Question
A chemical plant produces two main products, Alpha and
Beta, from a joint process. The total joint costs incurred up to the split-off point are βΉ20,00,000. At the split-off point, the total sales value of Alpha is βΉ18,00,000 and Beta is βΉ12,00,000. Alpha requires further processing at a cost of βΉ2,00,000 before it can be sold. Using the Relative Sales Value method (at split-off), what is the cost of inventory allocated to Product Alpha?ΒSolution
Ind AS 2 requires joint costs to be allocated on a rational and consistent basis. The relative sales value at the split-off point is a standard basis. Β Total Sales Value at Split-off: 18,00,000 ( π΄ππβπ )+12,00,000 ( π΅ππ‘π )=30,00,000 Β Alpha's Proportion = 18,00,000Γ·30,00,000 = 60% Thus, allocation of Joint Cost for Alpha = Β 60% of 20,00,000 = ππ , ππ , πππ Β Note: The further processing cost (βΉ2,00,000) is added to the cost of Alpha after the joint cost allocation if we were calculating the "total cost," but the question asks for the allocated joint cost. Under Ind AS 2, joint costs are allocated based on the value at the split-off point itself.
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