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Costing CA Inter | CA Inter Sep 2024 | Lecture 31 | Focus Batch | CA Pranav Popat #cainter

Ultimate CA・56 minutes read

The lecture covers joint product and by product analysis, detailing methods like physical unit and contribution margin for cost allocation and profitability considerations, emphasizing the importance of understanding costs and margins for main and by-products in business scenarios. Practical examples and calculations showcase how joint costs are allocated, actual profits are determined, and incremental revenue is considered, highlighting the significance of accurate cost analysis for profitability decisions.

Insights

  • The lecture focused on joint product and by-product analysis, covering methods like the physical unit method and contribution margin method to allocate costs accurately and determine profitability.
  • A practical example illustrated how further processing of a by-product can impact profitability, emphasizing the importance of understanding incremental revenue and costs to make informed decisions regarding processing activities.

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Recent questions

  • What is the focus of Lecture 31?

    Cost and management accounting

  • How are joint production costs calculated?

    Based on units produced and sold

  • What is the significance of the contribution margin method?

    Determines variable joint costs allocation

  • How are incremental revenue and costs analyzed?

    To determine further processing profitability

  • What is the importance of understanding net margins?

    Crucial for profitability calculations

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Summary

00:00

"Cost Accounting Lecture: Joint Product Analysis"

  • Lecture 31 in the C Intermediate September 2024 examination for the Focus Batch on cost and management accounting is the second last lecture.
  • The agenda for today's lecture is to cover part two of joint product and by product, with plans to complete the PYQ RTP of unit batch and job the following day.
  • The session begins with greetings for Independence Day and a reminder to revise the chapter before starting.
  • The hand-written PDFs are available for download, and upcoming CA Intermediate batches are recommended to juniors.
  • The lecture proceeds with solving questions from previous exams, focusing on the physical unit method and contribution margin method.
  • The physical unit method involves calculating joint production costs based on the number of units produced and sold for products A and B.
  • The contribution margin method includes dividing the variable joint costs based on the units produced, calculating total sales, and determining the joint fixed costs allocation.
  • The second part of the lecture involves analyzing the impact on profitability if product B undergoes further processing, considering incremental revenue and cost.
  • A practical example is provided to illustrate the calculation of incremental revenue and cost, showing a decrease in profitability if product B is processed further.
  • The lecture concludes with a preview of a challenging question from the current RTP, emphasizing the importance of understanding further processing costs and net margins for main and by-products.

17:14

"Calculating Costs, Profits, and Margins in Business"

  • The figures mentioned are 13.75, 8.75, 7.5, and 1, representing costs and profits in a business scenario.
  • The selling prices of products are determined based on anticipated costs and a net margin of 25%.
  • Calculations involve determining costs by subtracting profits from selling prices.
  • Joint input costs, including material costs, are given as 9800 during a specific period.
  • The joint cost is to be allocated based on the ratio of estimated costs for different products.
  • The selling prices are used to reverse-engineer total costs and joint costs.
  • The estimated joint costs for different products are calculated based on the given selling prices.
  • The actual joint costs are divided in the same ratio as the estimated costs for proper allocation.
  • The net margin of 25% on costs is crucial for determining actual profits and margins.
  • The final step involves calculating the actual profit percentages on costs, revealing discrepancies from the estimated margins.

34:54

Calculating Joint Costs for Profitable Production

  • The selling price and cost details are provided for a product, with a profit of 1.37.
  • The process involves reversing the selling price to determine the joint cost.
  • The total joint cost is calculated based on unit costs and output.
  • The actual joint cost is revealed to be Rs. 9800.
  • The joint cost is divided based on the NRV of the by-product.
  • The total joint cost is allocated in a specific ratio to determine new joint costs.
  • The margin is recalculated based on the new joint cost.
  • The process involves understanding and dividing the joint cost accurately.
  • The practical application involves calculating joint costs without using the NRV method.
  • The profitability of the factory is determined by calculating joint costs and profits for different products.

52:02

Calculating Costs and Profits in Production

  • The balancing figure out of 12000 is determined by subtracting 5000 and 267, resulting in 673.
  • After further deductions of 3000 and 13, the remaining amount is 6400.
  • The presentation is disrupted, prompting a review of the logic and understanding of the process.
  • The sales, profit, and total cost of both products are analyzed to calculate the grand total and joint cost.
  • The selling distribution expense is distributed based on sales ratios, with 400 being allocated accordingly.
  • A working note is created to calculate the total sales, profit, and cost of sales for products A and B.
  • The cost of production for A and B is determined by dividing the joint cost based on the ratio of 6733 and 3267.
  • The further processing cost for both products is included in the total cost of production.
  • The selling expenses are excluded from the cost of production, as the focus is solely on COP.
  • The final output quantities for products A and B are used to calculate the cost per kilogram, considering joint cost and processing cost.

01:10:28

"Profit Analysis: Matching CGS with Sales"

  • Total units were 160,000 KG, with 150 KG purchased, leaving 10,000 KG in closing stock.
  • COP was calculated at 8, with 300 KG having a COP of 300, and 20,000 KG kept in closing stock.
  • Sales of 1500 diva or 160 in 10 resulted in 9475, with CGS calculated for comparison with sales.
  • The concept of matching was explained, emphasizing the importance of comparing CGS with sales for profit calculation.
  • Incremental revenue and processing costs were discussed to determine whether further processing should be pursued based on profitability.
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