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If a company obtains two salable products from the refining of one ore, the refining process should be accounted for as a(n)
a.
mixed cost process.
b.
joint process.
c.
extractive process.
d.
reduction process.
ANSWER:
b
EASY
2.
Joint costs are allocated to joint products to
a.
obtain a cost per unit for financial statement purposes.
b.
provide accurate management information on production costs of each type of
product.
c.
compute variances from expected costs for each joint product.
d.
allow the use of high-low analysis by the company.
ANSWER:
a
EASY
3.
Joint costs are allocated to which of the following products?
By-products
Scrap
a.
yes
yes
b.
yes
no
c.
no
no
d.
no
yes
ANSWER:
c
EASY
4.
Joint cost allocation is useful for
a.
decision making.
b.
product costing.
c.
control.
d.
evaluating managers performance.
ANSWER:
b
EASY
5.
Joint costs are useful for
a.
setting the selling price of a product.
b.
determining whether to continue producing an item.
c.
evaluating management by means of a responsibility reporting system.
d.
determining inventory cost for accounting purposes.
ANSWER:
d
EASY
6.
Which of the following components of production are allocable as joint costs when a single manufacturing process produces several
salable products?
a.
direct material, direct labor, and overhead
b.
direct material and direct labor only
c.
direct labor and overhead only
d.
overhead and direct material only
ANSWER:
a
EASY
7.
Each of the following is a method to allocate joint costs except
a.
relative sales value.
b.
relative net realizable value.
c.
relative weight, volume, or linear measure.
d.
average unit cost.
ANSWER:
d
EASY
8.
Joint costs are most frequently allocated based upon relative
a.
profitability.
b.
conversion costs.
c.
prime costs.
d.
sales value.
ANSWE: d
EASY
9.
When allcating joint process cost based on tons of output, all products will
a.
be salable at split-off.
b.
have the same joint cost per ton.
c.
have a sales value greater than their costs.
d.
have no disposal costs at the split-off point.
ANSWER:
b
EASY
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.
assigns a proportionate amount of the total cost to each product on a quantitative basis.
b.
maximizes total earnings.
c.
minimizes variations in unit production costs.
d.
does not introduce an element of estimation into the process of accumulating costs for each product.
ANSWER:
a
EASY
11.
Scrap is defined as a
a.
finished unit of product that has no sales value.
b.
residual of the production process that has limited sales value.
c.
residual of the production process that can be reworked for sale as an irregular unit of product.
d.
residual of the production process that has no sales value.
ANSWER:
b
EASY
12.
Waste created by a production process is
a.
accounted for in the same manner as defective units.
b.
accounted for as an abnormal loss.
c.
material that can be sold as an irregular product.
d.
discarded rather than sold.
ANSWER:
d
EASY
13.
While preparing a salad, you remove the core of a head of lettuce. This core would be classified as
a.
defective.
b.
shrinkage.
c.
waste.
d.
scrap.
ANSWER:
c
EASY
14.
Which of the following is/are synonyms for joint products?
yes
significant
yes
b.
c.
no
no
yes
no
yes
no
ANSWER:
EASY
28.
X
Z
Yards
1,500
2,200
Disposal
Sales price cost per
per yard at yard at
split-off split-off
P6.00
P3.50
9.00
5.00
Further
Final sale
processing price per
per yard yard
P1.00
P 7.50
3.00
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 peso)?
a.
P4,000
b.
P4,757
c.
P5,500
d.
P3,243
ANSWER:
d
EASY
38.
Using a physical measure, what amount of joint processing cost is allocated to Z (round to the nearest peso)?
a.
P4,000
b.
P3,243
c.
P5,500
d.
P4,757
ANSWER:
d
EASY
39.
Using sales value at split-off, what amount of joint processing cost is allocated to X (round to the nearest peso)?
a.
P5,500
b.
c.
d.
P2,500
P4,000
P3,243
ANSWER:
b
MEDIUM
40.
Using sales value at split-off, what amount of joint processing cost is allocated to Z (round
to the nearest peso)?
a.
P5,500
b.
P4,000
c.
P2,500
d.
P4,757
ANSWER:
a
MEDIUM
41.
