Question $1$

Klover $($Pty$)$ Ltd is the parent company of two subsidiary companies: Pasture $($Pty$)$ Ltd and Flavoured Milk $($Pty$)$ Ltd$.$ The company operates in the dairy industry and has a holistic view on business. Each of these companies uses a different costing system as indicated in the respective parts below.

PART A

Pasture $($Pty$)$ Ltd consists of multiple dairy farms and the nature of the business is to produce $3$ products from a joint process using whole milk. The joint process produces butter, cheese and cream.

The company uses a joint and by$-$product costing system.

During the process, approximately $20\%$ of the milk is discarded in the form of whey, dairy sludge and wastewater. To prevent water pollution, the diary sludge and wastewater must be disposed of$.$ It is estimated that it will cost the company R $260000$ in the $2021$ financial year to safely dispose of this. The whey has an extremely high nutrient value and can be R$20$ per kilogram after processing it further. Due to its delicate nature, further processing of the whey amounts to R$5$ per kilogram.

The following is an estimate of the cost to be incurred for the $2021$ financial year regarding the production of these $3$ products:

Direct material

R $1020000$

Direct labour

R $840000$

Transportation of milk

R $370000$

Manufacturing overheads

R $680000$

At the split$-$off point, one tonne of milk generates $250$kg of butter, $150$kg of cheese, $100$kg of cream and $500$kg of whey. At this point butter is sold for R$120$ per kilogram, cheese is sold for R$80$ per kilogram and cream is sold for R$50$ per kilogram.

No further processing is done on the $3$ joint products. Assume that the company had no opening or closing inventory.

PART B

Flavoured Milk $($Pty$)$ Ltd manufactures long life milkshakes which are sold in $500$ ml bottles.

The company uses a process costing system.

The following information was provided for the month ended $30$ April $2021$:

$1)$ The company had $30000$ litres of milk in opening work in progress $($WIP$)$ on $1$ April $2021.$ Opening WIP was $30\%$ complete with a resulting cost of R $258000$ for material and R $162000$ for conversion.

$2)120000$ litres of milk were put into production during the month of April $2021.$

$3)$ Litres completed and transferred to finished goods during the month were $120000.$

$4)$ For the month of April $2021,$ material and conversion costs of R $1020000$ and R $780000$

respectively were incurred.

$5)$ Evaporation occurs when the process is $70\%$ complete, resulting in an estimated loss of

$5\%$ of the mixture.

$6)$ Closing WIP of $20000$ litres were $60\%$ complete.

$7)$ The company uses the First$-$in$-$first$-$out $($FIFO$)$ method of inventory valuation. Materi added in the beginning of the process and conversion takes places evenly throughou process.

Required: Question $1$

Part A

Ai

Allocate the joint costs to the products based on the sales value at split$-$off point method.

Aii

Name $2$ other methods that can be used to allocate joint costs.

Part B

Bi

Calculate the normal average cost to produce one unit of milkshake during April $2021.$

Bii

Prepare the quantity statement assuming the company now makes use of the weighted average method of inventory valuation and the loss occurs at $10\%$ completion.