If a company obtains two salable products from the refining of one ore, the refining
process should be accounted for as a(n)
a.
b.
c.
d.
ANSWER:
2.
c.
d.
ANSWER:
EASY
By-products
yes
yes
no
no
ANSWER:
4.
EASY
3.
Scrap
yes
no
no
yes
EASY
decision making.
product costing.
control.
evaluating managers performance.
ANSWER:
EASY
91
92
5.
Chapter 9
ANSWER:
6.
EASY
ANSWER:
EASY
profitability.
conversion costs.
prime costs.
sales value.
ANSWER:
9.
EASY
ANSWER:
8.
Which of the following components of production are allocable as joint costs when a
single manufacturing process produces several salable products?
a.
b.
c.
d.
7.
EASY
When allocating joint process cost based on tons of output, all products will
a.
b.
c.
d.
be salable at split-off.
have the same joint cost per ton.
have a sales value greater than their costs.
have no disposal costs at the split-off point.
ANSWER:
EASY
Chapter 9
10.
If two or more products share a common process before they are separated, the joint costs
should be assigned in a manner that
a.
b.
c.
d.
ANSWER:
11.
d.
ANSWER:
EASY
ANSWER:
13.
EASY
Scrap is defined as a
a.
b.
c.
12.
EASY
While preparing a salad, you remove the core of a head of lettuce. This core would be
classified as
a.
b.
c.
d.
defective.
shrinkage.
waste.
scrap.
ANSWER:
EASY
94
14.
Chapter 9
Main products
no
yes
yes
no
ANSWER:
15.
EASY
2 4 studs
sawdust
wood chips
tree bark
ANSWER:
EASY
Company Q produces three products from a joint process. The products can be sold at
split-off or processed further. In deciding whether to sell at split-off or process further,
management should
a.
b.
c.
d.
allocate the joint cost to the products based on relative sales value prior to making
the decision.
allocate the joint cost to the products based on a physical quantity measure prior to
making the decision.
subtract the joint cost from the total sales value of the products before determining
relative sales value and making the decision.
ignore the joint cost in making the decision.
ANSWER:
17.
Co-products
no
yes
no
yes
In a lumber mill, which of the following would most likely be considered a primary
product?
a.
b.
c.
d.
16.
EASY
By-products are
a.
b.
c.
d.
ANSWER:
EASY
Chapter 9
18.
Process costing is the only method that should result in by-products or scrap.
Job order costing systems will never have by-products or scrap.
Job order costing systems may have instances where by-products or scrap result
from the production process.
Process costing will never have by-products or scrap from the production process.
ANSWER:
19.
By-products
no
yes
yes
no
ANSWER:
Waste
no
no
yes
yes
EASY
Under an acceptable method of costing by-products, inventory costs of the by-product are
based on the portion of the joint production cost allocated to the by-product
a.
b.
c.
d.
but any subsequent processing cost is debited to the cost of the main product.
but any subsequent processing cost is debited to revenue of the main product.
plus any subsequent processing cost.
minus any subsequent processing cost.
ANSWER:
21.
MEDIUM
20.
EASY
ANSWER:
EASY
96
22.
Chapter 9
ANSWER:
23.
c.
d.
EASY
ANSWER:
EASY
ANSWER:
25.
A product may be processed beyond the split-off point if management believes that
a.
b.
24.
EASY
ANSWER:
EASY
Chapter 9
26.
The net realizable value approach mandates that the NRV of the by-products/scrap be
treated as
a.
b.
c.
d.
ANSWER:
27.
insignificant
yes
no
no
yes
ANSWER:
significant
yes
yes
no
no
EASY
ANSWER:
29.
EASY
The net realizable value approach is normally used when the NRV is expected to be
a.
b.
c.
d.
28.
EASY
high-low method
regression analysis
approximated sales value at split-off method
weighted average quantity technique
ANSWER:
EASY
98
30.
Chapter 9
Incremental separate costs are defined as all costs incurred between ___________ and the
point of sale.
a.
b.
c.
d.
inception
split-off point
transfer to finished goods inventory
point of addition of disposal costs
ANSWER:
31.
EASY
sunk costs.
incremental separate costs.
joint cost.
committed costs.
ANSWER:
EASY
Incremental revenues and costs need to be considered when using which allocation
method?
a.
b.
c.
d.
