Lexmark Company operates a process, which produces three joint products- X
, Y and Z. Joint costs are allocated based on the weight of the products, and the proportion of the products in terms of their weights of the products, and the proportion of the products in terms of their weights is as follows:
Products X 50%
Products Y 20%
Products Z 30%
Products X and Y are sold without further processing. There is no market for Product Z, which has to be processed further and sold as product MZ. There is no weight loss in the further processing.
Selling prices for each product are as follows:
Product X $10 per kg
Product Y $15per kg
Product MZ $20per kg
In a period, the total weight of output from the joint process was 640,000kg with cost of $3,200,000. Expenditure on the further processing of Product Z was $960,000.
All units produced in the period were sold and there were no opening stock of Products X, Y, Z and MZ at the beginning of the period.
(a) Calculate the joint costs apportioned to products X, Y and Z, using physical units of outputs as the basis for apportionment.
(b) Calculate the joint costs apportioned to products X, Y and Z, using notional sales value as the basis of apportionment.
(c) Product Y could also be further processed into another product, Product MY. An enquiry has been received from a customer on the supply of 6,800 kilograms of Product MY. The incremental cost for further processing is estimated to be $39,000. There would be a 15% normal loss in the further processing, and the scrap could be sold at$5 per kg. Calculate the minimum selling price per kg of Product MY, which the company should quote the enquiry.