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CA Intermediate · Cost and Management Accounting · Joint Products and By Products

Mehta Chemicals incurs joint costs of Rs 3,00,000 for two products, X and Y. Further processing costs are Rs 40,000 for X and Rs 60,000 for Y. The final sales values are Rs 3,00,000 for X and Rs 5,00,000 for Y. Using the constant gross margin percentage method, the joint cost allocated to Y is:

The joint cost allocated to Y is Rs 1,90,000. The overall gross margin is 50 percent, so Y's total cost must be half of its Rs 5,00,000 sales, or Rs 2,50,000. Deducting its Rs 60,000 further processing cost leaves Rs 1,90,000 of joint cost.

  1. ARs 1,90,000Correct
  2. BRs 1,87,500
  3. CRs 2,50,000
  4. DRs 1,10,000

Explanation

Total sales are Rs 8,00,000 and total cost is 3,00,000 + 40,000 + 60,000 = Rs 4,00,000. The overall profit is Rs 4,00,000, a 50% margin. Total cost of Y = 50% of 5,00,000 = Rs 2,50,000. Joint cost for Y = 2,50,000 - 60,000 = Rs 1,90,000. The check: X gets 1,50,000 - 40,000 = Rs 1,10,000, and 1,10,000 + 1,90,000 = Rs 3,00,000. Rs 1,87,500 is the sales value method answer.

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