Physical measures
yes
yes
no
no
ANSWER:
33.
All costs that are incurred between the split-off point and the point of sale are known as
a.
b.
c.
d.
32.
MEDIUM
The method of pricing by-products/scrap where no value is assigned to these items until
they are sold is known as the
a.
b.
c.
d.
ANSWER:
MEDIUM
Chapter 9
34.
ANSWER:
35.
EASY
For purposes of allocating joint costs to joint products using the relative sales value at
split-off method, the costs beyond split-off
a.
b.
c.
d.
ANSWER:
36.
joint costs
yes
no
yes
no
EASY
AICPA
FASB
CASB
GASB
ANSWER:
DIFFICULT
910
Chapter 9
X
Z
Sales price
per yard at
split-off
$6.00
9.00
Yards
1,500
2,200
Disposal
cost per
yard at
split-off
$3.50
5.00
Further
processing
per yard
$1.00
3.00
Final sale
price per
yard
$ 7.50
11.25
If X and Z are processed further, no disposal costs will be incurred or such costs will be borne by
the buyer.
37.
Using a physical measure, what amount of joint processing cost is allocated to X (round to
the nearest dollar)?
a.
b.
c.
d.
$4,000
$4,757
$5,500
$3,243
ANSWER:
38.
EASY
Using a physical measure, what amount of joint processing cost is allocated to Z (round to
the nearest dollar)?
a.
b.
c.
d.
$4,000
$3,243
$5,500
$4,757
ANSWER:
39.
EASY
Using sales value at split-off, what amount of joint processing cost is allocated to X
(round to the nearest dollar)?
a.
b.
c.
d.
$5,500
$2,500
$4,000
$3,243
ANSWER:
MEDIUM
Chapter 9
40.
Using sales value at split-off, what amount of joint processing cost is allocated to Z (round
to the nearest dollar)?
a.
b.
c.
d.
$5,500
$4,000
$2,500
$4,757
ANSWER:
41.
MEDIUM
$4,000
$5,610
$2,390
$5,500
ANSWER:
MEDIUM
Using net realizable value at split-off, what amount of joint processing cost is allocated to
Z (round to the nearest dollar)?
a.
b.
c.
d.
$5,500
$4,000
$2,390
$5,610
ANSWER:
43.
Using net realizable value at split-off, what amount of joint processing cost is allocated to
X (round to the nearest dollar)?
a.
b.
c.
d.
42.
MEDIUM
Using approximated net realizable value at split-off, what amount of joint processing cost
is allocated to X (round to the nearest dollar)?
a.
b.
c.
d.
$3,090
$5,204
$4,000
$2,390
ANSWER:
MEDIUM
912
44.
Chapter 9
Using approximated net realizable value at split-off, what amount of joint processing cost
is allocated to Z (round to the nearest dollar)?
a.
b.
c.
d.
$2,796
$4,910
$4,000
$2,390
ANSWER:
45.
MEDIUM
only X
only Z
both X and Z
neither X or Z
ANSWER:
MEDIUM
Bo
Mo
Lo
Pounds
800
1,100
1,500
Sales price
per lb. at
split-off
$6.50
8.25
8.00
Disposal
cost per
lb. at
split-off
$ 3.00
4.20
4.00
Further
processing
per pound
$2.00
3.00
3.50
Final
sales price
per pound
$ 7.50
10.00
10.50
If the products are processed further, Tiny Co. will incur the following disposal costs upon sale:
Bo, $3.00; Mo, $2.00; and Lo, $1.00.
46.
Using a physical measurement method, what amount of joint processing cost is allocated
to Bo (round to the nearest dollar)?
a.
b.
c.
d.
$700
$679
$927
$494
ANSWER:
EASY
Chapter 9
47.
Using a physical measurement method, what amount of joint processing cost is allocated
to Mo (round to the nearest dollar)?
a.
b.
c.
d.
$494
$679
$927
$700
ANSWER:
48.
EASY
$700
$416
$725
$959
ANSWER:
MEDIUM
Using sales value at split-off, what amount of joint processing cost is allocated to Lo
(round to the nearest dollar)?
a.
b.
c.
d.
$959
$725
$700
$416
ANSWER:
50.
