Ch15 Exam Prep Joint Costs And Decision[1]making

CHAPTER 15

JOINT COSTS AND DECISION-MAKING

CHAPTER LEARNING OBJECTIVES

Outline the rationale for joint costing.
Explain the three methods of allocating joint costs.
Determine the factors in deciding whether to sell now or process further.
Describe the two methods of treating by-products and scrap.

Current count is:
Knowledge: 29
Comprehension: 25
Application: 52
Analysis: 25
Evaluation: 0
Synthesis: 0
Total: 131

Number and percentage of questions:

Easy: 30

Medium: 86
Hard: 15

Question types:
Multiple Choice: 105

Short Answer: 5

Brief Exercises: 11

Exercises: 8

Problems: 2

MULTIPLE-CHOICE QUESTIONS

A common cost

a. uses a common set of production costs, used in one common production process, to produce one product.

b. uses a common set of production costs used in one common production process to yield two products simultaneously.

c. uses a multiple set of production costs, used in one common production process to yield more than one product simultaneously.

d. uses a common set of production costs used in one common production process to yield more than one product simultaneously.

Ans: D, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Products with a substantial value produced simultaneously by the same process up to a split-off point are called

a. by-products.

b. joint products.

c. separable products.

d. either by-products or joint products.

Ans: B, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

The split-off point is

a. the point in the process the products become separate and identifiable.

b. the point in the process, the company determines which product to process further.

c. the point in the production process where no further processing is needed.

d. the point in the process the product is ready to sell.

Ans: A, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

A secondary product recovered in producing a primary product during the joint process that has future use is called

a. scrap.

b. waste.

c. a by-product.

d. a joint product.

Ans: C, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

All of the following statements about joint costs are true except:

a. Allocation is not necessary when costs are incurred using a joint process.

b. Joint costs are the costs incurred jointly in the production of two or more products.

c. The costs cannot be directly assigned to any one product involved.

d. Joint costs are incurred when making multiple products.

Ans: A, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

The cost of fertilizing and harvesting sunflowers is an example of:

a. joint products.

b. by-products

c. joint costs.

d. cost allocation.

Ans: C, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Molasses would be considered what type of unintended output from refining sugar?

a. Joint product.

b. Scrap.

c. Waste.

d. By-product.

Ans: D, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Harvesting of corn produces corn husks. In a joint process, what type of unintended output are corn husks?

a. Joint product.

b. Scrap.

c. Waste.

d. By-product.

Ans: B, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

In a joint process, waste would be considered all of the following except:

a. Waste is an unintended output.

b. Waste has economic value.

c. Waste is disposed of.

d. Waste is a by-product.

Ans: B, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Once a company classifies an unintended output of the joint process as a by-product, waste, or scrap,

a. the company will continue that classification until it no longer produces the product.

b. the company will evaluate the classifications yearly.

c. the classifications will remain fluid and can change as the usefulness of the products changes.

d. the classifications will change based on the profitability of the product.

Ans: C, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

The following costs are included in joint costs:

a. direct materials.

b. direct labor.

c. direct material and direct labor.

d. direct material, direct labor, and manufacturing overhead.

Ans: D, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Separable costs are also known as

a. by-products.

b. joint costs.

c. further processing costs.

d. common costs.

Ans: C, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Further processing costs are costs that

a. are incurred within the joint process.

b. are incurred to sell the product as is.

c. are incurred to create a by-product.

d. are incurred to process the product further.

Ans: D, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

All of the following statements about joint products are true, except:

a. All joint products can be sold at the split-off point.

b. A product that is processed further should be sold for a higher price.

c. Management must make a decision at split-off to process further or sell the product.

d. There is no economic value attached to some products at the split-off point.

Ans: A, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Xander incurs costs of $20,000 for direct materials, $15,000 for direct labor, and $10,000 for manufacturing overhead. The costs incurred resulted in a single process that resulted in two products, Bugs, and Rugs. Bugs can be sold at split-off for $60,000 or be processed further at a cost of $15,000. The new product, Dubs, can be sold for $105,000. How much are Xander’s joint costs?

a. $30,000.

b. $35,000.

c. $45,000.

d. $60,000.

Ans: C, LO 1, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: $20,000 + $15,000 + $10,000 = $45,000.

DM + DL + MOH (Before split-off)

When manufacturing a wooden chair, sawdust would be an example of

a. Joint product.

b. Scrap.

c. Waste.

d. By-product.

Ans: D, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Which of the following is a by-product?

a. whole milk.

b. lumber.

c. honey.

d. fertilizer.

Ans: D, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Which of the following statements best describes a by-product?

a. A product that has a selling price similar to that of the main product.

b. A product that is created along with the main product and the sales value does not cover its cost of production.

c. A product that is produced from material that would otherwise be scrapped.

d. A product that has a lower unit selling price than the main product.

Ans: C, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Which of the following are identifiable as different individual products before split-off for cost accumulate purposes?

Option By-products Joint products

A No No

B Yes No

C Yes Yes

D No Yes

a. A.

b. B.

c. C.

d. D.

Ans: A, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Joint costs are

a. separable costs.

b. allocated on the basis of cause-and-effect relationships.

c. further processing costs.

d. allocated arbitrarily.

Ans: B, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

The _____ method of allocating joint costs uses pounds of product produced.

a. sales value at split-off.

b. net realizable value.

c. physical quantities.

d. weighted average.

Ans: C, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

The method of allocating joint costs that would assign the same amount of cost per unit to two joint products that sell for $5 and $15, respectively, is the

a. sales value at split-off method.

b. net realizable value method.

c. physical quantities method.

d. direct allocation method.

Ans: C, LO 2, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

When there is no ready market price available for an individual product at the split-off point, which method of allocation should be used?

a. sales value at split-off method.

b. net realizable value method.

c. physical quantities method.

d. direct allocation method.

Ans: B, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

The sales value at split-off method allocates joint costs of production using the

a. prospective sales values of the process’s total production and the relative proportion of each product’s sales value to the total.

b. relative proportion of each product’s sales value to the total.

c. final sales value less further processing costs after the split-off point.

d. prospective sales values of the process’s total production.

Ans: A, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Which allocation method recognizes that costs incurred after the split-off point are part of the cost total on which profit is expected to be earned?

a. sales value at split-off method.

b. net realizable value method.

c. physical quantities method.

d. direct allocation method.

Ans: B, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Which of the following statements is true regarding the consideration of allocation costs at split-off?

a. Allocating joint costs using the average costs is the quickest and most accurate process.

b. The sales value at the split-off method is the only true way to allocate joint costs to joint products.

c. There are three methods that can be used to allocate costs.

d. If there are two products equal in value at the split-off point, it would make the most sense to use an even allocation of costs.

Ans: C, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

The sales price at split-off is used to allocate

Option Cost Beyond Split-Off Joint Costs

A No No

B Yes No

C Yes Yes

D No Yes

a. A.

b. B.

c. C.

d. D.

Ans: D, LO 2, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

The net realizable value (NRV) of a product is the

a. final sales value less additional processing costs and allocated joint costs.

b. final sales value less additional processing costs.

c. sales at split-off less additional process costs.

d. sales at split-off less additional processing costs and allocated joint costs.

Ans: B, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

If the sales price at the split-off point is available and reliable, the best method of allocating joint product costs is the

a. sales value at split-off method.

b. net realizable value method.

c. physical quantities method.

d. direct allocation method.

Ans: A, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

If the sales price at the split-off point is not available, but the net realizable value is available and reliable, the best method of allocating joint product costs is the

a. sales value at split-off method.

b. net realizable value method.

c. physical quantities method.

d. direct allocation method.

Ans: B, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

If the sales price at the split-off point and the net realizable value is not available, the best method of allocating joint product costs is the

a. sales value at split-off method.

b. net realizable value method.

c. physical quantities method.

d. direct allocation method.

Ans: C, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

If the necessary information is available, which method is preferred when allocating joint costs?

a. sales value at split-off method.

b. net realizable value method.

c. physical quantities method.

d. direct allocation method.

Ans: A, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

The sales value at split-off method is preferred. All the following are true regarding the reasons, except:

a. Sales prices at the split-off point are objective.

b. The sales value at split-off method measures the true economic value of a company.

c. The sales value at split-off method measures benefits returned to the company.

d. The ROI (return on investment) is accurately measured and the point of being in business.

Ans: B, LO 2, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

The biggest challenge of the physical quantities method is

a. the economic value returned to the company is accurately measured.

b. the significant variability in end prices.

c. no common denominator.

d. companies will fully expense joint costs in the periods they are incurred.

Ans: C, LO 2, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

If a company has no estimates to allocate joint product costs, a company will typically

a. use the sales value at split-off method.

b. use the net realizable value method.

c. use the physical quantities method.

d. fully expense the joint costs in the period they are incurred.

Ans: C, LO 2, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Which of the following would not be considered a physical measure to allocate joint costs using the physical quantities method?

a. feet of lumber.

b. dollars of labor.

c. ounces of gold.

d. tons of steel.

Ans: B, LO 2, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Cisco Company manufactures three products, A, B & C. These three products are created through a joint process that costs $26,000. The following data is provided for the three products:

Sales Value

Product Units Produced at Split-off

A 6,000 $2,500

B 10,000 5,000

C 8,000 3,000

What is the amount of joint costs assigned to Product A using the sales-value-at-split-off method? (Round the nearest whole dollar)

a. $1,010.

b. $6,190.

c. $6,500.

d. $14,857.

Ans: B, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: $2,500 ÷ ($2,500 + $5,000 + $3,000) x $26,000 = $6,190.

A sales value. ÷ (A sales value. + B Sales value. + C sales value.) x joint costs

Cisco Company manufactures three products, A, B & C. These three products are created through a joint process that costs $26,000. The following data is provided for the three products:

Sales Value

Product Units Produced at Split-off

A 6,000 $2,500

B 10,000 5,000

C 8,000 3,000

What is the amount of joint costs assigned to Product B using the sales-value-at-split-off method? (Round the nearest whole dollar)

a. $2,019.

b. $10,833.

c. $12,381.

d. $24,762.

Ans: C, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: $5,000 ÷ ($2,500 + $5,000 + $3,000) x $26,000 = $12,381.

B sales value. ÷ (A sales value. + B Sales value. + C sales value.) x joint costs

Cisco Company manufactures three products, A, B & C. These three products are created through a joint process that costs $26,000. The following data is provided for the three products:

Sales Value

Product Units Produced at Split-off

A 6,000 $2,500

B 10,000 5,000

C 8,000 3,000

What is the amount of joint costs assigned to Product C using the sales-value-at-split-off method? (Round the nearest whole dollar)

a. $1,212.

b. $7,429.

c. $8,667.

d. $19,810.

Ans: B, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: $3,000 ÷ ($2,500 + $5,000 + $3,000) x $26,000 = $7,429.

C sales value. ÷ (A sales value. + B Sales value. + C sales value.) x joint costs

Tober Inc. operates a lumber yard. Tober purchases the raw materials for $50,000 and incurs additional processing costs of $35,000 to obtain three observable joint products. Further processing and final sales values for the products are as follows:

Further Final

Product Processing Costs Sales Value

25 ft board $10,000 $50,000

30 ft board 12,000 55,000

50 ft board 18,000 62,000

What is the amount of joint costs assigned to the 25 ft board using the net realizable value (NRV) method? (Round the nearest whole dollar)

a. $40,000.

b. $21,250.

c. $25,449.

d. $26,772.

Ans: D, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: ($50,000 - $10,000) + ($55,000 - $12,000) + ($62,000 – $18,000) = $127,000

($50,000 - $10,000) ÷ $127,000 x ($50,000 + $35,000) = $26,772.

(25 ft sales value – 25 ft costs) + (30 ft sales value – 30 ft costs) +(50 ft sales value – 50 ft costs) = total NRV

(25 ft sales value – 25 ft costs) ÷ total NRV x (raw mat. + additional processing costs)

Tober Inc. operates a lumber yard. Tober purchases the raw materials for $50,000 and incurs additional processing costs of $35,000 to obtain three observable joint products. Further processing and final sales values for the products are as follows:

Further Final

Product Processing Costs Sales Value

25 ft board $10,000 $50,000

30 ft board 12,000 55,000

50 ft board 18,000 62,000

What is the amount of joint costs assigned to the 30 ft board using the net realizable value (NRV) method? (Round the nearest whole dollar)

a. $43,000.

b. $25,500.

c. $27,994.

d. $28,780.

Ans: D, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: ($50,000 - $10,000) + ($55,000 - $12,000) + ($62,000 – $18,000) = $127,000

($55,000 - $12,000) ÷ $127,000 x ($50,000 + $35,000) = $28,780.

(25 ft sales value – 25 ft costs) + (30 ft sales value – 30 ft costs) +(50 ft sales value – 50 ft costs) = total NRV

(30 ft sales value – 30 ft costs) ÷ total NRV x (raw mat. + additional processing costs)

Tober Inc. operates a lumber yard. Tober purchases the raw materials for $50,000 and incurs additional processing costs of $35,000 to obtain three observable joint products. Further processing and final sales values for the products are as follows:

Further Final

Product Processing Costs Sales Value

25 ft board $10,000 $50,000

30 ft board 12,000 55,000

50 ft board 18,000 62,000

What is the amount of joint costs assigned to the 50 ft board using the net realizable value (NRV) method? (Round the nearest whole dollar)

a. $44,000.

b. $29,449.

c. $31,557.

d. $38,250.

Ans: B, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: ($50,000 - $10,000) + ($55,000 - $12,000) + ($62,000 – $18,000) = $127,000

($62,000 - $18,000) ÷ $127,000 x ($50,000 + $35,000) = $29,449.

