Page 287 - DCOM202_COST_ACCOUNTING_I

Unit 14: Equivalent Production in Process Costing

Cost Sheet for XYZ Chemical Notes

Main Product (700 Units) By Product (200 units)
Particulars Basic of
Allocation Total (`) Per Unit (`) Total (`) Per unit (`)
Materials 75:25 3,750 5.36 1,250 6.25
Labour (1) 14:2 2,800 4.00 400 2.00
Overheads (`2,000 less ` 200) 3:1 1,350 1.93 450 2.25
Total 7,900 11.29 2,100 10.50
Working note: Labour is allocated in the ratio of 14:2 because the main product needs double the
(1)
wage of that required for the by-product. Hence for purpose of allocation of labour, 700 units of
the main product are equivalent to 1,400 units of by-products.

Example: In manufacturing the main product A, a company processes the resulting
waste material into two by-products X and X . You are required to apportion total cost up to
2
1
separation point among: A, X and X from the following data. Total cost up to separation point
2
1
was ` 1,36,000.
A X X
1 2
Sales 3,28,000 32,000 48,000
Cost after separation 9,600 14,400
Percentage of net profit to sales 20% 30%
percentage of selling expenses to sales 20% 20% 20%

Solution:
Cost Charged to By-product

Particulars Amount (`) X (`) Amount (`) X (`)
2
1
Sale 32,000 48,000
Less : Profit 6,400 14,400
Selling expenses 6,400 12,800 9,600 24,000
Cost of production 19,200 24,000
Less : cost after separation 9,600 14,400
9,600 9,600
Statement of Cost and Profit

Particulars A (`) X (`) X (`)
1 2
Joint cost 1,36,000
Less : Charged to X1 a X2 (as per above statement) 19,200 9,600 9,600
1,16,800 9,600 9,600
Cost after separation 9,600 14,400
Cost of production 1,16,800 19,200 24,000
Selling expenses (20% of sales) 65,600 6,400 9,600
Total Cost 1,82,400 25,600 33,600
Profit 1,45,600 6,400 14,400
Sales 3,28,000 32,000 48,000

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