Using sales value at split-off, what amount of joint processing cost is allocated to Mo
(round to the nearest dollar)?
a.
b.
c.
d.
49.
MEDIUM
Using net realizable value at split-off, what amount of joint processing cost is allocated to
Bo (round to the nearest dollar)?
a.
b.
c.
d.
$706
$951
$700
$444
ANSWER:
MEDIUM
914
51.
Chapter 9
Using net realizable value at split-off, what amount of joint processing cost is allocated to
Lo (round to the nearest dollar)?
a.
b.
c.
d.
$706
$951
$444
$700
ANSWER:
MEDIUM
Expected sales
occupied
Hardware
Hand Tools
Lawn Furniture
Light Fixtures
52.
$35,000
15,000
64,500
25,500
$1,375
$1,100
$2,475
$ 825
ANSWER:
53.
value
20%
15
45
20
EASY
Assume that DED decides to allocate based on expected sales value. What amount of
advertising cost should be allocated to light fixtures (round to the nearest dollar)?
a.
b.
c.
d.
$1,375
$589
$1,002
$2,534
ANSWER:
MEDIUM
Chapter 9
Cep
Dap
Eek
Gok
Barrels
750
1,000
1,400
2,000
Sales price
per barrel
at split-off
$10.00
8.00
11.00
15.00
Disposal
cost
per barrel
at split-off
$6.50
4.00
7.00
9.50
Further
processing
costs
$2.00
2.50
4.00
4.50
Final
sales
price
per barrel
$13.50
10.00
15.50
19.50
If Rax sells the products after further processing, the following disposal costs will be incurred:
Cep, $2.50; Dap, $1.00; Eek, $3.50; Gok, $6.00.
54.
Using a physical measurement method, what amount of joint processing cost is allocated
to Dap?
a.
b.
c.
d.
$1,748
$2,447
$1,311
$3,495
ANSWER:
55.
MEDIUM
Using a physical measurement method, what amount of joint processing cost is allocated
to Eek?
a.
b.
c.
d.
$3,495
$2,447
$1,748
$1,311
ANSWER:
56.
MEDIUM
Using sales value at split-off, what amount of joint processing cost is allocated to Dap?
a.
b.
c.
d.
$4,433
$2,276
$1,108
$1,182
ANSWER:
MEDIUM
916
57.
Chapter 9
Using sales value at split-off, what amount of joint processing cost is allocated to Gok?
a.
b.
c.
d.
$4,433
$1,182
$1,108
$2,276
ANSWER:
58.
MEDIUM
Using net realizable value at split-off, what amount of joint processing cost is allocated to
Cep?
a.
b.
c.
d.
$1,550
$1,017
$4,263
$2,170
ANSWER:
59.
MEDIUM
Using net realizable value at split-off, what amount of joint processing cost is allocated to
Eek?
a.
b.
c.
d.
$1,017
$1,550
$2,170
$4,263
ANSWER:
MEDIUM
Chapter 9
Using gallons as the physical measurement, what amount of joint processing cost is
allocated to SS?
a.
b.
c.
d.
$2,196
$1,171
$1,367
$732
ANSWER:
61.
EASY
Using gallons as the physical measurement, what amount of joint processing cost is
allocated to TT?
a.
b.
c.
d.
$2,196
$732
$1,367
$1,171
ANSWER:
62.
EASY
Assume that Sun chooses to allocate its advertising cost among the three products. What
amount of advertising cost is allocated to RR using the floor space ratio?
a.
b.
c.
d.
$20,000
$17,806
$1,139
$16,667
ANSWER:
EASY
918
63.
Chapter 9
Assume that Sun chooses to allocate its advertising cost among the three products. What
amount of advertising cost is allocated to SS using the floor space ratio?
a.
b.
c.
d.
$911
$14,244
$13,333
$20,000
ANSWER:
64.
EASY
Love Co. manufactures products A and B from a joint process. Sales value at split-off was
$700,000 for 10,000 units of A, and $300,000 for 15,000 units of B. Using the sales value
at split-off approach, joint costs properly allocated to A were $140,000. Total joint costs
were
a.
b.
c.
d.
$98,000.
$200,000.
$233,333.
$350,000.
ANSWER:
65.