(25 ft sales value – 25 ft costs) + (30 ft sales value – 30 ft costs) +(50 ft sales value – 50 ft costs) = total NRV

(50 ft sales value – 50 ft costs) ÷ total NRV x (raw mat. + additional processing costs)

Tober Inc. operates a lumber yard. Tober purchases the raw materials for $50,000 and incurs additional processing costs of $35,000 to obtain three observable joint products. Further processing and final sales values for the products are as follows:

Further Final

Product Processing Costs Sales Value

25 ft board $10,000 $50,000

30 ft board 12,000 55,000

50 ft board 18,000 62,000

What is the gross margin for the 25 ft board using the net realizable value (NRV) method to allocate joint costs? (Round the nearest whole dollar)

a. $40,000.

b. $50,000.

c. $13,228.

d. $26,772.

Ans: C, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: ($50,000 - $10,000) + ($55,000 - $12,000) + ($62,000 – $18,000) = $127,000

($50,000 - $10,000) ÷ $127,000 x ($50,000 + $35,000) = $26,772.

$50,000 - $10,000 - $26,772 = $13,228

(25 ft sales value – 25 ft costs) + (30 ft sales value – 30 ft costs) +(50 ft sales value – 50 ft costs) = total NRV

(25 ft sales value – 25 ft costs) ÷ total NRV x (raw mat. + additional processing costs) = joint costs

Sales value – further processing costs– joint costs

Tober Inc. operates a lumber yard. Tober purchases the raw materials for $50,000 and incurs additional processing costs of $35,000 to obtain three observable joint products. Further processing and final sales values for the products are as follows:

Further Final

Product Processing Costs Sales Value

25 ft board $10,000 $50,000

30 ft board 12,000 55,000

50 ft board 18,000 62,000

What is the gross margin for the 30 ft board using the net realizable value (NRV) method to allocate joint costs? (Round the nearest whole dollar)

a. $43,000.

b. $55,000.

c. $14,220.

d. $28,780.

Ans: C, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: ($50,000 - $10,000) + ($55,000 - $12,000) + ($62,000 – $18,000) = $127,000

($55,000 - $12,000) ÷ $127,000 x ($50,000 + $35,000) = $28,780.

$55,000 - $12,000 - $28,780 = $14,220

(25 ft sales value – 25 ft costs) + (30 ft sales value – 30 ft costs) +(50 ft sales value – 50 ft costs) = total NRV

(30 ft sales value – 30 ft costs) ÷ total NRV x (raw mat. + additional processing costs)

Sales value – further processing costs– joint costs

Tober Inc. operates a lumber yard. Tober purchases the raw materials for $50,000 and incurs additional processing costs of $35,000 to obtain three observable joint products. Further processing and final sales values for the products are as follows:

Further Final

Product Processing Costs Sales Value

25 ft board $10,000 $50,000

30 ft board 12,000 55,000

50 ft board 18,000 62,000

What is the gross margin for the 50 ft board using the net realizable value (NRV) method to allocate joint costs? (Round the nearest whole dollar)

a. $44,000.

b. $62,000.

c. $14,551.

d. $29,449.

Ans: C, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: ($50,000 - $10,000) + ($55,000 - $12,000) + ($62,000 – $18,000) = $127,000

($62,000 - $18,000) ÷ $127,000 x ($50,000 + $35,000) = $29,449.

$62,000 - $18,000 - $29,449 = $14,551

(25 ft sales value – 25 ft costs) + (30 ft sales value – 30 ft costs) +(50 ft sales value – 50 ft costs) = total NRV

(50 ft sales value – 50 ft costs) ÷ total NRV x (raw mat. + additional processing costs)

Sales value – further processing costs– joint costs

Expo manufacturing produces four different drinks. The joint process incurs costs of $250,000. The following information is related to the four products.

Weight Selling Price

Product Units Produced per Unit per Unit

Beatle 5,000 8 oz $1.10

Grasshopper 3,750 12 oz 1.50

Locust 2,500 16 oz 1.95

Buggy 1,250 24 oz 2.50

Using the physical quantities methods of allocating joint costs, how much joint costs would be allocated to Beatle? (Round the nearest whole dollar)

a. $33,333.

b. $39,007.

c. $70,362.

d. $100,000.

Ans: A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: 8 + 12 + 16 + 24 = 60 total oz

8 ÷ 60 x $250,000 = $33,333.

beat oz + grass oz + loc oz + bug oz = total oz

beat oz ÷ total oz x joint costs

Expo manufacturing produces four different drinks. The joint process incurs costs of $250,000. The following information is related to the four products.

Weight Selling Price

Product Units Produced per Unit per Unit

Beatle 5,000 8 oz $1.10

Grasshopper 3,750 12 oz 1.50

Locust 2,500 16 oz 1.95

Buggy 1,250 24 oz 2.50

Using the physical quantities methods of allocating joint costs, how much joint costs would be allocated to Grasshopper? (Round the nearest whole dollar)

a. $50,000.

b. $53,191.

c. $63,966.

d. $75,000.

Ans: A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: 8 + 12 + 16 + 24 = 60 total oz

12 ÷ 60 x $250,000 = $50,000.

beat oz + grass oz + loc oz + bug oz = total oz

grass oz ÷ total oz x joint costs

Expo manufacturing produces four different drinks. The joint process incurs costs of $250,000. The following information is related to the four products.

Weight Selling Price

Product Units Produced per Unit per Unit

Beatle 5,000 8 oz $1.10

Grasshopper 3,750 12 oz 1.50

Locust 2,500 16 oz 1.95

Buggy 1,250 24 oz 2.50

Using the physical quantities methods of allocating joint costs, how much joint costs would be allocated to Locust? (Round the nearest whole dollar)

a. $50,000.

b. $62,367.

c. $66,667.

d. $69,149.

Ans: C, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: 8 + 12 + 16 + 24 = 60 total oz

16 ÷ 60 x $250,000 = $66,667.

beat oz + grass oz + loc oz + bug oz = total oz

loc oz ÷ total oz x joint costs

Expo manufacturing produces four different drinks. The joint process incurs costs of $250,000. The following information is related to the four products.

Weight Selling Price

Product Units Produced per Unit per Unit

Beatle 5,000 8 oz $1.10

Grasshopper 3,750 12 oz 1.50

Locust 2,500 16 oz 1.95

Buggy 1,250 24 oz 2.50

Using the physical quantities methods of allocating joint costs, how much joint costs would be allocated to Buggy? (Round the nearest whole dollar)

a. $25,000.

b. $53,305.

c. $88,652.

d. $100,000.

Ans: D, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: 8 + 12 + 16 + 24 = 60 total oz

24 ÷ 60 x $250,000 = $100,000.

beat oz + grass oz + loc oz + bug oz = total oz

bug oz ÷ total oz x joint costs

Sky airlines produces two different aircrafts. The joint process incurs costs of $10 million. Both aircrafts can be sold at split-off or processed further to increase the final sales value. The following information is related to the two products. (all costs are recorded in millions)

Weight per Final Further Sales Value at

Product Units Unit (lbs) Sales Value Processing Costs at Split-Off

B752 15 90,000 $420 $200 $230

B797 25 110,000 480 260 310

If the sales price at split-off provided is reliable, what are the joint costs allocated to B752, using the appropriate method of allocation?

a. $4.26 million.

b. $4.50 million.

c. $4.67 million.

d. $5 million.

Ans: A, LO 2, Bloom: AN, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: $230 + $310 = $540

$230 ÷ $540 x $10 = $4.26

B752sale at split-off + B797 sale at split-off = total sale at split-off

B752sale at split-off ÷ total sale at split-off x joint process costs

Sky airlines produces two different aircrafts. The joint process incurs costs of $10 million. Both aircrafts can be sold at split-off or processed further to increase the final sales value. The following information is related to the two products. (all costs are recorded in millions)

Weight per Final Further Sales Value at

Product Units Unit (lbs) Sales Value Processing Costs at Split-Off

B752 15 90,000 $420 $200 $230

B797 25 110,000 480 260 310

If the sales price at split-off provided is reliable, what is the gross margin for B752, using the appropriate method of allocation?

a. $215 million.

b. $215.5 million.

c. $215.74 million.

d. $220 million.

Ans: C, LO 2, Bloom: AN, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: $230 + $310 = $540

$230 ÷ $540 x $10 = $4.26

$420 - $200 - $4.26 = $215.74

B752sale at split-off + B797 sale at split-off = total sale at split-off

B752sale at split-off ÷ total sale at split-off x joint process costs = B752 joint cost

B752 final sales– B752 further processing cost – B752 joint cost

Sky airlines produces two different aircrafts. The joint process incurs costs of $10 million. Both aircrafts can be sold at split-off or processed further to increase the final sales value. The following information is related to the two products. (all costs are recorded in millions)

Weight per Final Further Sales Value at

Product Units Unit (lbs) Sales Value Processing Costs at Split-Off

B752 15 90,000 $420 $200 $230

B797 25 110,000 480 260 310

If the sales price at split-off provided is reliable, what is the joint costs allocated to B797, using the appropriate method of allocation?

a. $5 million.

b. $5.33 million.

c. $5.50 million.

d. $5.74 million.

Ans: D, LO 2, Bloom: AN, Difficulty: Hard, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: $230 + $310 = $540

$310 ÷ $540 x $10 = $5.74

B752sale at split-off + B797 sale at split-off = total sale at split-off

B797sale at split-off ÷ total sale at split-off x joint process costs

Sky airlines produces two different aircrafts. The joint process incurs costs of $10 million. Both aircrafts can be sold at split-off or processed further to increase the final sales value. The following information is related to the two products. (all costs are recorded in millions)

Weight per Final Further Sales Value at

Product Units Unit (lbs) Sales Value Processing Costs at Split-Off

B752 15 90,000 $420 $200 $230

B797 25 110,000 480 260 310

If the sales price at split-off provided is reliable, what is the gross margin for B797, using the appropriate method of allocation?

a. $214.26 million.

b. $214.50 million.

c. $215 million.

d. $220 million.

Ans: A, LO 2, Bloom: AN, Difficulty: Hard, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: $230 + $310 = $540

$310 ÷ $540 x $10 = $5.74

$480 - $260 - $5.74 = $214.26

B752sale at split-off + B797 sale at split-off = total sale at split-off

B797sale at split-off ÷ total sale at split-off x joint process costs = B797 joint cost

B797 final sales– B797 further processing cost – B797 joint cost

Sky airlines produces two different aircrafts. The joint process incurs costs of $10 million. Both aircrafts can be sold at split-off or processed further to increase the final sales value. The following information is related to the two products. (all costs are recorded in millions)

Weight per Final Further Sales Value at

Product Units Unit (lbs) Sales Value Processing Costs at Split-Off

B752 15 90,000 $420 $200 $230

B797 25 110,000 480 260 310

If the sales price at split-off provided is not reliable, but the final sales value and further processing costs are reliable, what is the joint costs allocated to B752 using the appropriate method of allocation?

a. $4.26 million.

b. $4.50 million.

c. $4.67 million.

d. $5 million.

Ans: D, LO 2, Bloom: AN, Difficulty: Hard, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: ($420 - $200) + ($480 - $260) = $440

($420 - $200) ÷ $440 x $10 = $5

(B752 final sales– B752 further processing cost) + (B797 final sales– B797 further processing cost) = total NRV

(B752 final sales– B752 further processing cost) ÷ total NRV x joint process costs

Sky airlines produces two different aircrafts. The joint process incurs costs of $10 million. Both aircrafts can be sold at split-off or processed further to increase the final sales value. The following information is related to the two products. (all costs are recorded in millions)

Weight per Final Further Sales Value at

Product Units Unit (lbs) Sales Value Processing Costs at Split-Off

B752 15 90,000 $420 $200 $230

B797 25 110,000 480 260 310

If the sales price at split-off provided is not reliable, but the final sales value and further processing costs are reliable, what is the gross margin for B752 using the appropriate method of allocation?

a. $215 million.

b. $215.5 million.

c. $215.74 million.

d. $220 million.

Ans: A, LO 2, Bloom: AN, Difficulty: Hard, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: ($420 - $200) + ($480 - $260) = $440

($420 - $200) ÷ $440 x $10 = $5

$420 - $200 - $5 = $215

(B752 final sales– B752 further processing cost) + (B797 final sales– B797 further processing cost) = total NRV

(B752 final sales– B752 further processing cost) ÷ total NRV x joint process costs = B752 joint process cost

B752 final sales– B752 further processing cost - B752 joint process cost

Sky airlines produces two different aircrafts. The joint process incurs costs of $10 million. Both aircrafts can be sold at split-off or processed further to increase the final sales value. The following information is related to the two products. (all costs are recorded in millions)

Weight per Final Further Sales Value at

Product Units Unit (lbs) Sales Value Processing Costs at Split-Off

B752 15 90,000 $420 $200 $230

B797 25 110,000 480 260 310

If the sales price at split-off provided is not reliable, but the final sales value and further processing costs are reliable, what is the joint costs allocated to B797 using the appropriate method of allocation?

a. $5 million.

b. $5.33 million.

c. $5.50 million.

d. $5.74 million.

Ans: A, LO 2, Bloom: AN, Difficulty: Hard, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: ($420 - $200) + ($480 - $260) = $440

($480 - $260) ÷ $440 x $10 = $5

(B752 final sales– B752 further processing cost) + (B797 final sales– B797 further processing cost) = total NRV

(B797 final sales– B797 further processing cost) ÷ total NRV x joint process costs

Sky airlines produces two different aircrafts. The joint process incurs costs of $10 million. Both aircrafts can be sold at split-off or processed further to increase the final sales value. The following information is related to the two products. (all costs are recorded in millions)

Weight per Final Further Sales Value at

Product Units Unit (lbs) Sales Value Processing Costs at Split-Off

B752 15 90,000 $420 $200 $230

B797 25 110,000 480 260 310

If the sales price at split-off provided is not reliable, but the final sales value and further processing costs are reliable, what is the gross margin for B797 using the appropriate method of allocation?

a. $214.26 million.

b. $214.50 million.

c. $215 million.

d. $220 million.

