Apportionment of Joint Cost of Materials

Sometimes a mixture of few qualities/grades of an item of material is purchased in bulk at a single rate. In such a case, it shall be necessary to find out the proper cost of each quality/grade of the material. This process of finding the separate cost of each material is called apportionment of joint cost of materials. The cost of the various qualities/ grades shall be ascertained with reference to their selling price or market price as explained in the following example:

Example

A truck load of mixed material ‘A’ was purchased for $72,000. These were sorted into the following grades, whose market rate is shown against each.

Apportionment of joint cost of materials example

Find out the purchase rate per unit of each grade of material assuming that all grades yield the same rate of profit.

Solution

Apportionment of joint cost of materials solution

Apportionment of joint cost of materials solution b

Rate of Profit on selling price (or sales value) = (Profit / Sales Value) x 100

= (28,000 / 1,00,000) x 100

= 28%

Calculation of Cost Price of Material

Example 2

Batala Foundry is melting Pig Iron for producing castings. Coke and limestone are used to melt the metal. 150 kgs. of coke and 50 kgs. of limestone are required to melt one tonne of pig iron. The loss in melting is 5% and the rejections amount to 10% of the castings made. Cost of pig iron is $1,790 per tonne. Cost of coke is $1,300 per tonne. Cost of limestone is $200 per tonne. Rejections fetch a rate of $1.20 per kg.

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Required

Calculate the cost of raw material per kg. of saleable casting.

Solution

Apportionment of joint cost of materials example 2

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