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Sir in the question 245 of Kaplan latest kit
They told assuming that the revenue receivable from by product is deducted from the joint costs
Having said that
They again deducted the by product revenue from joint cost …Why do they have to again deduct ?
Because we are to assume that it’s already deducted so why duplicate it again ?this is the question sir,
Charleville operates a continuous process producing three products and one by?product.
Output from the process for a month was as follows:
Product Selling price per unit Units of output from process
1 $18 10,000
2 $25 20,000
3 $20 20,000
4 (by?product) $2 3,500Total joint costs were $277,000.
What was the unit cost valuation for product 3 using the sales revenue basis for allocating
joint costs assuming that the revenue receivable from the by?product is deducted from the
joint costs?
A $4.70
B $4.80
C $5.00
D $5.10Assuming that the correct answer in the book is $5, then they haven’t deducted revenue twice at all. (If the answer is not $5 then the book is wrong based on the question as you have typed it).
The revenue from the by-product of $7,000 reduces the joint cost of the main 3 products and so the joint cost to be shared between the three main products is $270,000.
The revenue from Product 3 is $400,000 and the total revenue from all 3 main products is $1,080,000. Therefore the share of the joint cost going to product 3 is 400,000/1,080,000 x $270,000 = $100,000.
So the cost per unit is 100,000/20,000 = $5.It does seem again as though you are not watching my free lectures because I work through an example of this method of apportioning joint costs and explain the logic behind using this method (as opposed to the physical units method).
Dear sir the question is so easy
The only part I’m confused is with the below term
“assuming that the revenue receivable from the by product is deducted from the
joint costs?”My problem is
If they clearly had mentioned that they already have deducted the by product revenue from the joint costs then why would we deduct it again ?That line does not say that it has already been deducted. It is just quoting the normal rule that revenue from the by-product is deducted from the joint costs.
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