Q.14. A pharmaceutical company purchases a raw material, which is then processed to yield three chemicals: Anarol, Estyl, and Betryl. In October, the company purchased 10,000 gallons of the raw material at a cost of Rs 1,250,000, with an additional joint conversion cost of Rs 750,000. The sales and production information for the month are as follows:
Product | Gallons produced | Price at split off (per gallon) | Further processing cost per gallon | Eventual Sale per gallon
Anarol | 2000 | Rs 350 | - | -
Estyl | 3000 | Rs 240 | - | -
Betryl | 5000 | Rs 200 | Rs 30 | Rs 360
Anarol and Estyl are sold to other pharmaceutical companies at the split off point. Betryl can be sold at the split off point or processed further and packaged for sale as an asthma medication. Required:
1. Allocate the joint cost to three products using- (a) Physical Units Method, (b) Sales-Value at split-off method, (c) Net Realizable value method.
[Ans:- Physical unit method= Anarol Rs 400,000, Estyl Rs 600,000, Betryl Rs 1,000,000
SV split off method = Anarol Rs 578,512, Estyl Rs 595,042, Betryl Rs 826,446
NRV method = Anarol Rs 456,026, Estyl Rs 469,055, Betryl Rs 1,074,919]
2. Suppose that half of October production of Estyl could be purified and mixed with all of the Anarol to produce veterinary grade anaesthetic. All further processing costs amount to Rs 225,000. The selling price of the veterinary grade anarol is Rs 650 per gallon. Should the pharmaceutical company further process the anarol into anaesthetic? Assume that the resultant quantity of Veterinary grade Anarol produced is 2000 gallons only. [Ans:- Process & sell :- Incremental benefit =Rs 15,000]