Ans: C, LO 2, Bloom: AN, Difficulty: Hard, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: ($420 - $200) + ($480 - $260) = $440

($480 - $260) ÷ $440 x $10 = $5

$480 - $260 - $5 = $215

(B752 final sales– B752 further processing cost) + (B797 final sales– B797 further processing cost) = total NRV

(B797 final sales– B797 further processing cost) ÷ total NRV x joint process costs = B797 joint process cost

B797 final sales– B797 further processing cost - B797 joint process cost

Sky airlines produces two different aircrafts. The joint process incurs costs of $10 million. Both aircrafts can be sold at split-off or processed further to increase the final sales value. The following information is related to the two products. (all costs are recorded in millions)

Weight per Final Further Sales Value at

Product Units Unit (lbs) Sales Value Processing Costs at Split-Off

B752 15 90,000 $420 $200 $230

B797 25 110,000 480 260 310

If the sales price at split-off and the final sales values provided are not reliable, what is the joint costs allocated to B752 using the appropriate method of allocation?

a. $4.26 million.

b. $4.50 million.

c. $4.67 million.

d. $5 million.

Ans: B, LO 2, Bloom: AN, Difficulty: Hard, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: 90,000 + 110,000 = 200,000

90,000 ÷ 200,000 x 10 = 4.5

B752 lbs + B797 lbs = total lbs

B752 lbs ÷ total lbs x joint cost = B752 joint cost

Sky airlines produces two different aircrafts. The joint process incurs costs of $10 million. Both aircrafts can be sold at split-off or processed further to increase the final sales value. The following information is related to the two products. (all costs are recorded in millions)

Weight per Final Further Sales Value at

Product Units Unit (lbs) Sales Value Processing Costs at Split-Off

B752 15 90,000 $420 $200 $230

B797 25 110,000 480 260 310

If the sales price at split-off and the final sales values provided are not reliable, what is the gross margin for B752 using the appropriate method of allocation

a. $215 million.

b. $215.5 million.

c. $215.74 million.

d. $220 million.

Ans: B, LO 2, Bloom: AN, Difficulty: Hard, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: 90,000 + 110,000 = 200,000

90,000 ÷ 200,000 x 10 = 4.5

$420 - $200 - $4.5 = $215.5

B752 lbs + B797 lbs = total lbs

B752 lbs ÷ total lbs x joint cost = B752 joint cost

B752 final sales– B752 further processing cost - B752 joint process cost

Sky airlines produces two different aircrafts. The joint process incurs costs of $10 million. Both aircrafts can be sold at split-off or processed further to increase the final sales value. The following information is related to the two products. (all costs are recorded in millions)

Weight per Final Further Sales Value at

Product Units Unit (lbs) Sales Value Processing Costs at Split-Off

B752 15 90,000 $420 $200 $230

B797 25 110,000 480 260 310

If the sales price at split-off and the final sales values provided are not reliable, what is the joint costs allocated to B797 using the appropriate method of allocation?

a. $5 million.

b. $5.33 million.

c. $5.50 million.

d. $5.74 million.

Ans: C, LO 2, Bloom: AN, Difficulty: Hard, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: 90,000 + 110,000 = 200,000

110,000 ÷ 200,000 x 10 = 5.5

B752 lbs + B797 lbs = total lbs

B797 lbs ÷ total lbs x joint cost = B797 joint cost

Sky airlines produces two different aircrafts. The joint process incurs costs of $10 million. Both aircrafts can be sold at split-off or processed further to increase the final sales value. The following information is related to the two products. (all costs are recorded in millions)

Weight per Final Further Sales Value at

Product Units Unit (lbs) Sales Value Processing Costs at Split-Off

B752 15 90,000 $420 $200 $230

B797 25 110,000 480 260 310

If the sales price at split-off and the final sales values provided are not reliable, what is the gross margin for B797 using the appropriate method of allocation

a. $214.26 million.

b. $214.50 million.

c. $215 million.

d. $220 million.

Ans: B, LO 2, Bloom: AN, Difficulty: Hard, AACSB: None, AICPA: FN, Measurement IMA: Cost Management

Solution: 90,000 + 110,000 = 200,000

110,000 ÷ 200,000 x 10 = 5.5

$480 - $260 - $5.5 = $214.5

B752 lbs + B797 lbs = total lbs

B797 lbs ÷ total lbs x joint cost = B797 joint cost

B797 final sales– B797 further processing cost - B797 joint process cost

When deciding the point at which a product should be sold to maximize profits in a joint product costing and analysis, which one of the following costs is relevant?

a. Separable costs after the split-off point.

b. Sales salaries for the period when the units were produced.

c. Joint costs to the split-off point.

d. Purchase costs of the materials required for the joint products.

Ans: A, LO 3, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

When considering whether to sell or process a product further, joint costs

a. are essential the decision-making process.

b. are considered sunk costs.

c. will change depending on which decision is made.

d. are considered opportunity costs.

Ans: B, LO 3, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Another term for joint costs is

a. future costs.

b. opportunity costs.

c. incremental costs

d. sunk costs.

Ans: D, LO 3, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Joint costs are only relevant

a. when deciding whether to sell or process further.

b. when considering the opportunity costs.

c. at the split-off point.

d. when producing the final product(s).

Ans: C, LO 3, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

When deciding whether to sell or process further, companies will use

a. joint costs.

b. separable costs.

c. the net realizable value.

d. the incremental costs.

Ans: C, LO 3, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Which of the following statements is false regarding an incremental analysis?

a. If the sales value at split-off is greater than the NRV, sell after further processing.

b. If the sales value at split-off is less than the NRV, sell after further processing.

c. If the sales value at split-off is greater than the NRV, sell it without further processing.

d. The sales value at split-off and the NRV need to be analyzed to determine whether to sell or process further.

Ans: A, LO 3, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

When a company is deciding whether to sell at split-off or process further, all the following assumptions are made except:

a. The marketplace has been assessed, and there is sufficient demand to meet the company’s target income.

b. The decision is aligned with the organizational objectives.

c. The company has the capacity and capability to process the product further.

d. The decision will lead the company towards minimizing profits.

Ans: D, LO 3, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

FlyDucks is deciding whether to sell its current model as is or process it further to create an enhanced model. The unit cost of the current model is $24 and would sell for $52. The company would incur further processing costs of $17 per unit and would sell for $68. What should FlyDucks do?

a. Process further, the company will make an additional $23 per unit.

b. Process further, the company will make an additional $11 per unit.

c. Sell the current model, the company will show an increased profit of $1 per unit.

d. Sell the current model, the company will show an increased profit of $16 per unit.

Ans: C, LO 3, Bloom: AN, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Solution: $52 - $24 = $28; $68 - $24 - $17 = $27; $28 - $27 = $1 (sell current model)

(current model selling price – cost of current model) – (enhanced model selling price – enhanced model additional cost) = sell current model

Coyote Company spent $8,000 to produce its new device. This new device can be sold as-is for $10,000 or processed further at an additional cost of $3,000 and will then be sold for $14,000. Which amounts are relevant to the decision about the new device?

a. $8,000, $10,000, $3,000 and $14,000.

b. $10,000, $3,000 and $14,000.

c. $8,000, $3,000 and $14,000.

d. $8,000, $10,000, and $14,000.

Ans: B, LO 3, Bloom: AN, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Stars Unlimited produces four products through a joint process that incurs costs of $150,000. Information for these products is as follows:

If Processed Further

Units Sales Value at Final Further

Product Produced at Split-Off Sales Value Processing Costs

Gemini 3,000 $10,000 $15,000 $2,500

Taurus 5,000 30,000 35,000 3,000

Leo 4,000 20,000 25,000 4,000

Virgo 6,000 40,000 45,000 6,000

Which, if any, products should be processed further?

a. All products should be processed further.

b. Gemini and Taurus should be processed further.

c. Gemini, Virgo, and Leo should be processed further.

d. Gemini, Taurus, and Leo should be processed further.

Ans: D, LO 3, Bloom: AN, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Solution: Gemini - $15,000 - $10,000 - $2,500 = $2,500 increase (process further)

Taurus - $35,000 - $30,000 - $3,000 = $2,000 increase (process further)

Leo - $25,000 - $20,000 - $4,000 = $1,000 increase (process further)

Virgo - $45,000 - $40,000 - $6,000 = $1,000 decrease (sell as is)

final sales value – sales at split-off – further processing costs = increase (decrease)

Stars Unlimited produces four products through a joint process that incurs costs of $150,000. Information for these products is as follows:

If Processed Further

Units Sales Value at Final Further

Product Produced at Split-Off Sales Value Processing Costs

Gemini 3,000 $10,000 $15,000 $2,500

Taurus 5,000 30,000 35,000 3,000

Leo 4,000 20,000 25,000 4,000

Virgo 6,000 40,000 45,000 6,000

If Gemini is processed further, profits will

a. increase by $2,500.

b. decrease by $2,500.

c. increase by $12,500.

d. increase by $10,000.

Ans: A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Solution: $15,000 - $10,000 - $2,500 = $2,500 increase

final sales value – sales at split-off – further processing costs = increase (decrease)

Stars Unlimited produces four products through a joint process that incurs costs of $150,000. Information for these products is as follows:

If Processed Further

Units Sales Value at Final Further

Product Produced at Split-Off Sales Value Processing Costs

Gemini 3,000 $10,000 $15,000 $2,500

Taurus 5,000 30,000 35,000 3,000

Leo 4,000 20,000 25,000 4,000

Virgo 6,000 40,000 45,000 6,000

If Taurus is processed further, profits will

a. increase by $2,000.

b. decrease by $2,000.

c. increase by $32,000.

d. increase by $30,000.

Ans: A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Solution: $35,000 - $30,000 - $3,000 = $2,000 increase

final sales value – sales at split-off – further processing costs = increase (decrease)

Stars Unlimited produces four products through a joint process that incurs costs of $150,000. Information for these products is as follows:

If Processed Further

Units Sales Value at Final Further

Product Produced at Split-Off Sales Value Processing Costs

Gemini 3,000 $10,000 $15,000 $2,500

Taurus 5,000 30,000 35,000 3,000

Leo 4,000 20,000 25,000 4,000

Virgo 6,000 40,000 45,000 6,000

If Leo is processed further, profits will

a. increase by $1,000.

b. decrease by $1,000.

c. increase by $21,000.

d. increase by $20,000.

Ans: A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Solution: $25,000 - $20,000 - $4,000 = $1,000 increase

final sales value – sales at split-off – further processing costs = increase (decrease)

Stars Unlimited produces four products through a joint process that incurs costs of $150,000. Information for these products is as follows:

If Processed Further

Units Sales Value at Final Further

Product Produced at Split-Off Sales Value Processing Costs

Gemini 3,000 $10,000 $15,000 $2,500

Taurus 5,000 30,000 35,000 3,000

Leo 4,000 20,000 25,000 4,000

Virgo 6,000 40,000 45,000 6,000

If Virgo is processed further, profits will

a. increase by $1,000.

b. decrease by $1,000.

c. increase by $39,000.

d. increase by $40,000.

Ans: B, LO 3, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Solution: $45,000 - $40,000 - $6,000 = $1,000 decrease

final sales value – sales at split-off – further processing costs = increase (decrease)

The Sweete Shoppe produces a variety of sweet treats. Several treats can be sold at split-off or further processed to produce a different type of treat. The following three treats are all produced in a joint processing operation at a cost of $63,000. The costs are allocated based on pounds produced. Information for these treats is as follows:

If Processed Further

Pounds (lb) Price per lb at Final price Further

Product Produced at Split-Off per unit Processing Costs

Berry Delight 63,000 $8.00 $10.00 $88,000

Chocolate Wonder 113,000 10.00 10.50 43,000

Caramel Chip 38,000 5.00 5.60 33,000

Which, if any, products should be processed further?

a. Berry Delight only.

b. Berry Delight and Chocolate Wonder.

c. Caramel Chip only.

d. Berry Delight and Caramel Chip.

Ans: B, LO 3, Bloom: AN, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Solution: Berry Delight – ($10 - $8) x 63,000 - $88,000 = $38,000 increase (process further)

Chocolate Wonder – ($10.50 - $10) x 113,000 - $43,000 = $13,500 increase (process further)

Caramel Chip – ($5.60 – 5) x 38,000 - $33,000 = $10,200 decrease (sell as is)

(final price per unit – price per unit at split-off) x lbs produced – further processing costs = increase (decrease)

The Sweete Shoppe produces a variety of sweet treats. Several treats can be sold at split-off or further processed to produce a different type of treat. The following three treats are all produced in a joint processing operation at a cost of $63,000. The costs are allocated based on pounds produced. Information for these treats is as follows:

If Processed Further

Pounds (lb) Price per lb at Final price Further

Product Produced at Split-Off per unit Processing Costs

Berry Delight 63,000 $8.00 $10.00 $88,000

Chocolate Wonder 113,000 10.00 10.50 43,000

Caramel Chip 38,000 5.00 5.60 33,000

The net increase or decrease in profits of processing all the treats further is

a. an increase of $41,300.

b. a decrease of $41,300.

c. an increase of $21,700.

d. a decrease of $21,700.

