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A process produces 2 joint products A and B in equal physical quantities. A and B are sold at split off point for $5 per kg and $8 per kg respectively. There are no further costs after the split off point.
If joint costs are apportioned on a relative sales value basis, which of the following statements is true?
A. both products will have same return on sales ratio.
B. product A will have higher return on sales ratio
C. cost per kg will be same for both products
D. cost per kg of product A will be higher then product Bthe correct answer is A
can you explain to me why the option C is wrong.
Thank you
If the joint costs are apportioned on relative sales value, then since B has a higher sales value than A, B will be apportioned more of the costs than A.
However, the return on sales ((SP – cost) / SP ) will, as a result, be the same for both.
I suggest that you watch my free lectures on joint products – I do explain this, with examples.
The lectures are a complete free course for Paper MA (F2) and cover everything needed to be able to pass the exam well.
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