The Fragrance House Limited is famous for producing fragrances/perfumes for daily use. The company makes three products that can be sold at split-off point. However, these products can also be sold after further processing. The joint costs for the month of March 2021 in the company are Rs. 10,80,000. Some of the relevant details about the products made by the company are given below:

1. Products	Bottles of output	Sale price at split-off per bottle	Further processing cost after split-off per bottle	Sales price after further processing per bottle
   Perfume	20,000	Rs. 7.00	Rs. 2.50	Rs. 16.50
   Skin freshener	32,000	Rs. 5.00	Rs. 1.50	Rs. 13.00
   Body splash	28,000	Rs. 5.00	Rs. 2.00	Rs. 12.00

The number of ounces in a bottle of each product is : Perfume, one; skin freshener, two; and Body splash, three. All products are processed further after split-off and completed.

Required

a.            Allocate the joint-costs based on approximated net realizable values after further processing (after the split-off point).

b.            Assume that all products are further processed and completed. At the end of the period, the inventories are as follows:

a.  Perfume 600 bottles

b.  Skin freshener 1,600 bottles

c. Body splash 1,680 bottles

Determine the values of the inventories if the joint-costs are allocated on the basis of approximated net realizable values after further processing (after the split-off point). Please note that cost assigned to inventory will be calculated as follows:

Cost assigned to inventory = Allocated joint cost + Cost of processing

after the split-off point

c.   Do you see any problems with the allocation based on approximated net realizable values after further processing (after the split-off point)? Give reasons for your answer.

 

Answer rating: 100% (QA)

Step 1 Computation of net realizable value Net realizable value Final sales price Processi... View the full answer