Ans: A, LO 3, Bloom: AN, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Solution: Berry Delight – ($10 - $8) x 63,000 - $88,000 = $38,000 increase

Chocolate Wonder – ($10.50 - $10) x 113,000 - $43,000 = $13,500 increase

Caramel Chip – ($5.60 – 5) x 38,000 - $33,000 = $10,200 decrease

$38,000 + $13,500 - $10,200 = $41,300 increase

(final price per unit – price per unit at split-off) x lbs produced – further processing costs = increase (decrease)

Berry delight increase + chocolate wonder increase – caramel chip decrease = net increase (decrease)

The Sweete Shoppe produces a variety of sweet treats. Several treats can be sold at split-off or further processed to produce a different type of treat. The following three treats are all produced in a joint processing operation at a cost of $63,000. The costs are allocated based on pounds produced. Information for these treats is as follows:

If Processed Further

Pounds (lb) Price per lb at Final price Further

Product Produced at Split-Off per unit Processing Costs

Berry Delight 63,000 $8.00 $10.00 $88,000

Chocolate Wonder 113,000 10.00 10.50 43,000

Caramel Chip 38,000 5.00 5.60 33,000

Assuming the company correctly identifies which product(s) to process further, what will be the company’s increase in profits by further processing the identified product(s)?

a. $41,300.

b. $51,500.

c. $19,453.

d. $39,220.

Ans: B, LO 3, Bloom: AN, Difficulty: Hard, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Solution: Berry Delight – ($10 - $8) x 63,000 - $88,000 = $38,000 increase

Chocolate Wonder – ($10.50 - $10) x 113,000 - $43,000 = $13,500 increase

$38,000 + $13,500 = $51,500 increase

(final price per unit – price per unit at split-off) x lbs produced – further processing costs = increase (decrease)

Berry delight increase + chocolate wonder increase = net increase

The Sweete Shoppe produces a variety of sweet treats. Several treats can be sold at split-off or further processed to produce a different type of treat. The following three treats are all produced in a joint processing operation at a cost of $63,000. The costs are allocated based on pounds produced. Information for these treats is as follows:

If Processed Further

Pounds (lb) Price per lb at Final price Further

Product Produced at Split-Off per unit Processing Costs

Berry Delight 63,000 $8.00 $10.00 $88,000

Chocolate Wonder 113,000 10.00 10.50 43,000

Caramel Chip 38,000 5.00 5.60 33,000

The net increase or decrease in profits of processing Berry Delight further is

a. an increase of $38,000.

b. a decrease of $38,000.

c. an increase of $19,453.

d. a decrease of $19,453.

Ans: A, LO 3, Bloom: AN, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Solution: Berry Delight – ($10 - $8) x 63,000 - $88,000 = $38,000 increase

(final price per unit – price per unit at split-off) x lbs produced – further processing costs = increase (decrease)

The Sweete Shoppe produces a variety of sweet treats. Several treats can be sold at split-off or further processed to produce a different type of treat. The following three treats are all produced in a joint processing operation at a cost of $63,000. The costs are allocated based on pounds produced. Information for these treats is as follows:

If Processed Further

Pounds (lb) Price per lb at Final price Further

Product Produced at Split-Off per unit Processing Costs

Berry Delight 63,000 $8.00 $10.00 $88,000

Chocolate Wonder 113,000 10.00 10.50 43,000

Caramel Chip 38,000 5.00 5.60 33,000

The net increase or decrease in profits of processing Chocolate Wonder further is

a. an increase of $19,766.

b. a decrease of $19,766.

c. an increase of $13,500.

d. a decrease of $13,500.

Ans: C, LO 3, Bloom: AN, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Solution: Chocolate Wonder – ($10.50 - $10) x 113,000 - $43,000 = $13,500 increase

(final price per unit – price per unit at split-off) x lbs produced – further processing costs = increase (decrease)

The Sweete Shoppe produces a variety of sweet treats. Several treats can be sold at split-off or further processed to produce a different type of treat. The following three treats are all produced in a joint processing operation at a cost of $63,000. The costs are allocated based on pounds produced. Information for these treats is as follows:

If Processed Further

Pounds (lb) Price per lb at Final price Further

Product Produced at Split-Off per unit Processing Costs

Berry Delight 63,000 $8.00 $10.00 $88,000

Chocolate Wonder 113,000 10.00 10.50 43,000

Caramel Chip 38,000 5.00 5.60 33,000

The net increase or decrease in profits of processing Caramel Chip further is

a. an increase of $21,387.

b. a decrease of $21,387.

c. an increase of $10,200.

d. a decrease of $10,200.

Ans: D, LO 3, Bloom: AN, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Solution: Caramel Chip – ($5.60 – 5) x 38,000 - $33,000 = $10,200 decrease

(final price per unit – price per unit at split-off) x lbs produced – further processing costs = increase (decrease)

The Sweete Shoppe produces a variety of sweet treats. Several treats can be sold at split-off or further processed to produce a different type of treat. The following three treats are all produced in a joint processing operation at a cost of $63,000. The costs are allocated based on pounds produced. Information for these treats is as follows:

If Processed Further

Pounds (lb) Price per lb at Final price Further

Product Produced at Split-Off per unit Processing Costs

Berry Delight 63,000 $8.00 $10.00 $88,000

Chocolate Wonder 113,000 10.00 10.50 43,000

Caramel Chip 38,000 5.00 5.60 33,000

The joint processing costs for these treats

a. should be allocated to the treats to determine whether they should be sold at split-off or processed further.

b. should be ignored in determining whether they should be sold at split-off or processed further.

c. should be ignored in making all product decisions.

d. are never included in the product costs and can mislead management in the decision-making process.

Ans: B, LO 3, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

All the following statements are true regarding the allocation of joint costs except:

a. Joint costs are allocated to products to help managers effectively control their costs.

b. Joint costs are allocated to products to identify the total cost of production in producing various products.

c. Joint costs are allocated to products to be sure each manager is only responsible for their share of the costs.

d. Joint costs are allocated to products to help identify if the product should be processed further or sold as-is.

Ans: D, LO 3, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

When a company produces a by-product along with its primary product, as part of a joint process, the following method(s) may be used to account for the by-product transaction:

a. The production method only

b. The sales method only.

c. The production and sales methods, either method is sufficient.

d. The production and sales methods, in conjunction with one another.

Ans: C, LO 4, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

The production method of accounting for the costs of a by-product

a. treats the by-product as nonexistent until the by-product is sold.

b. recognizes only the NRV of the by-product.

c. recognizes by-products as soon as they are produced.

d. recognizes the by-product once it has been determined to be processed further.

Ans: C, LO 4, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

The sales method of accounting for the costs of a by-product

a. treats the by-product as nonexistent until the by-product is sold.

b. recognizes only the NRV of the by-product.

c. recognizes by-products as soon as they are produced.

d. recognizes the by-product once it has been determined to be processed further.

Ans: A, LO 4, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Using the production method to account for by-products, by-products are accounted for

a. in Work-in-Process Inventory (WIP) and then in Finished Good Inventory.

b. only in Work-in-Process Inventory (WIP).

c. only in Finished Good Inventory.

d. are only expensed to Cost of Goods Sold.

Ans: C, LO 4, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Using the production method to account for by-products, joint costs

a. are allocated to the by-products along with the primary joint products.

b. are not allocated to the by-products.

c. are allocated to the by-product based on its NRV.

d. are only expensed to Cost of Goods Sold.

Ans: C, LO 4, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Coconuts N More produces two joint products, Coconut Milk and Coconut Meat. The company uses the leftover Coconut Skin as a by-product. All three are produced from joint costs of $75,000: direct materials amounting to $50,000 and another $25,000 for direct labor and manufacturing overhead. Beginning inventory for all three products is zero. Information for production of the product is as follows:

Units Produced Units Sold Sales price

Product in lbs in lbs per lb

Coconut Milk 21,000 19,500 $1.30

Coconut Meat 12,200 10,300 6.20

Coconut Skin 2,250 2,000 1.00

How much in joint costs should be allocated to the by-product, using the production method?

a. $2,000.

b. $1,604.

c. $0.

d. $2,250.

Ans: D, LO 4, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Solution: 2,250 lbs x $1 = $2,250 (NRV)

Coconut skin units produced in tons x Coconut skin sales per lb = NRV

Coconuts N More produces two joint products, Coconut Milk and Coconut Meat. The company uses the leftover Coconut Skin as a by-product. All three are produced from joint costs of $75,000: direct materials amounting to $50,000 and another $25,000 for direct labor and manufacturing overhead. Beginning inventory for all three products is zero. Information for production of the product is as follows:

Units Produced Units Sold Sales price

Product in lbs in lbs per lb

Coconut Milk 21,000 19,500 $1.30

Coconut Meat 12,200 10,300 6.20

Coconut Skin 2,250 2,000 1.00

The correct journal entry to transfer the joint production costs from WIP to FG, using the production method is

FG Inventory – Coconut Milk 19,465

FG Inventory – Coconut Meat 53,931

FG Inventory – Coconut Skin 1,604

WIP Inventory 75,000

FG Inventory – Coconut Milk 19,294

FG Inventory – Coconut Meat 53,456

FG Inventory – Coconut Skin 2,250

WIP Inventory 75,000

c. FG Inventory – Coconut Skin 2,250

WIP Inventory 2,250

d. FG Inventory – Coconut Milk 19,890

FG Inventory – Coconut Meat 55,110

WIP Inventory 75,000

Ans: B, LO 4, Bloom: AN, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Solution: 2,250 lbs x $1 = $2,250 (NRV)

$75,000 - $2,250 = $72,750 (remaining joint costs)

Coconut milk – 21,000 x 1.30 = $27,300 (sales value at split off)

Coconut meat – 12,200 x 6.20 = $75,640 (sales value at split off)

$27,300 + $75,640 = $102,940 (total sales value at split off of primary products)

$27,300 ÷ $102,940 x $72,750 = $19,294

$75,640 ÷ $102,940 x $72,750 = $53,456

lbs of coconut skin x coconut skin sales price per unit = NRV of coconut skin

Total joint costs – NRV of coconut skin = remaining joint costs

Coconut milk – units produced x sales price per unit = coconut milk sales value at split off

Coconut meat – units produced x sales price per unit = coconut meat sales value at split off

coconut milk sales value at split off + coconut meat sales value at split off = total sales value at split off of primary products

coconut milk sales value at split off ÷ total sales value at split off of primary products x remaining joint costs = coconut milk allocated joint costs

coconut meat sales value at split off ÷ total sales value at split off of primary products x remaining joint costs = coconut meat allocated joint costs

Coconuts N More produces two joint products, Coconut Milk and Coconut Meat. The company uses the leftover Coconut Skin as a by-product. All three are produced from joint costs of $75,000: direct materials amounting to $50,000 and another $25,000 for direct labor and manufacturing overhead. Beginning inventory for all three products is zero. Information for production of the product is as follows:

Units Produced Units Sold Sales price

Product in lbs in lbs per lb

Coconut Milk 21,000 19,500 $1.30

Coconut Meat 12,200 10,300 6.20

Coconut Skin 2,250 2,000 1.00

How much in total sales would be recorded for the products sold under the production method?

a. $89,210.

b. $91,210.

c. $102,940.

d. $105,190.

Ans: A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Solution: (19,500 x $1.30) + (10,300 x $6.20) = $89,210

(Coconut milk units sold x Coconut milk sales price per lb) + (Coconut meat units sold x Coconut meat sales price per lb)

Coconuts N More produces two joint products, Coconut Milk and Coconut Meat. The company uses the leftover Coconut Skin as a by-product. All three are produced from joint costs of $75,000: direct materials amounting to $50,000 and another $25,000 for direct labor and manufacturing overhead. Beginning inventory for all three products is zero. Information for production of the product is as follows:

Units Produced Units Sold Sales price

Product in lbs in lbs per lb

Coconut Milk 21,000 19,500 $1.30

Coconut Meat 12,200 10,300 6.20

Coconut Skin 2,250 2,000 1.00

How much in total cost of goods sold would be recorded for the products sold under the production method?

a. $89,210.

b. $64,996.

c. $65,297.

d. $63,047.

Ans: D, LO 4, Bloom: AP, Difficulty: Hard, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Solution: 2,250 lbs x $1 = $2,250 (NRV)

$75,000 - $2,250 = $72,750 (remaining joint costs)

Coconut milk – 21,000 x 1.30 = $27,300 (sales value at split off)

Coconut meat – 12,200 x 6.20 = $75,640 (sales value at split off)

$27,300 + $75,640 = $102,940 (total sales value at split off of primary products)

$27,300 ÷ $102,940 x $72,750 = $19,294 (Coconut Milk - allocated joint costs)

$75,640 ÷ $102,940 x $72,750 = $53,456(Coconut Meat - allocated joint costs)

$19,294 ÷ 21,000 x 19,500 = $17,915 (Coconut Milk - cogs)

$53,456 ÷ 12,200 x 10,300 = $45,131(Coconut Meat - cogs)

$17,915 + $45,131 = $63,047 (total cogs)

lbs of coconut skin x coconut skin sales price per unit = NRV of coconut skin

Total joint costs – NRV of coconut skin = remaining joint costs

Coconut milk – units produced x sales price per unit = coconut milk sales value at split off

Coconut meat – units produced x sales price per unit = coconut meat sales value at split off

coconut milk sales value at split off + coconut meat sales value at split off = total sales value at split off of primary products

coconut milk sales value at split off ÷ total sales value at split off of primary products x remaining joint costs = coconut milk allocated joint costs

coconut meat sales value at split off ÷ total sales value at split off of primary products x remaining joint costs = coconut meat allocated joint costs

Coconut Milk - allocated joint costs ÷ coconut milk units produced x coconut milk units sold = coconut milk cogs

Coconut Meat- allocated joint costs ÷ coconut meat units produced x coconut meat units sold = coconut meat cogs

coconut milk cogs + coconut meat cogs = total cogs

Coconuts N More produces two joint products, Coconut Milk and Coconut Meat. The company uses the leftover Coconut Skin as a by-product. All three are produced from joint costs of $75,000: direct materials amounting to $50,000 and another $25,000 for direct labor and manufacturing overhead. Beginning inventory for all three products is zero. Information for production of the product is as follows:

Units Produced Units Sold Sales price

Product in lbs in lbs per lb

Coconut Milk 21,000 19,500 $1.30

Coconut Meat 12,200 10,300 6.20

Coconut Skin 2,250 2,000 1.00

How much in sales and cost of goods sold will be assigned to the Coconut Skin, respectively, using the production method?

a. $0, $0.

b. $2,000, $2,250.

c. $2,250, $2,000.

d. $2,000, $0.

