Luiz Ltd operates several manufacturing processes in which stocks of work in progress are never held.

In process K, joint products (P1 and P2) are created in the ratio 2:1 by volume from the raw materials input.
In this process a normal loss of 4% of the raw materials input is expected.
Losses have a realizable value of 5 per litre. The joint costs of the process are apportioned
to the joint products using the sales value basis. At the end of process K, P1 and P2
can be sold for 25 and 40 per litre respectively.

The following information relates to process K for last month:

Raw material input 90,000 liters of a total cost of 450,000
Actual loss incurred 4,800 liters
Conversion costs incurred 216,000
(a) Prepare the process K account for last month in which both the output volumes and values for each join
shown separately.
The company could further process product P1 in process L to create product XP1 at an incremental cost o
Process L is an existing process with spare capacity. In process L a normal loss of
Product XP1 could be sold for 30 per litre.

Products Output Joint Cost Sales value per unit Sales

P1 56,800 432,000 25 1,420,000
P2 28,400 216,000 40 1,136,000
Total 85,200 648,000 2,556,000

Input 90,000 Further Processing of P1 in Process L to Create XP1

Normal loss 3,600 Sales of XP1 1,704,000
Expected Output 86,400 Normal loss 8%
Abnormal loss 1,200 Total Sales of XP1 1,567,680
Actual Output 85,200 Sales of P1 (1,420,000)
Costs of further processing (170,400)
Joint Costs: Loss from processing XP1 (22,720)
Raw material 450,000
Conversion costs 216,000
Total 666,000
Less: Sales Value
of Spoiled Goods 18,000
Joint Costs to be allocated £ 648,000

Joint Costs to be allocated 648,000

Expected Output 86,400
Cost per unit output 7.50
Actual Output 85,200
Total £ 639,000

(b) Based on financial considerations only, determine, with supporting calculations, whether product P1 sh
Further Processing of P1 in Process L to Create XP1
Sales of XP1 1,704,000
Normal loss 8%
Total Sales of XP1 1,567,680
Sales of P1 (1,420,000)
Costs of further processing (170,400)
Loss from processing XP1 (22,720)

Accordingly, product P1 should not be further processed in process L to create product XP1 because as s
computation, Luiz Ltd. would incur a loss. While initially, they may gain an additional revenue of 147,680, t
further process P1, which is 170,400, exceeds the additional revenue.
e never held.
w materials input.

ocess are apportioned

r litre respectively.

nd values for each joint product are

at an incremental cost of 3 per litre input.

8% of input is incurred which has no value.

Ratio Allocated Costs

0.56 355,000
0.44 284,000
639,000

ess L to Create XP1

whether product P1 should be further processed in process L to create product XP1.

oduct XP1 because as shown in the
nal revenue of 147,680, the costs to
al revenue.