EASY
Lite Co. manufactures products X and Y from a joint process that also yields a byproduct, Z. Revenue from sales of Z is treated as a reduction of joint costs. Additional
information is as follows:
Units produced
Joint costs
Sales value at
split-off
X
20,000
?
Products
Y
20,000
?
Z
10,000
?
Total
50,000
$262,000
$300,000
$150,000
$10,000
$460,000
Joint costs were allocated using the sales value at split-off approach. The joint costs
allocated to product X were
a.
b.
c.
d.
$75,000.
$100,800.
$150,000.
$168,000.
ANSWER:
EASY
Chapter 9
SHORT ANSWER/PROBLEMS
1.
Briefly discuss the four decisions that management must make concerning joint processes.
ANSWER:
The four decisions that managers must make regarding joint processes are
as follows. They must try to determine what joint costs, selling costs, and separate
processing costs are expected to occur when certain products are manufactured. Next,
management must decide on the best use of resources that are available. Managers must
next classify, as joint products and/or by-products/scrap, the output of production. The
last decision that must be made is whether some or all of the products will be processed
further or sold at split-off. This decision is made based on the incremental costs that would
be incurred to process further and the incremental revenue if processed further. Joint
production costs are irrelevant to this decision.
MEDIUM
2.
3.
Discuss briefly the three monetary measurement techniques of joint cost allocation.
ANSWER:
The sales value at split-off method assigns costs based only on the
weighted proportions of the total sales values of the joint products without consideration
of disposal costs at the split-off point. To use this method, all products must be salable at
the split-off point. The net realizable value method assigns costs based on the products
proportional net realizable value at the split-off point. Net realizable value is equal to
product sales revenue at split-off minus any costs necessary to prepare and dispose of the
product.
Approximated net realizable value at split-off method requires that a simulated net
realizable value at split-off be calculated. This is equal to final sales price minus
incremental separate costs. Incremental separate costs refer to all costs that are incurred
between split-off and the point of sale.
MEDIUM
920
4.
Chapter 9
Briefly discuss the restrictions and requirements on service organizations and notforprofits that relate to joint cost allocation.
ANSWER:
Service and not-for-profit organizations incur costs that may be considered
joint in nature, such as advertising and printing of multipurpose documents. Service
organizations are not required to allocate these costs to the items worked on, delivered, or
advertised but may choose to do so for a better matching of revenues and expenses. Notfor-profits are required by the AICPA to allocate these costs among the activities of
fundraising, accomplishing an organizational program, or conducting an administrative
function.
MEDIUM
5.
Briefly discuss the net realizable value at split-off point method of allocating joint costs.
ANSWER:
The net realizable value at split-off method assigns joint costs based on
each products proportional NRV at the split-off point. NRV is equal to sales price minus
costs that are necessary to prepare and dispose of the product. To use this method, all
products must be salable at the split-off point.
MEDIUM
6.
Why is the net realizable value of scrap used to lower estimated overhead costs in setting a
predetermined overhead rate in a job order costing situation in which scrap is expected on
most jobs?
ANSWER:
The net realizable value of scrap is used in this way because the amount
received from the sale of scrap is considered to be a reduction of the total cost incurred in
the production process. This process is similar to the treatment of sales values of assets
purchased and then sold in a basket of goods. The estimated cost of scrap is used in
setting overhead rates; therefore, when the scrap is sold the amount received should be a
reduction of total overhead.
MEDIUM
Chapter 9
What amount of joint processing costs is allocated to each product based on gallons
produced?
ANSWER:
A = 4,500/10,500 $3,750 = $1,607
I = 6,000/10,500 $3,750 = $2,143
EASY
8.
What amount of advertising cost is allocated to each product based on sales value?
ANSWER:
A = 4,500 $20.00 = $ 90,000/$195,000 $1,500 = $692
I = 6,000 $17.50 = 105,000/$195,000 $1,500 = $808
$195,000
MEDIUM
922
Chapter 9
Mat
Nat
Qat
Gallons
2,300
1,100
500
Sales price
per gallon
at split-off
$ 4.50
6.00
10.00
Disposal
cost per
gallon at
split-off
$1.25
3.00
8.00
Further
processing
costs
$1.00
2.00
2.00
Final sales
price per
gallon
$ 7.00
10.00
15.00
Disposal costs for the products if they are processed further are:
Mat, $3.00; Nat, $5.50; Qat, $1.00.
