Ch17 | Joint & Byproduct Allocation – Test Bank

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Horngren's Cost Accounting: A Managerial Emphasis, 17e, Global Edition by Datar/Rajan

Chapter 17 Cost Allocation: Joint Products and Byproducts

Objective 17.1

1) What is the name of a cost of production process that yields multiple products simultaneously?

A) byproduct

B) joint

C) main

D) separable

Diff: 1

Objective: 1

AACSB: Analytical thinking

2) When a joint production process yields two products with high total sales values relative to the total sales values of other products, those products are called:

A) byproducts

B) joint products

C) split off products

D) bundled products

Diff: 1

Objective: 1

AACSB: Analytical thinking

3) Which of the following statements best define split off point in joint costing?

A) It is the point at which managers decide to discontinue one or more of the products.

B) It is the point at which the managers decide to outsource some of its production processes.

C) It is the juncture in a joint production process when two or more products become separately identifiable.

D) It is the juncture at which decisions determining joint costs of various products to be produced are taken.

Diff: 2

Objective: 1

AACSB: Analytical thinking

4) Which of the following statements is true of joint production process and its components?

A) Distribution costs incurred beyond the split-off point assignable to each of the specific products identified at the split-off point are considered as joint costs.

B) Decisions relating to the sale or further processing of each identifiable product can be made independently of decisions about the other products beyond the split-off point.

C) When a joint production process yields two or more products with low total sales values relative to the total sales values of other products, those products are called joint products.

D) The primary purpose of joint costing is to allocate the separable costs to the individual products that are eventually sold.

Diff: 2

Objective: 1

AACSB: Analytical thinking

5) The challenge of a production facility that is producing several products from one main process is how to allocate the joint costs that are incurred:

A) before the split-off point

B) after the split-off point

C) at the split-off point

D) at the end of production

Diff: 1

Objective: 1

AACSB: Analytical thinking

6) Which of the following statements is true of joint costing?

A) The costs of a production process that yields multiple products simultaneously are called joint costs.

B) Distribution costs incurred beyond the split-off point that are assignable to each of the specific products identified at the split-off point are considered as joint costs.

C) The primary purpose of joint costing is to allocate the separable costs to the individual products that are eventually sold.

D) Joint costing is less useful for companies which manufacture multiple products simultaneously from the same production process.

Diff: 2

Objective: 1

AACSB: Application of knowledge

7) When a single manufacturing process yields two products, one of which has a relatively high sales value compared to the other, the two products are respectively known as:

A) joint products and byproducts

B) joint products and scrap

C) main products and byproducts

D) main products and joint products

Diff: 1

Objective: 1

AACSB: Analytical thinking

8) Which of the following statements best define joint products?

A) When one product has a high total sales value compared with the total sales value of other products of the process, that product is called a joint product.

B) Product of a joint production process that have the same sales value compared with the total sales value of the byproducts is called a joint product.

C) When one product has a low total sales value compared with the total sales value of other products of the process, that product is called a joint product.

D) When a joint production process yields two or more products with high total sales values relative to the total sales values of other products, those products are called joint products.

Diff: 2

Objective: 1

AACSB: Analytical thinking

9) A company produces three products from a joint production process:: A, B, and C. As a percentage of total sales value, a represents 50%, B 49.5%, and C .5%. Product C could be considered a:

A) primary product

B) main product

C) byproduct

D) waste product

Diff: 1

Objective: 1

AACSB: Analytical thinking

10) Which of the following factors would guide you in classifying a product as a main product or byproduct?

A) number of units per processing period

B) weight or volume of outputs per period

C) percentage of total sales value

D) joint costs incurred up to the split-off point

Diff: 2

Objective: 1

AACSB: Application of knowledge

11) In joint costing, which of the following changes may lead to a change in product classification?

A) main product sales price increases due to a new application

B) byproduct sales price decreases due to a new government regulation

C) main product becomes technologically obsolete and its market value falls significantly

D) byproduct losses value due to a competing products

Diff: 2

Objective: 1

AACSB: Analytical thinking

12) Timber logs are processed into standard lumber used in home construction and wood chips that will be sold to landscapers. How would these products be classified?

A) primary products

B) main products

C) joint products

D) a primary product and a byproduct

Diff: 1

Objective: 1

AACSB: Analytical thinking

13) Which of the following statements is true of main products and byproducts?