Ans: A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Solution: $0, $0 – by-products are not assigned to sales or COGS

Coconuts N More produces two joint products, Coconut Milk and Coconut Meat. The company uses the leftover Coconut Skin as a by-product. All three are produced from joint costs of $75,000: direct materials amounting to $50,000 and another $25,000 for direct labor and manufacturing overhead. Beginning inventory for all three products is zero. Information for production of the product is as follows:

Units Produced Units Sold Sales price

Product in lbs in lbs per lb

Coconut Milk 21,000 19,500 $1.30

Coconut Meat 12,200 10,300 6.20

Coconut Skin 2,250 2,000 1.00

The journal entry to sell the coconut milk, using the production method, will include a credit to

a. Cash or Accounts receivable.

b. WIP - Inventory.

c. FG - Inventory.

d. Sales.

Ans: C, LO 4, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

The income statement is ____________ impacted by the sale of a by-product, using the production method.

a. positively.

b. negatively.

c. not.

d. substantially.

Ans: A, LO 4, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Using the production method, scrap is

a. transferred from finished goods to cost of goods sold.

b. expensed as incurred.

c. treated in the same manner as the by-product.

d. treated in the same manner as the primary product.

Ans: C, LO 4, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Coconuts N More produces two joint products, Coconut Milk and Coconut Meat. The company uses the leftover Coconut Skin as a by-product. All three are produced from joint costs of $75,000: direct materials amounting to $50,000 and another $25,000 for direct labor and manufacturing overhead. Beginning inventory for all three products is zero. Information for production of the product is as follows:

Units Produced Units Sold Sales price

Product in lbs in lbs per lb

Coconut Milk 21,000 19,500 $1.30

Coconut Meat 12,200 10,300 6.20

Coconut Skin 2,250 2,000 1.00

How much in joint costs should be allocated to the by-product, using the sales method?

a. $2,000.

b. $1,604.

c. $0.

d. $2,250.

Ans: C, LO 4, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Solution: $0, all joint costs are allocated to the primary products

Coconuts N More produces two joint products, Coconut Milk and Coconut Meat. The company uses the leftover Coconut Skin as a by-product. All three are produced from joint costs of $75,000: direct materials amounting to $50,000 and another $25,000 for direct labor and manufacturing overhead. Beginning inventory for all three products is zero. Information for production of the product is as follows:

Units Produced Units Sold Sales price

Product in lbs in lbs per lb

Coconut Milk 21,000 19,500 $1.30

Coconut Meat 12,200 10,300 6.20

Coconut Skin 2,250 2,000 1.00

The correct journal entry to transfer the joint production costs from WIP to FG, using the sales method is

FG Inventory – Coconut Milk 19,465

FG Inventory – Coconut Meat 53,931

FG Inventory – Coconut Skin 1,604

WIP Inventory 75,000

FG Inventory – Coconut Milk 19,294

FG Inventory – Coconut Meat 53,456

FG Inventory – Coconut Skin 2,250

WIP Inventory 75,000

c. FG Inventory – Coconut Skin 2,250

WIP Inventory 2,250

d. FG Inventory – Coconut Milk 19,890

FG Inventory – Coconut Meat 55,110

WIP Inventory 75,000

Ans: D, LO 4, Bloom: AN, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Solution: Coconut milk – 21,000 x 1.30 = $27,300 (sales value at split off)

Coconut meat – 12,200 x 6.20 = $75,640 (sales value at split off)

$27,300 + $75,640 = $102,940 (total sales value at split off of primary products)

$27,300 ÷ $102,940 x $75,000 = $19,890

$75,640 ÷ $102,940 x $75,000 = $55,110

Coconut milk – units produced x sales price per unit = coconut milk sales value at split-off

Coconut meat – units produced x sales price per unit = coconut meat sales value at split-off

coconut milk sales value at split-off + coconut meat sales value at split off = total sales value at split off of primary products

coconut milk sales value at split off ÷ total sales value at split off of primary products x joint costs = coconut milk allocated joint costs

coconut meat sales value at split off ÷ total sales value at split off of primary products x joint costs = coconut meat allocated joint costs

Coconuts N More produces two joint products, Coconut Milk and Coconut Meat. The company uses the leftover Coconut Skin as a by-product. All three are produced from joint costs of $75,000: direct materials amounting to $50,000 and another $25,000 for direct labor and manufacturing overhead. Beginning inventory for all three products is zero. Information for production of the product is as follows:

Units Produced Units Sold Sales price

Product in lbs in lbs per lb

Coconut Milk 21,000 19,500 $1.30

Coconut Meat 12,200 10,300 6.20

Coconut Skin 2,250 2,000 1.00

How much in total sales would be recorded for the products sold under the sales method?

a. $89,210.

b. $91,210.

c. $102,940.

d. $105,190.

Ans: A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Solution: (19,500 x $1.30) + (10,300 x $6.20) = $89,210

(Coconut milk units sold x Coconut milk sales price per lb) + (Coconut meat units sold x Coconut meat sales price per lb)

Coconuts N More produces two joint products, Coconut Milk and Coconut Meat. The company uses the leftover Coconut Skin as a by-product. All three are produced from joint costs of $75,000: direct materials amounting to $50,000 and another $25,000 for direct labor and manufacturing overhead. Beginning inventory for all three products is zero. Information for production of the product is as follows:

Units Produced Units Sold Sales price

Product in lbs in lbs per lb

Coconut Milk 21,000 19,500 $1.30

Coconut Meat 12,200 10,300 6.20

Coconut Skin 2,250 2,000 1.00

How much in total cost of goods sold would be recorded for the products sold, under the sales method?

a. $89,210.

b. $64,996.

c. $65,297.

d. $63,047.

Ans: B, LO 4, Bloom: AP, Difficulty: Hard, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Solution: Coconut milk – 21,000 x 1.30 = $27,300 (sales value at split off)

Coconut meat – 12,200 x 6.20 = $75,640 (sales value at split off)

$27,300 + $75,640 = $102,940 (total sales value at split off of primary products)

$27,300 ÷ $102,940 x $75,000 = $19,890 (Coconut Milk - allocated joint costs)

$75,640 ÷ $102,940 x $75,000 = $55,110 (Coconut Meat - allocated joint costs)

$19,890 ÷ 21,000 x 19,500 = $18,469 (Coconut Milk - cogs)

$55,110 ÷ 12,200 x 10,300 = $46,527(Coconut Meat - cogs)

$18,469 + $46,527 = $64,996 (total cogs)

Coconut milk – units produced x sales price per unit = coconut milk sales value at split off

Coconut meat – units produced x sales price per unit = coconut meat sales value at split off

coconut milk sales value at split off + coconut meat sales value at split off = total sales value at split off of primary products

coconut milk sales value at split off ÷ total sales value at split off of primary products x joint costs = coconut milk allocated joint costs

coconut meat sales value at split off ÷ total sales value at split off of primary products x joint costs = coconut meat allocated joint costs

Coconut Milk - allocated joint costs ÷ coconut milk units produced x coconut milk units sold = coconut milk cogs

Coconut Meat- allocated joint costs ÷ coconut meat units produced x coconut meat units sold = coconut meat cogs

coconut milk cogs + coconut meat cogs = total cogs

Coconuts N More produces two joint products, Coconut Milk and Coconut Meat. The company uses the leftover Coconut Skin as a by-product. All three are produced from joint costs of $75,000: direct materials amounting to $50,000 and another $25,000 for direct labor and manufacturing overhead. Beginning inventory for all three products is zero. Information for production of the product is as follows:

Units Produced Units Sold Sales price

Product in lbs in lbs per lb

Coconut Milk 21,000 19,500 $1.30

Coconut Meat 12,200 10,300 6.20

Coconut Skin 2,250 2,000 1.00

How much in sales and cost of goods sold will be assigned to the Coconut Skin, respectively, using the sales method?

a. $0, $0.

b. $2,000, $2,250.

c. $2,250, $0.

d. $2,000, $0.

Ans: D, LO 4, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Solution: Sales – 2,000 X $1.00 = $2,000, $0 – by-products are not assigned to sales or COGS

Lbs sold x price per lb

Coconuts N More produces two joint products, Coconut Milk and Coconut Meat. The company uses the leftover Coconut Skin as a by-product. All three are produced from joint costs of $75,000: direct materials amounting to $50,000 and another $25,000 for direct labor and manufacturing overhead. Beginning inventory for all three products is zero. Information for production of the product is as follows:

Units Produced Units Sold Sales price

Product in lbs in lbs per lb

Coconut Milk 21,000 19,500 $1.30

Coconut Meat 12,200 10,300 6.20

Coconut Skin 2,250 2,000 1.00

The journal entry to sell the coconut milk, using the sales method, will include a credit to

a. Cash or Accounts receivable.

b. WIP - Inventory.

c. FG - Inventory.

d. Sales.

Ans: D, LO 4, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

The income statement is ____________ impacted by the sale of a by-product, using the sales method.

a. positively.

b. negatively.

c. not.

d. substantially.

Ans: A, LO 4, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Using the sales method, scrap is

a. transferred from finished goods to cost of goods sold.

b. expensed as incurred.

c. treated in the same manner as the by-product.

d. treated in the same manner as the primary product.

Ans: C, LO 4, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

Which of the following statements is true, in regard to the production method versus the sales method?

a. The sales method is preferred because it recognizes the sale of the by-product and scrap at the point of sale.

b. The production method is preferred because it recognizes the sale of the by-product and scrap at the point of production.

c. Either method can be chosen because the overall effect of the by-product and scrap transactions should be incidental to a company’s primary business.

d. Either method can be chosen because the overall effect of the by-product and scrap transactions is material to the decision-making process.

Ans: C, LO 4, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost Management

SHORT ANSWER

106. A joint process is used to turn milk into butter, cream, and cheese. The cream is further processed into heaving whipping cream and half & half. The butter and cheese are sold as-is. In addition to these products, buttermilk is also produced as an unintended output. What name(s) would you call these products? Describe the difference between these types of products.

Ans: N/A, LO 1, Bloom: AP, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Answer:

Butter, cream, and cheese would be the joint products.

Butter, heavy whipping cream, half & half, and cheese would be considered the final products.

Buttermilk is considered a by-product.

Joint products are the primary products and can be sold or processed further to become final products. These products are the reason a company is in business and are considered the main component of sales revenue.

By-products are the unintended output of creating the primary products but still have a future use or economic value. These products can be sold, but the sale of them is usually not material to the income statement.

107. There are three methods of allocating joint costs. List each method and discuss when the allocation methods should be chosen.

Ans: N/A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Answer:

Sales Value at Split-Off Method. Allocates joint costs using the future sales value of the process’s total production of joint products and the relative proportion of each product’s sales value to the total. This method should be selected when the sales prices at the split-off point are available and reliable.

Net Realizable Value (NRV) Method. The NRV method allocates joint costs based on the product’s share of the total NRV. NRV is calculated by taking the final sales value less further processing costs. The NRV method should be chosen when the sales price at the split-off point is unavailable or unreliable, but the NRV information is available and reliable.

Physical Quantities Method. This method allocates joint costs based on the product’s share of a reasonable measurement basis for the joint products. For example, it could be based on volume, weight, length, or height. This method should only be used if the sales prices at the split-off point and the NRV information are unavailable or unreliable.

108. Dairy Cream Company uses a joint process to create heavy cream and light cream. When first produced, there was no market for the two products, so both were processed further into final products. However, the company has now realized there is a market for both the heavy and light cream immediately after they are produced. What information should Dairy Cream consider when deciding whether to sell the products as is or continue to process them further?

Ans: N/A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost Management.

Answer:

Dairy Cream Company should consider the NRV (Sales value of final product less further processing costs) and the sales value at split-off. If the sales value at split-off is greater than the NRV, the product should be sold as-is. Otherwise, the products should be processed further.

Each product should be separately analyzed. The company should also be sure they have adequate capacity and capability, there is sufficient demand for the product(s), and the decision will maximize its profits.

109. NE Crossing Company produces two main products and a by-product during a joint process. The company uses the sales method to account for by-products, and the sales value at the split-off method is used to assign joint costs to the joint products. Describe the process of assigning joint costs and what happens when the product is sold.

Ans: N/A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost Management.

Answer:

When a company uses the sales method to account for by-products, joint costs are not assigned to the by-product, and all costs are assigned to the two main products. When the by-product is later sold, the company will record the sale by debiting cash and crediting Sales. As a result, there will be no cost recognized on the by-product, and the sale of the product will not affect inventory.

110. NE Crossing Company produces two main products and a by-product during a joint process. The company uses the production method to account for by-products, and the sales value at the split-off method is used to assign joint costs to the joint products. Describe the process of assigning joint costs and what happens when the product is sold.

Ans: N/A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost Management.

Answer:

When a company uses the production method to account for by-products, joint costs are assigned to the by-product equal to its net realizable value (NRV.) If there are no further processing costs, the by-product’s NRV will equal its sales value at split-off. When the by-product is later sold, the company will record the sale by debiting cash and crediting Finished Goods Inventory – By-Product. There will be no gross margin recognized on the by-product, and the sale of the product will not affect the income statement.

