
Product B sh. 40
Product C sh. 90
The management of the company has been considering a proposal to establish their own refining operations. The current market prices of the refined products are:
Product A sh. 60
Product B sh. 50
Product C sh. 100
The estimated unit costs of the refining operation are:
Product A Product B Product C Sh. / kg sh. /kg sh. /kg
Direct materials 10 12 18
Direct labour 20 25 40
Variable overheads 17 23 22
Required
a) Apportion the joint costs using the Net Realizable Value.
b) Advise whether the company should establish its own refinery unit.
Cost Management A Strategic Emphasis
ISBN: 978-0078025532
6th edition
Authors: Edward Blocher, David Stout, Paul Juras, Gary Cokins