Using net realizable value at split-off, what amount of joint processing cost is allocated to X (round to the nearest peso)?
a.
P4,000
b.
P5,610
c.
P2,390
d.
P5,500
ANSWER:
c
MEDIUM
42.
Using net realizable value at split-off, what amount of joint processing cost is allocated to Z (round to the nearest peso)?
a.
P5,500
b.
P4,000
c.
P2,390
d.
P5,610
ANSWER:
d
MEDIUM
43.
Using approximated net realizable value at split-off, what amount of joint processing cost is allocated to X (round to the nearest peso)?
a.
P3,090
b.
P5,204
c.
P4,000
d.
P2,390
ANSWER:
a
MEDIUM
44.
Using approximated net realizable value at split-off, what amount of joint processing cost is allocated to Z (round to the nearest peso)?
a.
P2,796
b.
P4,910
c.
P4,000
d.
P2,390
ANSWER:
b
MEDIU
45.
Which products would be processed further?
a.
only X
b.
only Z
c.
both X and Z
d.
neither X or Z
ANSWER:
a
MEDIUM
Use the following information for questions 4651.
Tiny Co. produces three products: Bo, Mo, and Lo from the same process. Joint costs for this production run are P2,100.
Disposal
Sales price cost per Further
Final
per lb. at lb. at
processing sales price
Pounds
split-off split-off per pound per pound
Bo
800
P6.50
P 3.00
P2.00
P 7.50
Mo
1,100
8.25
4.20
3.00
10.00
Lo
1,500
8.00
4.00
3.50
10.50
If the products are processed further, Tiny Co. will incur the following disposal costs upon sale: Bo, P3.00; Mo, P2.00; and Lo, P1.00.
46.
Using a physical measurement method, what amount of joint processing cost is allocated to Bo (round to the nearest peso)?
a.
P700
b.
P679
c.
P927
d.
P494
ANSWER:
d
EASY47. Using a physical measurement method, what amount of joint processing cost is allocated
to Mo (round to the nearest peso)?
a.
P494
b.
P679
c.
P927
d.
P700
ANSWER:
b
EASY
48.
Using sales value at split-off, what amount of joint processing cost is allocated to Mo (round to the nearest peso)?
a.
P700
b.
P416
c.
P725
d.
P959
ANSWER:
c
MEDIUM
49.
Using sales value at split-off, what amount of joint processing cost is allocated to Lo (round to the nearest peso)?
a.
P959
b.
P725
c.
P700
d.
P416
ANSWER:
a
MEDIUM
50.
Using net realizable value at split-off, what amount of joint processing cost is allocated to Bo (round to the nearest peso)?
a.
P706
b.
P951
c.
P700
d.
P444
ANSWER:
d
MEDIUM
51.
Using net realizable value at split-off, what amount of joint processing cost is allocated to Lo (round to the nearest peso)?
a.
P706
b.
P951
c.
P444
d.
P700
ANSWER:
MEDIUM
Cep
Dap
Eek
Gok
Barrels
750
1,000
1,400
2,000
Disposal
Sales price cost
per barrel per barrel
at split-off at split-off
P10.00
P6.50
8.00
4.00
11.00
7.00
15.00
9.50
Final
Further
sales
processing
price
costs
per barrel
P2.00
P13.50
2.50
10.00
4.00
15.50
4.50
19.50
If Rax sells the products after further processing, the following disposal costs will be incurred: Cep, P2.50; Dap, P1.00; Eek, P3.50; Gok, P6.00.
54.
Using a physical measurement method, what amount of joint processing cost is allocated to Dap?
a.
P1,748
b.
P2,447
c.
P1,311
d.
P3,495
ANSWER:
a
MEDIUM
55.
Using a physical measurement method, what amount of joint processing cost is allocated to Eek?
a.
P3,495
b.
P2,447
c.
P1,748
d.
P1,311
ANSWER:
b
MEDIU
56.
Using sales value at split-off, what amount of joint processing cost is allocated to Dap?
a.
P4,433
b.
P2,276
c.
P1,108
d.
P1,182
ANSWER:
d
MEDIUM
57.
Using sales value at split-off, what amount of joint processing cost is allocated to Gok?
a.
P4,433
b.
P1,182
c.
P1,108
d.