BRIEF EXERCISES

111. Menkes Production Company manufactures two products from a joint process. The joint process costs $20,000. Both products must be processed past the split-off point to be marketable. White sugar produces 500 units or 20,000 lbs., incurs separable costs of $5 per unit, and has a market price of $25. Brown sugar produces 2,000 units or 50,000 lbs., incurs separable costs of $10 per unit, and has a market price of $20.

Using the physical quantities method to allocate joint costs, how much joint costs will be allocated to each product? (round to the nearest whole dollar)

Ans: N/A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Answer:

White Sugar = $5,714

Brown Sugar = $14,286

Solution:

20,000 + 50,000 = 70,000 total lbs

White Sugar = 20,000 ÷ 70,000 x $20,000 = $5,714

Brown Sugar = 50,000 ÷ 70,000 x $20,000 = $14,286

112. Menkes Production Company manufactures two products from a joint process. The joint process costs $20,000. Both products must be processed past the split-off point to be marketable. White sugar produces 500 units or 20,000 lbs., incurs separable costs of $5 per unit, and has a market price of $25. Brown sugar produces 2,000 units or 50,000 lbs., incurs separable costs of $10 per unit, and has a market price of $20.

Using the sales value at split-off method to allocate joint costs, how much joint costs will be allocated to each product? (round to the nearest whole dollar)

Ans: N/A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Answer:

White Sugar = $4,762

Brown Sugar = $15,238

Solution:

White Sugar total Sales = 500 x $25 = $12,500

Brown Sugar Total Sales = 2,000 x $20 = $40,000

Total Sales = $12,500 + $40,000 = $52,500

White Sugar = $12,500 ÷ $52,500 x $20,000 = $4,762

Brown Sugar = $40,000 ÷ $52,500 x $20,000 = $15,238

113. Menkes Production Company manufactures two products from a joint process. The joint process costs $20,000. Both products must be processed past the split-off point to be marketable. White sugar produces 500 units or 20,000 lbs., incurs separable costs of $5 per unit, and has a market price of $25. Brown sugar produces 2,000 units or 50,000 lbs., incurs separable costs of $10 per unit, and has a market price of $20.

Using the NRV method to allocate joint costs, how much joint costs will be allocated to each product? (round to the nearest whole dollar)

Ans: N/A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Answer:

White Sugar = $6,667

Brown Sugar = $13,333

Solution:

White Sugar NRV = 500 x ($25 - $5) = $10,000

Brown Sugar NRV = 2,000 x ($20 - $10) = $20,000

Total NRV = $10,000 + $20,000 = $30,000

White Sugar = $10,000 ÷ $30,000 x $20,000 = $6,667

Brown Sugar = $20,000 ÷ $30,000 x $20,000 = $13,333

114. Dolls R Us produces four different dolls that use a joint process. Each product may be sold at split-off or processed further. Joint processing costs for the products are $200,000. Other relevant information for the dolls is as follows:

If Processed Further

Sales Value Final Further

Product at Split-Off Sales Value Processing Costs

Cry Baby $40,000 $70,000 $24,000

Diaper Baby 16,000 20,000 10,000

Feeding Baby 20,000 48,000 10,000

Take Along Baby 24,000 36,000 16,000

Suppose joint costs are allocated based on the sales value at split-off, which products should be processed further. Show all calculations.

Ans: N/A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost Management.

Answer:

Cry Baby and Feeding Baby should be processed further as processing both products further will increase overall profits by $24,000.

Solution:

Cry Baby = $70,000 - $24,000 - $40,000 = $6,000

Diaper Baby – $20,000 - $10,000 - $16,000 = -$6,000

Feeding Baby – $48,000 - $10,000 - $20,000 = $18,000

Take Along Baby – $36,000 - $16,000 - $24,000 = -$4,000

Total increase for Cry Baby and Feeding Baby = $6,000 + $18,000 = $24,000

115.Dolls R Us produces four different dolls that use a joint process. Each product may be sold at split-off or processed further. Joint processing costs for the products are $200,000. Other relevant information for the dolls is as follows:

If Processed Further

Sales Value Final Further

Product at Split-Off Sales Value Processing Costs

Cry Baby $40,000 $70,000 $24,000

Diaper Baby 16,000 20,000 10,000

Feeding Baby 20,000 48,000 10,000

Take Along Baby 24,000 36,000 16,000

If joint costs are allocated based on the sales value at split-off, determine how processing each product further will affect profits.

Ans: N/A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost Management.

Answer:

Cry Baby – increase $6,000

Diaper Baby – Decrease $6,000

Feeding Baby – Increase $18,000

Take Along Baby – Decrease $4,000

Total overall affect = Increase $14,000

Solution:

Cry Baby = $70,000 - $24,000 - $40,000 = $6,000

Diaper Baby – $20,000 - $10,000 - $16,000 = -$6,000

Feeding Baby – $48,000 - $10,000 - $20,000 = $18,000

Take Along Baby – $36,000 - $16,000 - $24,000 = -$4,000

Total overall affect = $6,000 - $6,000 + $18,000 - $4,000 = $14,000

116.Whitehead Corporation manufactures three different tires that use the same joint process. Each tire can be sold as is or processed further to create an upgraded tire. The joint process costs $30,000. Information for the three products is as follows:

If Processed Further

Units Price per unit Final price Further

Product Produced at Split-Off per unit Processing Costs

P225/70R 5,600 $70 $80 $15

P265/65R 10,000 $90 $120 $20

P275/65R 2,500 $120 $145 $22

If joint costs are allocated based on the NRV, which tire, or tires, should be processed further and which ones should be sold at split-off. Show all supporting calculations. (round to the nearest whole dollar)

Ans: N/A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost Management.

Answer:

P265/65R & P275/65R should be processed further.

P265/65R – increase of profit of $100,000 or $10 per unit

P275/65R – an increase of profit of $7,500 or $3 per unit

Solution:

P225/70R = (($80 - $15) - $70) = -$5 x 5,600 = -$28,000

P265/65R = (($120 - $20) - $90) = $10 x 10,000 = $100,000

P275/65R = (($145 - $22) - $120) = $3 x 2,500 = $7,500

117. Lana can process both of her products using a joint process. She can further process both products beyond split-off and increase her profits by $9,000 beyond what she can sell them for at split-off. The final sales value of these products after further processing is $42,000. If the products can be sold for $25,000 at split-off, how much additional processing costs would Lana have incurred to generate a higher final sales value?

Ans: N/A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost Management.

Answer:

$8,000

Solution:

$42,000 - $25,000 - $9,000 = $8,000

118. Lastotal produces ice cream from his home. He creates two main products from a joint process, chocolate and vanilla, and one by-product, twists. The twists result from the excess liquid of both the chocolate and vanilla. The chocolate can be sold for $8,000, and the vanilla can be sold for $6,000. The twists will be sold for $900. If Lastotal uses the production method to account for by-products, how much of the joint process costs of $7,500 will be allocated to each product? (Round to the nearest whole dollar)

Ans: N/A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost Management.

Answer:

Chocolate - $3,771

Vanilla - $2,829

Twists - $900

Solution:

$900 – allocated to Twists (NRV)

$7,500 - $900 = $6,600 to chocolate and vanilla

$8,000 + $6,000 = $14,000, total sales of main products

Chocolate, $8,000 ÷ $14,000 x $6,600 = $3,771

Vanilla, $6,000 ÷ $14,000 x $6,600 = $2,829

119. Lastotal produces ice cream from his home. He creates two main products from a joint process, chocolate and vanilla, and one by-product, twists. The twists result from the excess liquid of both the chocolate and vanilla. The chocolate can be sold for $8,000, and the vanilla can be sold for $6,000. The twists will be sold for $900. If Lastotal uses the sales method to account for by-products, how much of the joint process costs of $7,500 will be allocated to each product? (Round to the nearest whole dollar)

Ans: N/A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost Management.

Answer:

Chocolate - $4,286

Vanilla - $3,214

Twists - $0

Solution:

Twists - $0

$8,000 + $6,000 = $14,000, total sales of main products

Chocolate, $8,000 ÷ $14,000 x $7,500 = $4,286

Vanilla, $6,000 ÷ $14,000 x $7,500 = $3,214

120. Kreider Farms produces three products and one by-product: Whole Wheat Flour, Bleached Flour, All-Purpose Flour, and Bran (by-product). Bran can be sold for $1,200. Joint process costs for the products are $12,200. If the other three products can be sold for $23,000, how much revenue will Kreider Farms record for the Bran if they use the sales method to account for by-products? How much revenue will they record if they use the production method to account for by-products?

Ans: N/A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost Management.

Answer:

Sales Method - $24,200

Production Method - $23,000

Solution:

Sales Method – $23,000 + $1,200

Production Method – $23,000

121. Kreider Farms produces three products and one by-product: Whole Wheat Flour, Bleached Flour, All-Purpose Flour, and Bran (by-product). Bran can be sold for $1,200. Joint process costs for the products are $12,200. If the other three products can be sold for $23,000, prepare the journal entry for the sale of the Bran if the company uses the sales method to account for by-products? Prepare the journal entry for the sale of the Bran if the company uses the production method to account for by-products?

Ans: N/A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost Management.

Answer:

Sales Method:

Cash $1,200

Sales – Bran $1,200

Production Method:

Cash $1,200

FG Inventory – Bran $1,200

EXERCISES

122. Gene started a business that retrieves golf balls from lakes and surrounding areas at the local greens. The recovered balls are cleaned and then assessed based on quality and priced to sell to the local sporting goods store. Birdie golf balls are sold for $5 per dozen, Bogey golf balls are sold at $4 a dozen, and Duffer golf balls are sold at $3 per dozen. Costs incurred last month amounted to $8,000 and produced (in dozens) 1,000 Birdie, 3,000 Bogey, and 2,000 Duffer. A dozen golf balls (no matter the quality) weigh 2lbs.

Instructions

a. If Gene uses the sales value at split-off method, how much in joint costs will be allocated to each product?

b. If Gene uses the physical quantities method, how much in joint costs will be allocated to each product?

c. Using the sales value at split-off method, how much will Gene recognize as gross profit for each product?

d. Using the physical quantities method, how much will Gene recognize as gross profit for each product?

Ans: N/A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Answer:

a. Birdie - $1,739

Bogey - $4,174

Duffer - $2,087

b. Birdie - $1,333

Bogey - $4,000

Duffer - $2,667

c. Birdie - $3,261

Bogey - $7,826

Duffer - $3,913

d. Birdie - $3,667

Bogey - $8,000

Duffer - $3,333

Solution:

Product	Sales Price Per Unit		Units Produced (in dozens)		Total Sales				Joint Costs	Allocated Costs
Birdie	5	x	1,000	=	5,000	÷	23,000	x	8,000	1,739
Bogey	4	x	3,000	=	12,000	÷	23,000	x	8,000	4,174
Duffer	3	x	2,000	=	6,000	÷	23,000	x	8,000	2,087
Total					23,000					$8,000

Product	Units Produced (in dozens)		lb per dozen		Total Lbs				Joint Costs	Allocated Costs
Birdie	1,000	x	2	=	2,000	÷	12,000	x	8,000	1,333
Bogey	3,000	x	2	=	6,000	÷	12,000	x	8,000	4,000
Duffer	2,000	x	2	=	4,000	÷	12,000	x	8,000	2,667
Total					12,000					$8,000

	Birdie	Bogey	Duffer
Sales	5,000	12,000	6,000
Costs	1,739	4,174	2,087
Gross Margin	3,261	7,826	3,913

	Birdie	Bogey	Duffer
Sales	5,000	12,000	6,000
Costs	1,333	4,000	2,667
Gross Margin	3,667	8,000	3,333

123. Blender Corporation produces two products, cheese, and butter, in a single process. In the month of January, the joint costs related to the process amounted to $96,000. In addition, 5,000 pounds of cheese and 4,000 pounds of butter were produced. The sales value at the point of separation was $13 for cheese and $14 for butter. Separable processing costs beyond the split-off point were: cheese, $18,000; butter, $18,000. Cheese sells for $17 per pound; butter sells for $18 per pound.

Instructions

a. If Blender uses the sales-value at split-off method, how much in joint costs will be allocated to each product?

b. If Blender uses the NRV method, how much in joint costs will be allocated to each product?

c. Which method will be a better allocation for Blender Corporation if the sales value at split-off is reliable?

Ans: N/A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Answer:

a. Cheese - $51,570

Butter - $44,430

b. Cheese - $53,157

Butter - $42,843

c. Because the sales value at split-off is reliable, it is the preferred method for Blender Corporation.

Solution:

Product	Sales Price Per Unit		Lbs. Produced		Total Sales				Joint Costs	Allocated Costs
Cheese	$13	x	5,000	=	65,000	÷	121,000	x	96,000	51,570
Butter	14	x	4,000	=	56,000	÷	121,000	x	96,000	44,430
Total					121,000

Product	Market Price Per Unit		Lbs. Produced		Final Sales		Further Processing Cost	NRV
Cheese	$17	x	5,000	=	85,000	-	18,000	67,000
Butter	18	x	4,000	=	72,000	-	18,000	54,000
Total

Product	NRV				Joint Costs		Allocated Costs
Cheese	67,000	÷	121,000	x	96,000	=	53,157
Butter	54,000	÷	121,000	x	96,000	=	42,843
Total	121,000

124. Payton Company uses a joint process to produce two products. The production results in 500 units for Product I and 2,000 units for Product II. The joint process costs are $20,000. Both products must be processed past the split-off point, incurring separable costs of $5 per unit for Product I and $10 per unit for Product II. The market price is $25 and $20 per unit of Products I and II, respectively. Product I has a weight of 20oz per unit, and Product II weighs 25oz per unit.