9.
What amount of joint processing cost is allocated to the three products using sales value at
split-off?
ANSWER:
M = 2,300 $ 4.50 = $10,350/$21,950 $3,000 = $1,415
N = 1,100 $ 6.00 = $ 6,600 $21,950 $3,000 = $902
Q = 500 $10.00 = $ 5,000/$21,950 $3,000 = $683
$21,950
MEDIUM
10.
What amount of joint processing cost is allocated to the three products using net realizable
value at split-off?
ANSWER:
Sales price minus disposal cost*
$4.50 $1.25 = $3.25
$6.00 $3.00 = 3.00
$10.00 $8.00 = 2.00
M = 2,300 $ 3.25* = $ 7,475 /$11,775 $3,000 = $1,904
N = 1,100 $ 3.00* = $ 3,300 /$11,775 $3,000 = $ 841
Q = 500 $ 2.00* =
$ 1,000 /$11,775 $3,000 = $ 255
$11,775
MEDIUM
Chapter 9
11.
A company produces two main products jointly, A and B, and C, which is a by-product of
B. A and B are produced form the same raw material. C is manufactured from the residue
of the process creating B.
Costs before separation are apportioned between the two main products by the net
realizable value method. The net revenue realized from the sale of C is deducted from the
cost of B. Data for April were as follows:
Costs before separation
Costs after separation:
A
B
C
$ 200,000
50,000
32,000
4,000
800,000
200,000
20,000
640,000 pounds @ $.4375
180,000 pounds @ .65
20,000 pounds @ .30
924
Chapter 9
ANSWER:
NRV CREVENUE 20,000 .30 =
COST
NRV
$6,000
(4,000)
$2,000
NRV:
A (800,000 $.4375) = $350,000 $50,000 =
$300,000
B (200,000 $.65) = $130,000 ($32,000 $2,000) = 100,000
$400,000
ALLOCATION:
A ($300,000/$400,000 $200,000 = $150,000
B ($100,000/$400,000 $200,000 = 50,000
UNIT COST:
A ($150,000 + $50,000)/800,000 = $ .25
B ($50,000 + $30,000)/200,000 = $ .40
GROSS PROFIT:
A ($ .4375 $.25) 640,000 =
B ($ .65 $.40) 180,000 =
DIFFICULT
$120,000
45,000
$165,000
Chapter 9
12.
The total joint cost of producing 2,000 pounds of Product A; 1,000 pounds of Product B;
and 1,000 pounds of Product C is $7,500. Selling price per pound of the three products
are $15 for Product A; $10 for Product B; and $5 for Product C. Joint cost is allocated
using the sales value method.
Required:
a.
Compute the unit cost of Product A if all three products are main products.
b.
Compute the unit cost of Product A if Products A and B are main products and
Product C is a by-product for which the cost reduction method is used.
926
Chapter 9
ANSWER:
a.
SALES VALUE
UNIT COST
b.
B 1,000 x $10
C 1,000 x $5
UNIT COST
Chapter 9
13.
A Manufacturing Company makes three products: A and B are considered main products
and C a by-product.
Production and sales for the year were:
220,000 lbs. of Product A, salable at $6.00
180,000 lbs. of Product B, salable at $3.00
50,000 lbs. of Product C, salable at $.90
Production costs for the year:
Joint costs
Costs after separation:
Product A
Product B
Product C
$276,600
320,000
190,000
6,900
Required: Using the by-product revenue as a cost reduction and net realizable value
method of assigning joint costs, compute unit costs (a) if C is a by-product of the process
and (b) if C is a by-product of B.
928
Chapter 9
ANSWER:
a.
JOINT COST
NRV C
TO ALLOCATE
$276,600
(38,100) (50,000 $.90) $6,900
$238,500
NRV
A $1,000,000 =
$1,000,000/$1,388,100 $276,600 = $199,265
B $350,000 + $38100 =
388,100/$1,388,100 $276,600 = $ 77,335
$1,388,100
UNIT COST
A ($199,265 + $320,000)/220,000 = $2.36
B ($77,335 + $151,900)/180,000 = $1.27
MEDIUM
Chapter 9
14.
