Sometimes, when materials are purchased in bulk at a single rate, there will be a mixture in terms of item quality/grade.
In such cases, it is necessary to determine the proper cost of each quality/grade of the material. This process of finding the separate cost of each material is called apportionment of the joint cost of materials.
The cost of the various qualities/grades is ascertained based on their selling price or market price, as demonstrated in the following example:
A truckload of Material A was purchased for $72,000. The material was sorted into the following grades and market rates:
Required: Calculate the purchase rate per unit of each grade of material, assuming that all grades yield the same rate of profit.
Rate of profit on selling price (or sales value) = (Profit / Sales value) x 100
= (28,000 / 1,00,000) x 100
Batala Foundry melts pig iron to produce castings. Coke and limestone are used to melt the metal.
150 kgs. of coke and 50 kgs. of limestone are required to melt 1 ton of pig iron. The loss in melting is 5% and the rejections amount to 10% of the castings made.
The cost of pig iron is $1,790 per ton, the cost of coke is $1,300 per ton, and the cost of limestone is $200 per ton. Rejections fetch a rate of $1.20 per kg.
Required: Calculate the cost of raw materials per kg. of saleable casting.