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Joint and By Products

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Joint and By Products

  • This topic has 3 replies, 2 voices, and was last updated 7 years ago by AvatarJohn Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • January 2, 2019 at 10:50 pm #499724
    Avatarshaheena98
    Member
    • Topics: 9
    • Replies: 8
    • ☆

    I found this question in the revision kit (BPP Learning media).

    Two joint products A and B are produced in a process. Data for the process for the last period are as follows:

    Product A B
    Tonnes Tonnes
    Sales 480 320
    Production 600 400

    Common production costs in the period were $12,000. There was no opening inventory. Both products had a gross profit margin of 40%. Common production costs were apportioned on a physical basis. What was the gross profit for Product A in the period?

    i) $2,304
    ii) 2,880
    iii) 3,840
    iv) 4,800

    The answer that I got was option (ii) $2,880.
    I first calculated the total production and since this is on a physical units basis, I got 1,000 tonnes (Product A: 600 tonnes + Product B: 400 tonnes).
    Then I apportioned the total common production costs of $12,000 to product A and got $7,200 [(600/1,000) x $12,000].
    And then I divided the sales by the total production of product A and multiplied it by the cost apportioned to product A [(480/600) x $7,200] = $5,760.
    Then I calculated the profit margin for Product A, which gave me $2,880 ($5,760 x 40%).

    However, when I checked said that the correct answer was option (iii) $3,840. The first three steps that I worked out till getting the cost apportioned to Product A were right, however, the twist came about in the last step that required me to calculate the profit margin for Product A. What it showed in the solution was somewhat confusing

    $5,760 x 40/60 = $3,840. My argument here is that it’s a percentage and calculating 40% of $5,760 makes sense to me. What confused me here is the figure 60; I don’t understand where that came from. I humbly ask for help to get this confusion sorted.

    January 3, 2019 at 9:31 am #499778
    AvatarJohn Moffat
    Keymaster
    • Topics: 57
    • Replies: 54845
    • ☆☆☆☆☆

    $5,760 is the cost.

    Since the profit margin is 40%, the profit is 40% of the sales and therefore the cost is 60% of the sales.

    Therefore the sales are 5,760/60% and the profit is 40% x 5,760/60% (which is the same as what is written in the answer: 5,760 x 40/60)

    January 3, 2019 at 9:32 pm #499906
    Avatarshaheena98
    Member
    • Topics: 9
    • Replies: 8
    • ☆

    Thank you professor!

    January 4, 2019 at 7:56 am #499950
    AvatarJohn Moffat
    Keymaster
    • Topics: 57
    • Replies: 54845
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Joint and By Products’ is closed to new replies.

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