Smith Co. processes raw material in Department 1 from which come two main products, A
and B, and a by-product, C. A is further processed in Department 2, B in Department 3,
and C in Department 4. The value of the by-product reduces the cost of the main
products, and sales value is used to allocate joint costs.
Cost Incurred:
Production:
A
B
C
Selling Price:
A
B
C
Dept 1
$90,000
Dept 2
$10,000
Dept 3
$8,000
10,000 lbs.
20,000 lbs.
10,000 lbs.
$10/lb.
$5/lb.
$2/lb.
Required:
a.
b.
c.
Dept 4
$10,000
930
Chapter 9
ANSWER:
a.
JOINT COST
SALES VALUE
$90,000
(20,000) (10,000 $2)
$70,000
SALES VALUE
A 10,000 $10 = $100,000/$200,000 $70,000 = $35,000
B 20,000 $ 5 = 100,000/$200,000 $70,000 = $35,000
$200,000
UNIT COST
A ($35,000 + $10,000)/10,000 = $4.50
B ($35,000 + $8,000)/20,000 = $2.15
b.
ENDING INVENTORY
B 5,000 $2.15 = $10,750
C 1,000 $2.00 = 2,000
$12,750
c.
NRV
A $100,000 $10,000 = $ 90,000/$182,000 $70,000 = $34,615
B $100,000 $8,000 =
92,000/$182,000 $70,000 = 35,385
$182,000
$70,000
UNIT COST
A ($34,615 + $10,000)/10,000 = $4.46
B ($35,385 + $8,000)/20,000 = $2.17
ENDING INVENTORY
B 5,000 $2.17 = $10,850
C 1,000 $2.00 =
2,000
$12,850
MEDIUM
Chapter 9
15.
Three identifiable product lines, Products A, B, and C, are obtained in fixed quantities
from a basic processing operation. The cost of the basic operation is $320,000 for a yield
of 5,000 tons of Product A; 2,000 tons of Product B; and 1,000 tons of Product C. The
basic processing cost is allocated to the product lines in proportion to the relative weight
produced.
Beltway Products Company does both the basic processing work and the further
refinement of the three product lines. After the basic operation, the products can be sold
at the following prices per metric ton:
Product A$60
Product B$53
Product C$35
Costs to refine each of the three product lines follow:
A
$8
$20,000
Product Lines
B
C
$7
$4
$16,000
$6,000
The fixed cost of the refining operation will not be incurred if the product line is not
refined.
The refined products can be sold at the following prices per metric ton:
Product A$75
Product B$65
Product C$40
Required:
a.
Determine the total unit cost of each product line in a refined state.
b.
Which of the three product lines, if any, should be refined and which should be sold
after the basic processing operation? Show computations.
932
Chapter 9
ANSWER:
a.
WT
A 5,000
B 2,000
C 1,000
8,000
ALLOCATION
5,000/8,000 $320,000 = $200,000
2,000/8,000 $320,000 = 80,000
1,000/8,000 $320,000 = 40,000
$320,000
UNIT COST
A ($200,000 + $20,000)/5,000 + $8 = $52
B ($80,000 + $16,000)/2,000 + $7 = $55
C ($40000 + $6,000)/1,000 + $4 =
$50
b.
MEDIUM
Chapter 9
16.
The Stone Company produced three joint products at a joint cost of $100,000. These
products were processed further and sold as follows:
Product
A
B
C
Sales
$245,000
330,000
175,000
The company has had an opportunity to sell at split-off directly to other processors. If
that alternative had been selected, sales would have been: A, $56,000; B, $28,000; and C,
$56,000.
The company expects to operate at the same level of production and sales in the
forthcoming year.
Required: Consider all the available information and assume that all costs incurred after
split-off are variable.
a.
Could the company increase net income by altering its processing decisions? If so,
what would be the expected overall net income?
b.
Which products should be processed further and which should be sold at split-off?
934
Chapter 9
ANSWER:
a.
Currently NI is
Sales
Additional Processing Costs
JC
$750,000
(600,000 )
$150,000
(100,000)
$ 50,000
EASY
Sales
Cost
NI/(LOSS)
A
$189,000
(200,000)
$(11,000)
B
$302,000
(300,000)
$ 2,000
C
$119,000
(100,000 )
$ 19,000