A) A byproduct will never become a main product.

B) A main product will never become a byproduct.

C) Product classifications may change over time.

D) Product classifications remains constant over time.

Diff: 2

Objective: 1

AACSB: Analytical thinking

14) Outputs with a negative sales value because of disposal costs have which of the following impact on costs?

A) added to cost of goods sold

B) added to joint production costs and allocated to joint or main products

C) added to joint production costs and allocated to byproducts and scrap

D) subtracted from product revenue

Diff: 3

Objective: 1

AACSB: Analytical thinking

15) Joint costs are incurred beyond the split-off point and are assignable to individual products.

Diff: 1

Objective: 1

AACSB: Analytical thinking

16) Joint costing allocates the joint costs to the individual products that are eventually sold.

Diff: 1

Objective: 1

AACSB: Analytical thinking

17) Separable costs include manufacturing costs only.

Diff: 2

Objective: 1

AACSB: Analytical thinking

18) Separable costs can include manufacturing, marketing, distribution, and other costs incurred beyond the split off point.

Diff: 2

Objective: 1

AACSB: Analytical thinking

19) Outputs of a joint production process cannot reduce revenue.

Diff: 2

Objective: 1

AACSB: Analytical thinking

20) Joint costs are the costs of processing that are incurred after the split-off point.

Diff: 1

Objective: 1

AACSB: Analytical thinking

21) Joint costs are the costs of a production process that yields multiple products simultaneously.

Diff: 1

Objective: 1

AACSB: Analytical thinking

22) The juncture in a joint production process when two products become separable is the byproduct point.

Diff: 1

Objective: 1

AACSB: Analytical thinking

23) Before the split-off point, decisions relating to the sale or further processing of each identifiable product cannot be made independently of decisions about the other products.

Diff: 2

Objective: 1

AACSB: Application of knowledge

24) When a joint production process yields one product with a high total sales value compared to the total sales value of the other products of the process, that product is called a joint product.

Diff: 1

Objective: 1

AACSB: Analytical thinking

25) All products yielded from joint product processing have some positive value to the firm.

Diff: 1

Objective: 1

AACSB: Analytical thinking

26) If the value of a byproduct drops significantly, its cost could also be viewed as a joint product cost.

Diff: 2

Objective: 1

AACSB: Application of knowledge

27) In each of the following industries, identify possible joint (or severable) products at the split-off point.

a. Coal

b. Petroleum

c. Dairy

d. Lamb

e. Lumber

f. Cocoa Beans

g. Christmas Trees

h. Salt

i. Cowhide

a. Coke, Gas, Benzole, Tar, Ammonia

b. Crude Oil, Gas, Raw LPG

c. Milk, Butter, Cheese, Ice Cream, Skim Milk

d. Lamb Cuts, Tripe, Hides, Bones, Fat

e. Board, Newsprint, Shavings, Chips, etc.

f. Cocoa Butter, Cocoa Powder, Cocoa Shells

g. Christmas Trees, Wreaths, Decorations

h. Hydrogen, Chlorine, Caustic Soda

i. Leather, Suede, Chew Toys

Diff: 3

Objective: 1

AACSB: Analytical thinking

28) Define the terms main product, joint product, and byproduct. Give at least one example of each type of product.

Joint product - When a joint production process yields two or more products with high total sales value compared with the total sales value of other products. Ex. crude oil processed into gasoline and kerosene

Byproduct - Products of a joint production process that have low total sales value compared with the total sales value of the main product or joint products. Ex. wood chips created when timber processed into lumber

Diff: 2

Objective: 1

AACSB: Analytical thinking

29) Silver Company uses one raw material, silver ore, for all of its products. It spends considerable time getting the silver from the ore before it starts the actual processing of the finished products, rings, lockets, etc. Traditionally, the company made one product at a time and charged the product with all costs of production, from ore to final inspection. However, in recent months, the cost accounting reports have been somewhat disturbing to management. It seems that some of the finished products are costing more than they should, even to the point of approaching their retail value. It has been noted by the accounting manager that this problem began when the company started buying ore from different parts of the world, some of which require difficult extraction methods.

Required:

Can you explain how the company might change its accounting system to reflect the reporting problems better? Are there other problems with the purchasing area?

