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

Sundaram Oils obtains joint products A and B. Joint cost is ₹5,00,000. Output: A 5,000 litres, B 10,000 litres. Final selling prices: A ₹100 per litre, B ₹70 per litre. Further processing costs after split-off: A ₹20 per litre, B ₹10 per litre. Using the net realisable value method, the joint cost apportioned to B is:

Under the NRV method, further processing costs are deducted from final sales value. NRV of A is ₹4,00,000 and of B ₹6,00,000, a ratio of 2:3. B therefore bears three-fifths of the ₹5,00,000 joint cost, which is ₹3,00,000.

  1. A₹3,00,000Correct
  2. B₹2,50,000
  3. C₹3,50,000
  4. D₹2,00,000

Explanation

NRV of A = 5,000 x (100-20) = ₹4,00,000. NRV of B = 10,000 x (70-10) = ₹6,00,000. Ratio 2:3, total 10,00,000. B's share = 3/5 x 5,00,000 = ₹3,00,000. Using sales values without deducting further costs would give 7,00,000 for B and 5,00,000 for A, ratio 5:7, a wrong base.

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