Question 3

(a) Explain ONE (1) advantage and ONE (1) disadvantage of each of the following

allocation methods:

(i) Physical measurement

(ii) Sales value at split-off point

(iii)Net realizable value

(iv) Constant gross profit percentage

(b) Florist Sdn Bhd is considering a proposal to process product W further in Process

2 to create product W1. Product W1 is priced at RM15 per unit. Process 2 has

enough spare capacity to complete this work. The additional processing in Process

2 would cost an additional RM12,000. The following information is critical for the

company to consider when deciding whether to convert product W to W1:

Joint product costs - RM200,000

Sales value at split-off point:

Product X (6,000 units at RM10 per unit) - RM60,000

Product W (6,000 units at RM12 per unit) - RM72,000

Required:

Justify whether product W can be converted into product W1 solely on the basis of

financial considerations.