Instructions

a. Allocate the joint costs to each product using the NRV method.

b. Allocate the joint costs to each product using the physical quantities method.

c. Calculate the difference in allocated costs between the two methods. Which method would you recommend and why?

Ans: N/A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost Management.

Answer:

a. Product I - $6,667

Product II - $13,333

b. Product I - $3,333

Product II - $16,667

c. Product I Difference $3,333

Product II Difference ($3,333)

If the NRV information is available and reliable, the NRV method should be used.

Solution:

Product	Market Price Per Unit		Further Processing Cost per Unit		NRV per Unit		Units Produced		Total NRV
Product I	$25	-	5	=	20	x	500	=	10,000
Product II	20	-	10	=	10	x	2,000	=	20,000

Product	Total NRV				Joint Costs		Allocated Costs
Product I	10,000	÷	30,000	x	20,000	=	6,667
Product II	20,000	÷	30,000	x	20,000	=	13,333
Total	30,000

Product	Units Produced		oz per unit		Total ozs					Joint Costs		Allocated Costs
Product I	500	x	20	=	10,000		÷	60,000	x	20,000	=	3,333
Product II	2,000	x	25	=	50,000		÷	60,000	x	20,000	=	16,667
Total						60,000

	Product I	Product II
NRV Method	$6,667	$13,333
Physical Quantities Method	3,333	16,667
Difference	3,333	(3,333)

125. Napa Productions produces Salsa and Spaghetti Sauce from fresh tomatoes grown in its local greenhouse. The process is a joint process that produces juice and then is separated and two identifiable products are created. The joint cost to produce the products is $90,000 and results in the following data:

Gallons Final

Product Produced Sales Value

Spaghetti Sauce 6,000 $130,000

Salsa 15,000 20,000

Instructions

a. Allocate the joint costs to each product using the NRV method.

b. Napa has identified a new marketable product by further processing the salsa. With an additional cost of $4,000, he can modify the salsa to create different spices. The gallons produced will not change, and the final sales value of the new product will be 26,000. Given this new information, reallocate the joint costs to each product using the NRV method.

c. Based on your calculations in part a, if Napa could sell the juice as is without processing it further into Spaghetti Sauce and Salsa with a marketable value of $$135,000, would you recommend the juice be sold as is or processed further?

Ans: N/A, LO 2, 3 Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost Management.

Answer:

a. Spaghetti Sauce - $78,000

Salsa - $12,000

b. Spaghetti Sauce - $76,974

Salsa - $13,026

c. Yes, Napa should process the juice into spaghetti sauce and Salsa because it will increase profits by $15,000.

Solution:

Product	Final Sales Value		Further Processing Cost per Unit		Total NRV				Joint Costs		Allocated Costs
Spaghetti Sauce	130,000	-	-	=	130,000	÷	150,000	x	90,000	=	78,000
Salsa	20,000	-	-	=	20,000	÷	150,000	x	90,000	=	12,000
Total					150,000

Product	Final Sales Value		Further Processing Cost per Unit		Total NRV				Joint Costs		Allocated Costs
Spaghetti Sauce	130,000	-	-	=	130,000	÷	152,000	x	90,000	=	76,974
Salsa	26,000	-	4,000	=	22,000	÷	152,000	x	90,000	=	13,026
Total					152,000

Total NRV (from part a) $150,000

Total Value before processing 135,000

Profit change 15,000

126. Concrete Mixtures created cement lawn ornaments for its customers. The joint process costs $165,000 and creates two identifiable products, XS and M. The company has determined M can be sold as-is or processed further into product XL for an additional cost of $325,000. Information for the products is:

Product XS Quantity 25,000 cubic yards

Product M Quantity 45,000 cubic yards

Product XL Quantity 80,000 cubic yards

XS Sales value at split-off $3 per cubic yard

M Sales value at split-off $5 per cubic yard

XL Final sales value $9 per cubic yard

Instructions

a. Allocate the joint costs to each product using the sales value at split-off method, assuming XS and M are sold as-is with no further processing.

b. Calculate the gross margin for products XS and M, assuming they are sold at split-off, and the sales value at split-off method is used to allocate joint costs.

c. If product M is further processed into Product XL, allocate the joint costs using the NRV method and calculate the gross margin for Product XL.

d. Should Product M be further processed into Product XL? Report the profit increase or decrease if Product M is processed further.

Ans: N/A, LO 2, 3 Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost Management.

Answer:

a. Product XS $41,250

Product M $123,750

b. Product XS $33,750

Product M $101,250

c. Joint Costs Gross Margin

Product XS $26,330 $48,670

Product M $138,670 $256,330

d. Yes, overall profits will increase by $170,000

Solution:

Product	Price Per Cubic Yard		Cubic Yards		Sales at Split-off				Joint Costs		Allocated Costs
XS	3	x	25,000	=	75,000	÷	300,000	x	165,000	=	41,250
M	5	x	45,000	=	225,000	÷	300,000	x	165,000	=	123,750
Total					300,000

	Product XS	Product M
Sales	75,000	225,000
Costs	41,250	123,750
Gross Margin	33,750	101,250

Product	Price Per Cubic Yard		Cubic Yards		Sales Value		Further Processing Cost		NRV
XS	3	x	25,000	=	75,000	-	0	=	75,000
XL	9	x	80,000	=	720,000	-	325,000	=	395,000
Total

Product	NRV				Joint Costs		Allocated Costs
XS	75,000	÷	470,000	x	165,000	=	26,330
XL	395,000	÷	470,000	x	165,000	=	138,670
Total	470,000

	Product XS	Product XL
Sales	75,000	395,000
Costs	26,330	138,670
Gross Margin	48,670	256,330

Product XL NRV $395,000

Product M sales value 225,000

Difference $170,000

127. Creekside Winery produces three types of wine, Dry, Sweet, and Fruity, using a joint process costing $150,000. The company uses the NRV method to allocate joint costs. Each type of wine can be sold as is or processed further. The information on the products is as follows:

Sales Value Additional Sales Value of

Product at Split-off Processing Costs Final Product

Dry $140,000 $22,000 $170,000

Sweet 116,000 13,000 120,000

Fruity 124,000 16,000 136,000

Instructions

a. If Creekside does not process any of the products further, what will the company report for a total gross margin?

b. If Creekside processes all the wines further, what will the company report for a total gross margin?

c. Which wine or wines should the company process further? Support your conclusion with calculations.

d. If the company proceeds with your recommendation in part c, what will the company report for a total gross margin?

Ans: N/A, LO 2, 3 Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost Management.

Answer:

a. $230,000

b. $225,000

c. Only Dry should be processed further. It will increase profits by $8,000. The sweet and fruity wines will decrease profits by $9,000 and $4,000, respectively.

d. $238,000

Solution:

							Allocated
Product	NRV						Costs
Dry	140,000	÷	380,000	x	150,000	=	55,263
Sweet	116,000	÷	380,000	x	150,000	=	45,789
Fruity	124,000	÷	380,000	x	150,000	=	48,947
	380,000

	Dry	Sweet	Fruity	Total
Sales	140,000	116,000	124,000	380,000
Cost	55,263	45,789	48,947	150,000
Gross Margin	84,737	70,211	75,053	230,000

	Sales Value of		Additional								Allocated
Product	Final Product		Processing Costs		NRV						Costs
Dry	170,000	-	22,000	=	148,000	÷	375,000	x	150,000	=	59,200
Sweet	120,000	-	13,000	=	107,000	÷	375,000	x	150,000	=	42,800
Fruity	136,000	-	16,000	=	120,000	÷	375,000	x	150,000	=	48,000
					375,000

	Dry	Sweet	Fruity	Total
Sales	170,000	120,000	136,000	426,000
Cost	81,200	55,800	64,000	201,000
Gross Margin	88,800	64,200	72,000	225,000

	Sales Value of		Sales Value		Additional		Inc (Dec)
Product	Final Product		at Split-off		Processing Costs		In Profits
Dry	170,000	-	140,000	-	22,000	=	8,000
Sweet	120,000	-	116,000	-	13,000	=	(9,000)
Fruity	136,000	-	124,000	-	16,000	=	(4,000)

	Sales Value		Additional								Allocated
Product	of Final Product		Processing Costs		NRV						Costs
Dry	170,000	-	22,000	=	148,000	÷	388,000	x	150,000	=	57,216
Sweet	116,000	-		=	116,000	÷	388,000	x	150,000	=	44,845
Fruity	124,000	-		=	124,000	÷	388,000	x	150,000	=	47,938
					388,000


	Dry	Sweet	Fruity	Total
Sales	170,000	116,000	124,000	410,000
Cost	79,216	44,845	47,938	172,000
Gross Margin	90,784	71,155	76,062	238,000

128. Carpets N More produces carpet for commercial use. In the process of creating the carpet and sizing it for its customers, a by-product is created. These scraps are sold to other companies to be used in small projects such as dog houses or decorative designs. The revenue of these scraps is minimal compared to the overall sales of the company. The joint process to create both products is $65,000. The carpet produces 16,000 yards at $15 per yard. The scraps produce 3,000 yards and are sold at $1 per yard. Both products are sold at split-off and not processed further.

Instructions

If the companies use the production method to account for the by-product, record the journal entries for the following transactions:
The completion of all products. (carpet and scrap)
The sale of the carpet, assuming all yards produced were sold.
The sale of the scraps, assuming all yards produced were sold.

b. Repeat the steps of part a, if the company accounts for by-products using the sales method.

c. If 15% of the production for both products is unsold at year-end, how much inventory cost would remain on the balance sheet under the (1) production method, (2) sales method?

Ans: N/A, LO 4 Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost Management.

Answer:

1. FG Inventory – Carpet (65,000 – 3,000) $62,000

FG Inventory – Scraps (3,000 x $1) 3,000

WIP Inventory $65,000

2. Cash (or Accounts Receivable) (16,000 x 15) 240,000

Sales - Carpet 240,000

Cost of Goods Sold 62,000

FG Inventory – Carpet 62,000

3. Cash (or Accounts Receivable) 3,000

FG Inventory – Scraps 3,000

1. FG Inventory – Carpet $65,000

WIP Inventory $65,000

2. Cash (or Accounts Receivable) (16,000 x 15) 240,000

Sales - Carpet 240,000

Cost of Goods Sold 65,000

FG Inventory – Carpet 65,000

3. Cash (or Accounts Receivable) (3,000 x $1) 3,000

Sales - Scraps 3,000

c. Production Method - $9,750

Sale Method $9,750

Solution:

Ending Inventory in Units:

Carpet, 16,000 Yards x 15% = 2,400 yards

Scraps, 3,000 yards x 15% = 450 yards

Production Method

	Allocated		Units		Units		Value in
Product	Costs		Produced		Remaining		Ending Inventory
Carpet	62,000	÷	16,000	x	2,400	=	9,300
Scraps	3,000	÷	3,000	x	450	=	450
							9,750

Sales Method

	Allocated		Units		Units		Value in
Product	Costs		Produced		Remaining		Ending Inventory
Carpet	65,000	÷	16,000	x	2,400	=	9,750

129. Honey Bees produces pure honey and distributes it in 8 oz bottles. While harvesting and packaging the honey, pollen is collected and sold to another distributor that uses it to make Bee Bread. The honey is sold for $7 per bottle, and the pollen is sold for $1.50 per pound. Honey Bees produced 20,000 lbs of honey and 2,000 lbs of pollen.

Instructions

a. Assuming Honey Bees uses the production method to account for by-products, record the journal entry to record the sale of the pollen.

b. Assuming Honey Bees uses the sales method to account for by-products, record the journal entry to record the sale of the pollen.

c. Explain how the by-product benefits the company’s income in each of the above methods.

Ans: N/A, LO 4 Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost Management.

Answer:

Cash (or Accounts Receivable) 3,000

FG Inventory – Pollen (2,000 x $1.50) 3,000

Cash (or Accounts Receivable) 3,000

Sales - Pollen 3,000

c. Under the production method, the effect comes through a lower COGS and higher total gross margin for the main product. Using the sales method, the benefit is higher sales and a higher gross margin. Both methods will have the same effect on net income if all by-products that are produced are sold in the same period.

Problems

130. Wooly Productions is a cotton mill that produces a variety of products. The Yarn and Fibers are produced using a joint process that costs $80,000. Lint is also produced as part of the joint process but is produced in a small quantity and not part of the general sale of the company but more of an after-thought with a marketable value. The Yarn and Fibers can be produced further into Woven Fabric and Tight-Knitted Fabric. The cost to process these further is 120,000 (Yarn to Woven Fabric) and 140,000 (Fibers to Tight-Knitted Fabric). Wooly has identified a market for all the products they produce but determined that the Yarn and Fibers would be processed further as the income appears to be greater.

You have been asked to run some analysis and prepare some journal entries to assist Wooly in achieving the highest net income based on the products it produces. The following information has been provided to assist with your analysis.

Pounds Pounds Sales Value

Product Produced Sold Per Pound

Yarn 20,000 $ 4

Fibers 60,000 6

Woven Fabric 24,000 24,000 8

Tight-Knitted Fabric 66,000 60,000 10

Lint 5,000 5,000 2

Instructions

Wooly uses the NRV to allocate joint costs and the production method to account for by-products.

1. Allocate the joint costs to each product.

2. Calculate the gross margin for each product.

3. Prepare the journal entry to record the completion of the products.

4. Prepare the journal entry to record the sale of the primary products.

5. Prepare the journal entry to record the sale of the by-product.

Wooly uses the NRV to allocate joint costs and the sales method to account for by-products.