P2,276
ANSWER:
a
MEDIUM
58.
Using net realizable value at split-off, what amount of joint processing cost is allocated to Cep?
a.
P1,550
b.
P1,017
c.
P4,263
d.
P2,170
ANSWER:
b
MEDIUM
59.
Using net realizable value at split-off, what amount of joint processing cost is allocated to Eek?
a.
P1,017
b.
P1,550
c.
P2,170
d.
P4,263
ANSWER:
c
MEDIUM
Use the following information for questions 6063.
Sun Co. produces three products from the same process that has joint processing costs of P4,100. Products RR, SS, and TT are produced in the
following gallons per month, respectively: 250, 400, and 750. Sun also incurred advertising costs of P60,000; the ad was used to run sales for all
three products. They occupy floor space in the following ratio: 5:4:9. (Round all answers to the nearest peso.)
60.
Using gallons as the physical measurement, what amount of joint processing cost is allocated to SS?
a.
P2,196
b.
P1,171
c.
P1,367
d.
P732
ANSWER:
b
EASY
61.
Using gallons as the physical measurement, what amount of joint processing cost is allocated to TT?
a.
P2,196
b.
P732
c.
P1,367
d.
P1,171
ANSWER:
a
EASY
62.
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.
P20,000
b.
P17,806
c.
P1,139
d.
P16,667
ANSWER:
d
EASY
63.
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.
P911
b.
P14,244
c.
P13,333
d.
P20,000
ANSWER:
c
EASY
64.
Love Co. manufactures products A and B from a joint process. Sales value at split-off was P700,000 for 10,000 units of A, and
P300,000 for 15,000 units of B. Using the sales value at split-off approach, joint costs properly allocated to A were P140,000. Total joint costs
were
a.
P98,000.
b.
P200,000.
c.
P233,333.
d.
P350,000.
ANSWER:
b
EASY
65.
Lite Co. manufactures products X and Y from a joint process that also yields a by-product, 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
Total
10,000
50,000
P262,000
P460,000
Joint costs were allocated using the sales value at split-off approach. The joint costs allocated to product X were
a.
P75,000.
b.
P100,800.
c.
P150,000.
d.
P168,000.
ANSWER:
d
EASY
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.
MEDIUM
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
4.
Briefly discuss the restrictions and requirements on service organizations and notfor-profits 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. Not-for-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
Use the following information for questions 7 and 8.
BL Company produces only two products and incurs joint processing costs that total P3,750. Products Aba and Ibi are produced in the following
quantities during each month: 4,500 and 6,000 gallons, respectively. BL also runs one ad each month that advertises both products at a cost of
P1,500. The selling price per gallon for the two products are P20 and P17.50, respectively.
7.
What amount of joint processing costs is allocated to each product based on gallons produced?
ANSWER:
A = 4,500/10,500 P3,750 = P1,607
I = 6,000/10,500 P3,750 = P2,143
EASY
8.
What amount of advertising cost is allocated to each product based on sales value?
ANSWER:
A = 4,500 P20.00 = P 90,000/P195,000 P1,500 = P692
I = 6,000 P17.50 = 105,000/P195,000 P1,500 = P808
P195,000
MEDIUM
Use the following information for questions 9 and 10.
GAB Company produces three products from the same process and incurs joint processing costs of P3,000.
Mat
Nat
Qat
Gallons
2,300
1,100
500
Disposal
Sales price cost per
per gallon gallon at
at split-off split-off
P 4.50
P1.25
6.00
3.00
10.00
8.00
Further
Final sales
processing price per
costs
gallon
P1.00
P 7.00
2.00
10.00
2.00
15.00
Disposal costs for the products if they are processed further are:
Mat, P3.00; Nat, P5.50; Qat, P1.00.
9.
10.
What amount of joint processing cost is allocated to the three products using sales value at split-off?
