Reference no: EM131626585

Question: Distillation plant

A distillation plant, which works continuously, processes 1,000 tonnes of raw material each day. The raw material costs £4 per tonne and the plant operating costs per day are £2,600. From the input of raw material the following output is produced:

                          %

Distillate X           40

Distillate Y           30

Distillate Z           20

By-product B       10

From the initial distillation process, distillate Passes through a heat process which costs £1,500 per day and becomes product X which requires blending before sale. Distillate Ygoes through a second distillation process costing £3,300 per day and produces 75% of product Y and 25% of product Xl. Distillate Zgoes through a second distillation process costing £2,400 per day and produces 60% of product Z and 40% of product X2. The three streams of products X, X1 and X2 are blended, at a cost of £1,155 per day, to become the saleable final product XXX. There is no loss of material from any of the processes. By-product B is sold for £3 per tonne and the proceeds are credited to the process from which the by-product is derived. Joint costs are apportioned on a physical unit basis. You are required to:

(a) draw a flow chart, flowing from left to right, to show for one day of production the flow of material and the build-up of the operating costs for each product;

(b) present a statement for management showing for each of the products XXX, Y and Z the output for one day, the total cost and the unit cost per tonne;

(c) suggest an alternative method for the treatment of the income receivable for by-product B than that followed in this question (figures are not required).