1. Allocate the joint costs to each product.

2. Calculate the gross margin for each product.

3. Prepare the journal entry to record the completion of the products.

4. Prepare the journal entry to record the sale of the primary products.

5. Prepare the journal entry to record the sale of the by-product.

c. Since not all the Tight-Knitted Fabric produced was sold, calculate the ending inventory of the Finished Goods Inventory account.

1. using the production method to account for by-products.

2. using the sales method to account for by-products

d. Is Wooly making a good decision to process both products further? (Assume all Yarn and Fibers produced could also be sold) Support your answer with calculations.

Ans: N/A, LO 1, 2, 3, 4 Bloom: AN, Difficulty: Hard, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost Management.

Answer:

1. Woven Fabric $8,514

Tight-Knitted Fabric $61,486

Lint $10,000

2. Woven Fabric $63,486

Tight-Knitted Fabric $416,830

Lint $0

3. FG Inventory – Woven Fabric (8,514 + 120,000) $128,514

FG Inventory – Tight-Knitted Fabric (61,486 + 140,000) 201,486

FG Inventory – Lint 10,000

WIP Inventory $340,000

4. Cash (or Accounts Receivable) 792,000

Sales - Woven Fabric 192,000

Sales - Tight-Knitted Fabric (60,000 X $10) 600,000

Cost of Goods Sold 311,684

FG Inventory – Woven Fabric 128,514

FG Inventory - Tight-Knitted Fabric 183,170

5. Cash (or Accounts Receivable) 10,000

FG Inventory – Lint 10,000

1. Woven Fabric $9,730

Tight-Knitted Fabric $70,270

2. Woven Fabric $62,270

Tight-Knitted Fabric $408,845

Lint $10,000

3. FG Inventory – Woven Fabric (9,730 + 120,000) $129,730

FG Inventory – Tight-Knitted Fabric (70,270 + 140,000) 210,270

WIP Inventory $340,000

4. Cash (or Accounts Receivable) 792,000

Sales - Woven Fabric 192,000

Sales - Tight-Knitted Fabric 600,000

Cost of Goods Sold 320,885

FG Inventory – Woven Fabric 129,730

FG Inventory - Tight-Knitted Fabric 191,155

5. Cash (or Accounts Receivable) 10,000

Sales – Lint 10,000

c. Production method - $18,316

Sales Method - $19,115

d. No, the Yarn should not be further into Woven Fabric. It is decreasing profits by $8,000. The Fibers should be further processed into Tight-Knitted Fabric. It is increasing profits by $160,000.

Solution:

a. Lint Sales = 5,000 x $2 = $10,000

Joint Costs	$ 80,000
Less: Lint Sales	10,000
	70,000

(Costs allocated to Lint)

(Costs to allocate to Primary products)

Pounds

Sales Price

Total

Additional Costs

Product

Produced

Per Pound

Sales

to Process Further

NRV

Woven

24,000

192,000

120,000 =

72,000

Tight-Knitted

66,000

660,000

140,000 =

520,000

Total

Joint

Allocated

Product

NRV

Costs

Joint Costs

Woven

72,000

592,000

70,000

8,514

Tight-Knitted

520,000

592,000

70,000

61,486

592,000

2. Tight-Knitted Costs Sold

$61,486 ÷ 66,000 x 60,000 = $55,897

$140,000 ÷ 66,000 x 60,000 = $127,273

	Woven	Tight-Knitted
	Fabric	Fabric	Lint	Total
Sales	$192,000	$600,000	$10,000	$802,000
Joint Costs	8,514	55,897	10,000	74,410
Further Processing Costs	120,000	127,273	-	247,273
Gross Margin	$63,486	$416,830	-	$480,317

	Pounds		Sales Price		Total		Additional Costs
Product	Produced		Per Pound		Sales		to Process Further		NRV
Woven	24,000	x	8	=	192,000	-	120,000	=	72,000
Tight-Knitted	66,000	x	10	=	660,000	-	140,000	=	520,000


			Total		Joint		Allocated
Product	NRV		NRV		Costs		Joint Costs
Woven	72,000	÷	592,000	x	80,000	=	9,730
Tight-Knitted	520,000	÷	592,000	x	80,000	=	70,270
	592,000

2. Tight-Knitted Costs Sold

$70,270 ÷ 66,000 x 60,000 = $63,882

$140,000 ÷ 66,000 x 60,000 = $127,273

	Woven	Tight-Knitted
	Fabric	Fabric	Lint	Total
Sales	$192,000	$600,000	$10,000	$802,000
Joint Costs	9,730	63,882	-	73,612
Further Processing Costs	120,000	127,273	-	247,273
Gross Margin	$62,270	$408,845	$10,000	$481,115

1. Production Method

Costs transferred to FG Inventory 201,486 from part a3

Costs transferred to COGS 183,170 from part a4

Costs in FG Inventory 18,316

2. Sales Method

Costs transferred to FG Inventory 210,270 from part a3

Costs transferred to COGS 191,155 from part a4

Costs in FG Inventory 19,115

	Final		Additional Costs		Sales Value		Inc (Dec)
Product	Sales Value		to Process Further		Before Split-Off		in Profits
Woven Fabric	192,000	-	120,000	-	80,000	=	(8,000)
Tight-Knitted Fabric	660,000	-	140,000	-	360,000	=	160,000

131. Red Hot manufactures a variety of red products. Each product has a market and can be sold as-is or processed further. Four of the products use a joint process costing $25,000. Red Hots can be sold for $2 per pound or processed further for $21,000 and sold for $2.50 per pound. Smokin Reds can be sold for $3.50 per pound or processed further for $18,500 and sold for $5 per pound. Little Reds can be sold for $5 per pound or processed further for $23,000 and sold for $6 per pound. Red Peppers can be sold for $8 per pound or processed further for $15,000 and sold for $10.50 per pound.

The following table shows how many pounds were produced of each product. Even if the products are processed further, the pounds produced will remain the same.

Pounds

Product Produced

Red Hots 30,000

Smokin Reds 25,000

Little Reds 21,000

Red Peppers 12,000

Instructions

a. Red Hot does not plan to process any of the products further. Allocate the joint costs using the sales at split-off method and calculate the gross margin for each product.

b. Red Hot does not plan to process any of the products further. Allocate the joint costs using the sales at physical quantities method and calculate the gross margin for each product.

c. Red Hot plans to process all of products further. Allocate the joint costs using the sales at NRV method and calculate the gross margin for each product.

d. If Red Hots does not plan to process any of the products further and the current sales value per pound is accurate, which method should the company use to allocate joint costs?

e. If Red Hots plans to produce all the products further, which method should the company use to allocate joint costs?

f. Which product or products should the company process further and which product or products should the company sell as-is? Be sure to justify your answer with calculations.

g. If the company takes your suggestions in part f, calculate the new gross margin of the company if the company uses the NRV method to allocate joint costs, and only the product or products recommended in part f are processed further.

h. What is the overall effect on gross margin by only processing further the products identified in part f versus not processing any of the products further.

i. What is the overall effect on gross margin by only processing further the products identified in part f versus processing all of the products further?

Ans: N/A, LO 2, 3 Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost Management.

Answer:

a. Red Hots - $55,696

Smoking Reds - $81,223

Little Reds - $97,468

Red Peppers - $89,113

b. Red Hots - $51,447

Smoking Reds - $80,398

Little Reds - $99,034

Red Peppers - $92,591

c. Red Hots - $50,395

Smoking Reds - $99,391

Little Reds - $96,124

Red Peppers - $103,590

d. The company should use the sales value at split-off method.

e. The company should use the NRV method.

f. Smokin Reds and Red Peppers should be processed further. They will increase profits by $19,000 and $15,000 respectively. The other two products will decrease profits, Red Hots and Little Reds, by $6,000 and $2,000, respectively.

g. Red Hots – $56,078

Smoking Reds - $99,539

Little Reds - $98,137

Red Peppers - $103,745

h. Increase of $34,000

i. Decrease of $8,000

Solution:

	Pounds		Sales Price		Totals Sales
Product	Produced		Per Pound		at Split-off
Red Hots	30,000	x	2.00	=	60,000
Smokin Reds	25,000	x	3.50	=	87,500
Little Reds	21,000	x	5.00	=	105,000
Red Peppers	12,000	x	8.00	=	96,000

	Totals Sales				Joint		Allocated
Product	at Split-off				Costs		Costs
Red Hots	60,000	÷	348,500	x	25,000	=	4,304
Smokin Reds	87,500	÷	348,500	x	25,000	=	6,277
Little Reds	105,000	÷	348,500	x	25,000	=	7,532
Red Peppers	96,000	÷	348,500	x	25,000	=	6,887
	348,500

		Smokin	Little	Red
	Red Hots	Red	Reds	Peppers	Total
Sales	60,000	87,500	105,000	96,000	348,500
Costs	4,304	6,277	7,532	6,887	25,000
Gross Margin	55,696	81,223	97,468	89,113	323,500

	Pounds				Joint		Allocated
Product	Produced				Costs		Costs
Red Hots	30,000	÷	88,000	x	25,000	=	8,523
Smokin Reds	25,000	÷	88,000	x	25,000	=	7,102
Little Reds	21,000	÷	88,000	x	25,000	=	5,966
Red Peppers	12,000	÷	88,000	x	25,000	=	3,409
	88,000

			Smokin		Little		Red
	Red Hots		Red		Reds		Peppers		Total
Sales	60,000	87,500		105,000		96,000		348,500
Costs	8,523	7,102		5,966		3,409		25,000
Gross Margin	51,477	80,398		99,034		92,591		323,500

	Pounds		Sales Price		Final		Additional Costs
Product	Produced		Per Pound		Sales Value		to Process Further		NRV
Red Hots	30,000	x	2.50	=	75,000	-	21,000	=	54,000
Smokin Reds	25,000	x	5.00	=	125,000	-	18,500	=	106,500
Little Reds	21,000	x	6.00	=	126,000	-	23,000	=	103,000
Red Peppers	12,000	x	10.50	=	126,000	-	15,000	=	111,000

					Joint		Allocated
Product	NRV				Costs		Costs
Red Hots	54,000	÷	374,500	x	25,000	=	3,605
Smokin Reds	106,500	÷	374,500	x	25,000	=	7,109
Little Reds	103,000	÷	374,500	x	25,000	=	6,876
Red Peppers	111,000	÷	374,500	x	25,000	=	7,410
	374,500

		Smokin	Little	Red
	Red Hots	Red	Reds	Peppers	Total
Sales	75,000	125,000	126,000	126,000	452,000
Costs	24,605	25,609	29,876	22,410	102,500
Gross Margin	50,395	99,391	96,124	103,590	349,500

	Final Sales		Totals Sales		Additional Costs		Net Increase
Product	Value *		at Split-off **		to Process Further		(Decrease)
Red Hots	75,000	-	60,000	-	21,000	=	(6,000)
Smokin Reds	125,000	-	87,500	-	18,500	=	19,000
Little Reds	126,000	-	105,000	-	23,000	=	(2,000)
Red Peppers	126,000	-	96,000	-	15,000	=	15,000
							26,000

* From part a

** from part c

	Pounds		Sales Price		Final		Additional Costs
Product	Produced		Per Pound		Sales Value		to Process Further		NRV
Red Hots	30,000	x	2.00	=	60,000	-		=	60,000
Smokin Reds	25,000	x	5.00	=	125,000	-	18,500	=	106,500
Little Reds	21,000	x	5.00	=	105,000	-		=	105,000
Red Peppers	12,000	x	10.50	=	126,000	-	15,000	=	111,000

					Joint		Allocated
Product	NRV				Costs		Costs
Red Hots	60,000	÷	382,500	x	25,000	=	3,922
Smokin Reds	106,500	÷	382,500	x	25,000	=	6,961
Little Reds	105,000	÷	382,500	x	25,000	=	6,863
Red Peppers	111,000	÷	382,500	x	25,000	=	7,255
	382,500

		Smokin	Little	Red
	Red Hots	Red	Reds	Peppers	Total
Sales	60,000	125,000	105,000	126,000	416,000
Costs	3,922	25,461	6,863	22,255	58,500
Gross Margin	56,078	99,539	98,137	103,745	357,500

h. Gross Margin (from part g) $357,500

Gross Margin (from part a) 323,500

Difference 34,000

i. Gross Margin (from part g) $357,500

Gross Margin (from part c) 349,500

Difference 8,000

Document Information

Document Type:

DOCX

Chapter Number:

Created Date:

Aug 21, 2025

Chapter Name:

Chapter 15 Joint Costs And Decision[1]making

Author:

Karen Congo Farmer

Connected Book

Chapter Test Bank | Cost Accounting & Analytics 1e

By Karen Congo Farmer

Test Bank General

View Product →

Explore recommendations drawn directly from what you're reading

Chapter 13 Data Analytics

DOCX Ch. 13

Chapter 14 Support Department Costing

DOCX Ch. 14

Chapter 15 Joint Costs And Decision[1]making

DOCX Ch. 15 Current

Chapter 16 The Art And Science Of Pricing To Optimize Revenue

DOCX Ch. 16

Chapter 17 Management Control Systems And Transfer Pricing

DOCX Ch. 17

$24.99

100% satisfaction guarantee

Buy Full Test Bank

Quick Navigation

Preview Document Info Connected Book Recommendations

Benefits

Immediately available after payment

Answers are available after payment

ZIP file includes all related files

Files are in Word format (DOCX)

Check the description to see the contents of each ZIP file

We do not share your information with any third party

Ch15 Exam Prep Joint Costs And Decision[1]making

Document Information

Connected Book

Chapter Test Bank | Cost Accounting & Analytics 1e

Explore recommendations drawn directly from what you're reading

$24.99

Quick Navigation

Benefits

Report Unauthorized Use

Added to Cart