Question $2$

$($Total $25$ marks$)$

Julia Ltd manufactures three products $A,B$ and C in a single process. The products emerge in the proportion A $2$: B $3$: C $4.$ The costs of operating the process for month $1$ are:

Material $,20,000$ kilos at $$4$ per kilo

Labour $,5,000$ hours at $$6$ per hour

Overhead $$11,000$

There is a normal material loss in the process of $10\%$ of input weight, which is sold at $$2$ per kilo, this amount being credited to the process account.

The selling prices of the finished products are:

A $$10$ per kilo

B $$11$ per kilo

C $$13$ per kilo

Required:

$($a$)$ Calculate the total cost of the process for month $1.$

$(5$ marks$)$

$($b$)($Calculate the profit and the gross margin for each of the three products, using the following methods of apportionment for the joint production costs. Work to the nearest cent:

$($i$)$ Weight of output method;

$(6$ marks$)$

$($ii$)$ Sales value of output method.

$(4$ marks$)$

$($c$)$ Naemi Ltd has offered to buy the whole output of product C after further processing. The further processing would cost $$6$ per kilo. There would be a $10\%$ loss in the process and the new product would be sold for $$15$ per kilo. The loss has no scrap value.

$($i$)$ Calculate the total profit for product C if the further processing is carried out.

$(3$ marks$)$

$($ii$)$ Calculate the minimum selling price for product $C$ that would be necessary in order to achieve the same profit as calculated in $($b$)($i$).$ Work to the nearest cent.

$(3$ marks$)$

$($d$)$ Define, in the context of process costing, Normal Loss and Abnormal Loss and state how each would be treated in the equivalent unit calculation.

$(4$ marks$)$