Sale of product “A” during the year amounted to 1,000 units at Rs. 20 each. The total number of units produced was 1,200 units and the production costs were Rs. 16 per unit. The sale of by-product “B” amounted to Rs. 2,400 out of which goods worth Rs. 1,200 were returned by customers.
The selling and distribution costs amounted to Rs. 1,000. Using total cost less revenue from the sale of byproduct, cost the by-products.
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Particulars |
Amount |
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Step 1: Sales value of product “A” |
20,000 |
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Step 2: LESS: Cost sales: |
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(i) Total production costs – 1,200 units × Rs. 16 |
19,200 |
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(ii) Less: By-product sales |
1,200 |
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Step 3: Net cost by-product “A” |
18,000 |
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Step 4: LESS: Closing stock of Product A: |
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Net cost of Product |
3000 |
15,000 |
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Step 5: GROSS PROFIT (Step 1 – Step 4) |
5,000 |
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Step 6: Add: Other income: |
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(i) Sales of by-product “B” |
5,000 |
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(ii) Less: Sales returns |
2,000 |
3,000 |
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Step7: Net profit |
8,000 |
Method (iii): Total Costs LESS value of By-Products (including Subsequent Costs and Distribution Expenses)
This is an improvement over the previous methods. Here selling and administrative expenses are charged only against the by-products sold.