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Joint Products- Gross Profit allocation

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Joint Products- Gross Profit allocation

  • This topic has 3 replies, 2 voices, and was last updated 4 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
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    Posts
  • December 16, 2020 at 1:57 pm #600122
    claudine101
    Member
    • Topics: 1
    • Replies: 1
    • ☆

    Hi Sir,

    I have gone over this question a number of times and I cant seem to figure out how the Gross Profit was allocated instead of being charged full to the product:

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

    Product A:(sales 480 tonnes) (production 600 tonnes)
    Product B: (sales 320 tonnes) (production 400 tonnes)

    Common production costs in a period were $12000. There was no opening inventory. Both products had a gross profit margin 40%. Common production costs were apportioned on a physical basis.

    What was the gross profit for product A in the period?
    A $2304
    B $2880
    C $3840
    D $4800

    The correct answer is C

    I have been able to calculate cost for product A by ( 600/1000 tonnes X $12000 = $7200) and then I multiplied 7200x 480/600 to get the cost of 5760. To get the gross profit I multiplied 5760*40/100 which would have given me A- 2304. But my answer is wrong as the explanation for the Gross profit is to multiply it by 40/60*5760 which yields C. But I don’t understand why. Would you be able to assist me please?

    December 16, 2020 at 4:06 pm #600132
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54655
    • ☆☆☆☆☆

    For every $100 of sales, the profit is $40 and therefore the cost is $60.

    Putting it the other way round, for every $60 cost, the profit will be $40 (and therefore the selling price will be $100).

    So for cost of 5,760, the profit will be 40/60 x 5,760.

    December 17, 2020 at 2:05 pm #600192
    claudine101
    Member
    • Topics: 1
    • Replies: 1
    • ☆

    Thank you sir. Appreciate your prompt response and your explanation, I get it now.

    December 17, 2020 at 2:18 pm #600195
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54655
    • ☆☆☆☆☆

    You are welcome 🙂

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