CA Inter P4 · Chapter 10 · Question 7 of 8
A joint product can be sold at split-off for ₹40 per kg, or processed further and sold at ₹56 per kg. Further processing of the 5,000 kg output would cost ₹55,000 (fixed, avoidable) plus ₹4 per kg. The joint cost allocated to the product is ₹1,50,000. If the product is processed further, profit will:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Increase by ₹5,000
Explanation
Joint cost is incurred in either case and is irrelevant. Incremental revenue = 5,000 x (₹56 - ₹40) = ₹80,000. Incremental cost = ₹55,000 + 5,000 x ₹4 = ₹75,000. Profit increases by ₹5,000, so further processing is worthwhile.
More Joint Products and By-Products MCQs
- Q1Joint costs of ₹4,80,000 are incurred up to the split-off point, producing 6,000 kg of product P and 10,000 kg of product Q. Using the…
- Q2Using the same output (P 6,000 kg, Q 10,000 kg) and joint cost of ₹4,80,000, P can be sold at the split-off point for ₹50 per kg and Q for…
- Q3Joint costs of ₹3,90,000 produce 6,000 kg of P and 10,000 kg of Q, neither of which is saleable at split-off. After further processing, P…
- Q4A by-product is sold for ₹1,20,000. Selling expenses are 10% of sales, the expected profit margin is 20% of sales and post-separation…
- Q5The main distinction between joint products and by-products is based on: