Question: The marketing director of your company has expressed concern about Product X which for some time has shown a loss, and has stated that some action will have to be taken. Product X is produced from Material A which is one of two raw materials jointly produced by passing chemicals through a process. Representative data for the process is as follows:
Output -Material A 10,000 kilos
-Material B 30,000 kilos
Process costs -Raw material £83,600
-Conversion costs £58,000
Joint costs are apportioned to the two raw materials according to the weight of output. Production costs incurred in converting Material A into Product X are £1.80 per kilo of Material A used. A yield of 90% is achieved. Product X is sold for £5.60 per kilo. Material B is sold without further processing for £6.00 per kilo.
Required: (a) Calculate the profit/(loss) per kilo of Product X and Material B respectively.
(b) Comment upon the marketing director's concern, advising him whether you consider any action should be taken.
(c) Demonstrate for Product X, and comment briefly upon, an alternative method of cost apportionment.