Question 2 - Relevant costing a) Moon Plc produces three products: Mars, Mercury and Jupiter from the same process. Joint processing costs are incurred up to the split-off point of 80,000. At the split-off point, 80,000 units of product Mars are produced and could be sold for 4.50 per unit. Alternatively, the units of Mars could be further processed to produce 70,000 units of a product called Neptune. The variable costs of producing Neptune are 0.80 per unit of Mars and extra fixed costs of 20,000 would be incurred to produce Neptune. Neptune could be sold for 6.50 per unit. Required: Use a relevant cost approach to advise the management of Moon Plc whether to go ahead and produce Neptune from Mars. Your answer should include an explanation of your calculations and a final decision to report back to management. [10 marks] b) Himalaya Plc is famous for its K2 range of walking boots which it manufactures for the retail market and sells for 60 per pair. Each pair of the K2 walking boot costs 20 for direct materials and 18 for direct labour. Manufacturing overheads are 200,000 per year. The company has been approached by an on-line retailer who wants to negotiate a discounted price for a one-off order. The retailer has put forward two offers: Either 2,500 pairs of boots a week at 45 per pair Or 5,000 pairs of boots a week at 37 per pair The boots can be produced in addition to existing production without an increase in overheads. The special order is not expected to affect the company's existing sales. Required How would you advise the owner? Use a relevant costing approach to prepare your answer. Your answer should include the impact on profit. Show all workings