1. MANAGEMENT ACCOUNTING (PMA2043)
NAME OF LECTURER : MDM SURIANA LAUDA
NAME OF MEMBERS : NORYATIABDMAJID(PTM120700623)
MOHDHARULMOHDSALLEH(PTM120700474)
NURSYAKINAHSAID(PTM120700452)
SECTION 6

2. CHAPTER 6 : RELEVANT
COST AND PRICING
DECISION
SELL OR PROCESS
FURTHER OF PRODUCT

3. JOINT PRODUCT COSTS
• Joint production process
~ result in two or more product, example processing
cocoa bean into cocoa powder and cocoa butter.
• Joint cost
~ the term joint cost is used to describe those costs
that are incurred up to the split-off point.
• Split-off point
~ the point in the production process where the joint
products are identifiable as separate product.

4. EXAMPLE
Cembol Sawmill buys logs and then runs them through a saw
that produces unfinished lumber and scrap (i.e. sawdust, chips
and barks). The unfinished lumber can be sold ‘as is’ or process
further into finished lumber. The scrap can also be sold ‘as is’ to
gardening supply wholesalers or processed further into
prestologs. Data concerning these joint products appear below:
Lumber Scraps
Sales value at the split-off point RM140 RM5
Sales value after further processing RM270 RM20
Allocated joint costs* RM176 RM24
Cost of further processing RM50 RM4

5. SOLUTION
Analysis of Sell or Process Further
Lumber Scraps
Sales value after further
processing
270 20
(-) Sales value at the split-
off point
140 5
Incremental revenue 130 15
(-) Cost of further
processing
50 4
Profit from further
processing
80 11

6. QUESTION 1
International Chocolate Company
decide whether a product should be
sold at the split-off point or processed
further before being sold.

7. COCOA
BEANS
costing $500
per 1-tonne
batch
Instant cocoa
mix sales
value : $2000
for 250 kg
COCOA
POWDER
sales value :
$500 for 250
kg
Joint
Production
process
costing $600
per tonne
COCOA
BUTTER sales
value : $750
for 750 kg
Separable
process
costing
$800

8. Process cocoa
powder into instant
cocoa mix
Sell cocoa powder
at split-off point
Differential amount
(a) – (b)
Sales revenue :
Cocoa butter $750 $750 0
Instant cocoa mix 2 000
$ 1 500
Cocoa powder 500
Less : Costs
Joint cost ( 1 100 ) ( 1 100 ) 0
Separable cost of
processing
Cocoa powder
into instant
cocoa mix
( 800 ) 0 ( 800 )
Total $ 850 $ 150 $ 700

9. QUESTION 2
Ron Chemicals produces four products from a joint process costing $150,000
per month. After leaving the joint process , the products must be further
refined before they are separable. You have been provided with the following
information :
Product Volume Further processing
process
Selling price per
unit
A-1 15 000 $350 000 $80
B-3 25 000 400 000 40
C-2 10 000 100 000 22
Q-9 50 000 250 000 10

10. ANSWER
SELL
A-1 B-3 C-2 Q-9
Sales 80 x 15 000
= 1 200 000
40 x 25 000
= 1 000 000
22 x 10 000
= 250 000
10 x 50 000
= 500 000
(-) Cost 15/100 x 150 000
= 22 500
25/100 x 150 000
= 37 500
10/100 x 150 000
= 15 000
50/100 x 150 000
= 75 000
Total 1 177 500 962 500 235 000 425 000

11. Further Process
A-1 B-3 C-2 Q-9
Sales 1 200 000 1 000 000 250 000 500 000
(-) Joint cost 22 500 37 500 15 000 75 000
(-) Further cost 15 000/100 000
x 350 000
= 52 500
25 000/100 000
x 400 000
= 100 000
10 000/100 000
x 100 000
= 10 000
50 000/100 000
x 250 000
= 125 000
Total 1 125 000 862 500 225 000 300 000

12. QUESTION 3
Ottawa Corporation produces two products from a joint process
information about the two joint products is as follows :
Product X Product Y
Anticipated production (in pounds) 2 000 4 000
Selling price per pound at split-off RM30 RM16
Selling price per pound after
further processing
RM40 RM50
Additional processing costs per
pound after split-off (all variables)
RM15 RM30
The cost of the joint process is
RM85,000

13. Required :
a) Determine which of Ottawa’s joint products should be sold at split-
off?
b) Determine which of Ottawa’s joint products should be processed
further?
c) Ottawa currently sells both products at the split-off point. If Ottawa
makes decisions that maximize profit, Ottawa’s profit will increase by
how much?

14. SOLUTION
a)
Product X Product Y
Selling price at split off
point x anticipated
production
30 x 2 000
= 6 000
16 x 4 000
= 64 000
(-) production of
product X / total of
production X cost of
joint process
Total
2/6 x 85 000
= 28 333.33
31 666.67
4/6 x 85 000
= 56 666.67
7 333.33

15. b)
Product X Product Y
Selling price after further X
anticipated production
40 x 2 000
= 80 000
50 x 4 000
= 200 000
(-) production of product X /
total of production X cost of
joint process
2/6 x 85 000
=28 333.33
4/6 x 85 000
= 56 666.67
(-) additional processing
cost after split-off point X
anticipated production
15 x 2 000
= 30 000
30 x 4 000
= 120 000
Total = 21 666.67 = 23 333.33

16. c) Further = 55 000 (31 666.67 + 23 333.33)
Split-off point = 39 000 (31 666.67 + 7 333.33)
Profit increase
55 000 – 39 000 = 16 000
Ottawa Corporation should sold a product X at
the split-off point and product Y must be
processed further before being sold.