ANSWER:
M = 2,300 P 4.50 = P10,350/P21,950 P3,000 = P1,415
N = 1,100 P 6.00 = P 6,600 P21,950 P3,000 = P902
Q = 500 P10.00 = P 5,000/P21,950 P3,000 = P683
P21,950
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*
P4.50 P1.25 = P3.25
P6.00 P3.00 = 3.00
P10.00 P8.00 = 2.00
M = 2,300 P 3.25* =
P 7,475 /P11,775 P3,000 = P1,904
N = 1,100 P 3.00* =P 3,300 /P11,775 P3,000 = P 841
Q = 500 P 2.00* = P 1,000 /P11,775 P3,000 = P 255
P11,775
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 bfore separationP 200,000
Costs after separation:
A
50,000
B
32,000
C
4,000
Production for April, in pounds:
A
800,000
B
200,000
C
20,000
Sales for April:
A
640,000 pounds @ P.4375
B
180,000 pounds @ .65
C
20,000 pounds @ .30
Required: Determine the gross profit for April.
ANSWER:
NRV C
P6,000
(4,000
P2,000
NRV:
A
B
SALES VALUE
A
B
C
UNIT COST
2,000 P15 =
P30,000/P45,000 P7,500 =
P5,000/2,000 = P2.50
1,000 x P10
P10,000/P45,000 x P7,500 =
P1,667/1,000 = P1.67
1,000 x P5 P 5,000/P45,000 x P7,500 =
P 833/1,000 = P .83
P45,000 P7,500
b.
ALLOCATION
P1,000,000/P1,350,000 P238,500 =
P 350,000/P1,350,000 P238,500 =
UNIT COST:
A (P176,667 + P320,000)/220,000 =
B (P61,833 + P190,000)/180,000 =
b.
NRV
A
B
P176,667
61,833
P238,500
P2.26
P1.40
P1,000,000 =
P1,000,000/P1,388,100 P276,600 = P199,265
P350,000 + P38100 =
388,100/P1,388,100 P276,600 = P 77,335
P1,388,100
UNIT COST
A
(P199,265 + P320,000)/220,000 = P2.36
B
(P77,335 + P151,900)/180,000 = P1.27
MEDIUM
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
P90,000
Dept 2
P10,000
Dept 3
P8,000
Dept 4
P10,000
10,000 lbs.
20,000 lbs.
10,000 lbs.
P10/lb.
P5/lb.
P2/lb.
Required:
a.
Compute unit costs for A and B.
b.
Ending inventory consists of 5,000 lbs. of B and 1,000 lbs. of C.
What is the value of the inventory?
c.
Recompute a and b allocating cost based on net realizable value.
ANSWER:
a.
JOINT COST
P90,000
SALES VALUE
(20,000 )
(10,000 P2)
P70,000
SALES VALUE
A
10,000 P10 =
P100,000/P200,000 P70,000 = P35,000
B
20,000 P 5 =
100,000/P200,000 P70,000 = P35,000
P200,000
UNIT COST
A
(P35,000 + P10,000)/10,000 = P4.50
B
(P35,000 + P8,000)/20,000 = P2.15
b.
ENDING INVENTORY
B
5,000 P2.15 =
P10,750
C
1,000 P2.00 =
2,000
P12,750
c.
NRV
A
B
P10,850
2,000
MEDIUM
.
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 P320,000 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 AP60
Product BP53
Product CP35
Costs to refine each of the three product lines follow:
Product Lines
A
Variable cost per metric ton
Total fixed cost
P20,000
B
P8
P16,000
C
P7
P6,000
P4
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 AP75
Product BP65
Product CP40
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.
ANSWER:
WT
a.
A
B
C
2,000
1,000
8,000
ALLOCATION
5,000
5,000/8,000 P320,000 =
P200,000
2,000/8,000 P320,000 =
80,000
1,000/8,000 P320,000 =
40,000
P320,000
UNIT COST
A
(P200,000 + P20,000)/5,000 + P8 =
B
(P80,000 + P16,000)/2,000 + P7 =
C
(P40000 + P6,000)/1,000 + P4 = P50
P52
P55
b.
Sales
P245,000
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, P56,000; B, P28,000; and C, P56,000.
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?ANSWER:
a.
Currently NI is
Sales
P750,000
Additional Processing Costs
JC
(600,000 )
P150,000
(100,000 )
P 50,000
EASY
A
Sales
P189,000
Cost (200,000 )
NI/(LOSS)P(11,000 )
B
C
P302,000
(300,000 )
P 2,000
P119,000
(100,000 )
P 19,000