Question

1. AlMarai processes raw milk into various products. 1,000 Liters of raw milk can be converted for SR 20,000 into 1,000 bottles of 0.5 Liter of Laban and 1,000 bottles of 0.5 Liters of processed milk. A bottle of 0.5 Liter of Laban can be sold at split-off for SR 5 and a bottle of 0.5 Liters of processed milk can be sold for SR 10. AlMarai can process the 1,000 bottles of processed milk into 600 cans of fresh cream at an additional cost of SR 3,000. Each can of fresh cream can be sold for SR15. The 1,000 bottles of Laban can be processed at a cost of SR2,000 and made into 400 cans of Labne. A can of Labne can be sold for SR 12.

	Laban	Processed Milk	Labne	Fresh Cream
Joint Cost	SR 20,000
Separable Costs			SR2,000	SR3,000
Production	1,000	1,000	400	600
Selling Price	SR 5	SR 10	SR18	SR 21

Allocate the joint cost of SR 20,000:

1. Between Laban and Processed Milk using Sales value at split-off method
2. Between Laban and Processed Milk using the physical-measure method
3. Between Labne and Fresh Cream using NRV method
4. Should AlMarai have processed each of the products further?

Answer 1

Allocation of Joint Of SR 20,000 between Laban and Processed Milk Using Sales Value at Split Off Point Method Particulars Laban Processed Milk Total a Sales in Bottels) 1,000 1,000 b Selling Price 10 c Sales Value (a*b) 5,000 10,000 15,000 d Joint Costs 20,000 e Apportinment of Joint Cost 6,667 13,333 [(20,000/15,000) *c] Apportinment Of Joint Cost Total Joint Costs * Sale Value of Each Product " Total sales Value

Allocation Of Joint Of SR 20,000 between Laban and Processed Milk Using Physical measure Method Particulars Laban Processed Milk Total a Sales (in Bottels) 1,000 1,000 2000 b Joint Costs 20,000 c Apportinment of Joint Cost 10,000 10,000 [(20,000/2,000)*a] Apportinment of Joint Cost Total Joint Costs * Physical Units of Each Product Total Physical Value

Allocation Of Joint Of SR 20,000 between Labne And Frash Cream Using NRV Method Particulars Labne Fresh Cream Total a Sales (in csns) 400 600 2000 b Selling price 18 21 c Sales Value (a*b) 7,200 12,600 19,800 Less: Post Split Off Costs (Seperable/Further d Processing costs) 2,000 3,000 e NRV (c-d) 5,200 9,600 14,800 Joint Costs 20,000 Apportinment of Joint Cost 7,027 12,973 [(20,000/14,800)*e]

AlMarai should have processed only Laban into labne further as it creates incremental revenue and stop processing the processed milk into fresh cream as it creates no incremental revenue and but only additional costs. Calculation of Incremental Revenue/(Costs By Further processing Particulars Labne Fresh Cream Total a Sale Value 7,200 12,600 Less b Sale Value Of Laban And Processed Milk 5,000 10,000 Cincremental Cost Of Further Processing 2,000 3,000 d (b+c) 7,000 13,000 e Incremental Revenue/(Costs) (a-d) 200 -400 Less

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