Question

Question 01: Gold Flour (Pvt.) Ltd produces high quality flour for the residents of Massachusetts. The company prepares 3 types of Flour:

• Standard flour sold @ $2,250 per ton.

• Whole wheat flour sold @ $3,000 per ton.

• High fiber flour sold @ $3,500 per ton.

2,000 tons of supreme quality wheat is processed to produce 1,200 tons of standard and 700 tons of whole wheat flour. The joint costs for the production run were $3,800,000. As a by-product 100 tons husk came out of the process as well. It is assumed to be sold at a price of $2 per Kg.

The whole wheat flour can be processed further to produce 650 tons of high fiber flour at a total cost of $500,000. 50 tons of white flour was also obtained that is assumed to be a by-product. It can be sold in the market @ $4/Kg and cost to sell would be $ 150 per ton.

REQUIRED: You are required to:

1. Allocate the joint costs to the products on the basis of physical output.

2. Decided whether or not the whole wheat should be processed to high fiber wheat.

Answer 1

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Requirement 1
Product	Output Q	Ratio	Total Joint Cost	Allocation
	(Tons)	A	B	A*B
Standard	1,200	63.16%	$        3,800,000	$2,400,000
Whole	700	36.84%	$        3,800,000	$1,400,000
Total	1,900			$3,800,000
Requirement 2
Revenue from Sale of High Fiber Flour	3500*650 Ton		$        2,275,000
Revenue from Sale of White Flour-By Product	50*4*100		$             20,000
Less:
Loss of Revenue if processed further	3000*700		$       -2,100,000
Cost of further processing			$          -500,000
Cost to Sell white flour	150*50 Tone		$              -7,500
Incremental Income/(loss)			$          -312,500
Should not process further