- 20 Marks
PM – Nov 2015 – L2 – Q3 – Costing Systems and Techniques
Prepare profit or loss statement for each product W, X, Y, and Z, and evaluate impact of discontinuing additional processing.
Question
Casko Limited manufactures four products from a single chemical process and a single
raw material. The production director is considering proposals to discontinue certain
production process and has provided the following information:
(i) The cost of raw materials for the year just ended was N1,320,000.
(ii) The initial processing costs amounted to N2,564,600.
(iii) All the four products W, X, Y and Z are produced simultaneously at a single split-off point.
(iv) Product Y is sold immediately without further processing.
(v) The other three products are subjected to further processing before being sold.
(vi) It is the company‟s policy to apportion the cost prior to split-off point on a suitable
sales value basis.
(vii) The output, sales and the additional processing costs for the past year were as
follows:
| Product | Output (units) | Sales (N) | Additional Processing Costs (N) |
|---|---|---|---|
| W | 400,000 | 3,840,000 | 800,000 |
| X | 89,230 | 1,160,000 | 640,000 |
| Y | 5,000 | 160,000 | – |
| Z | 9,000 | 1,200,000 | 40,000 |
The proposal being considered by the management is to sell the products to other
processors immediately after the split-off point without any of the present additional
processing. The additional processing costs of products W,X and Z would either no
longer be incurred or be charged to an alternative profitable use. The prices per unit to
be obtained from the other processors would be: W: N6.40, X: N8, Y: N32, and Z: N100.
You are required to prepare a statement of:
a. i. The profit or loss on each of the four products. (10 Marks)
ii. The change in the profit or loss given in your solution to
(i) above, if the proposals being considered were adopted. (8 Marks)
b. Identify TWO long-run pricing decision approaches that are relevant
to a price setting firm. (2 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: Cost-benefit analysis, Joint Cost Allocation, Long-Run Pricing, Profit and Loss
- Level: Level 2
- Topic: Costing Systems and Techniques
- Series: NOV 2015