If all extraction costs are considered joint, then each finished product would share in the average cost of extraction, rather than being charged with the cost of a specific batch. This should result in costs that are more reflective of the product's actual cost.

Additional problems may be with the purchasing department. The accounting department may help highlight the problem but it does not pinpoint the actual problem. Maybe the company should buy refined silver or else hire experts in the minerals area as part of the purchasing team.

Diff: 2

Objective: 1

AACSB: Application of knowledge

30) What are joint costs, separable costs, and a split-off point?

Separable costs are all costs incurred beyond the split-off point that are assignable to each of the specific products identified at the split-off point.

The split-off point is the juncture in a joint production process when the products become separately identifiable. An example is the point at which coal becomes coke, natural gas, and other products.

Diff: 2

Objective: 1

AACSB: Analytical thinking

31) Discuss in brief how easy it is for companies to classify products as main products, joint products, and byproducts.

Diff: 2

Objective: 1

AACSB: Analytical thinking

32) Explain the difference between a joint product and a byproduct. Can a byproduct ever become a joint product? Also, can a joint product ever become a byproduct?

Diff: 2

Objective: 1

AACSB: Analytical thinking

Objective 17.2

1) Which of the following would NOT be a GAAP or managerial accounting reason for allocating joint costs?

A) to calculate cost of goods sold

B) to analyze the profitability of various products

C) for reimbursement of costs under a federal contract

D) to avoid generating "negative" revenue when disposal costs are considered

Diff: 2

Objective: 2

AACSB: Application of knowledge

2) Which of the following would explain why a company might need to follow very stringent rules that specify the way in which joint costs are assigned to products?

A) to satisfy a federal contract reimbursement stipulations

B) so that cost of goods sold is accurate for income tax purposes

C) to satisfy FASB

D) to increase market share

Diff: 2

Objective: 2

AACSB: Analytical thinking

3) One of the reasons to allocate joint costs to individual products is to have costs reimbursed under a federal cost = plus contract.

Diff: 1

Objective: 2

AACSB: Analytical thinking

4) Allocating joint costs to individual products can be helpful for litigation settlement purposes in which the costs of joint products or services are key inputs.

Diff: 1

Objective: 2

AACSB: Analytical thinking

5) List three reasons why we allocate joint costs to individual products or services. Give an example of when the particular cost allocation reason would come into use.

a. For inventory costing, and cost of goods sold computations for financial accounting purposes.

Example: Cost of goods sold and ending inventory valuation is necessary for reports to shareholders and for the inland revenue service.

b. For internal costing and cost of goods sold computations for internal reporting purposes.

Example: These computations are necessary for division profitability analysis.

c. Reimbursement under contracts.

Example: A firm produces multiple products or services-and uses the same resources and facilities to produce the products or services. But not all the firm's products are under the contract. The firm must allocate the cost of these shared facilities or resources to reflect the portion used by the product under the contract.

d. Insurance settlement computations.

Example: Where a business with multiple products or services claim losses under an insurance policy and wants to calculate the loss. The insurance company and the insured must agree on the value of the loss.

e. Rate regulation. When companies are subject to rate regulation, the allocation of joint costs can be a significant factor in determining the regulated rates.

Example: Crude oil and natural gas are produced out of a common well.

Diff: 2

Objective: 2

AACSB: Analytical thinking

6) What are the reasons for allocating joint costs to individual products or services?

Diff: 2

Objective: 2

AACSB: Analytical thinking

7) Other than for the purposes of external reporting, why would joint costs need to be allocated to individual products or services?

Diff: 2

Objective: 2

AACSB: Analytical thinking

8) Briefly explain why joint cost allocations methods may not be acceptable for decision making purposes.

Diff: 2

Objective: 2

AACSB: Analytical thinking

Objective 17.3

1) Which of the following statements is true of the methods for allocating joint costs?

A) Constant gross-margin percentage method results in same joint production cost per unit for all products.

B) Estimated net realizable value method results in same gross margin percentage for all products.

C) Present value allocation method is the least preferred method due to its complex calculations.

D) Sales value at split-off method uses the sales value of the entire production of the accounting period to allocate costs.

Diff: 2

Objective: 3

AACSB: Analytical thinking

2) The sales price at the point of sale, reduced by the cost to complete after split-off is equal to:

A) total estimated product costs

B) joint costs

C) sales price less a normal profit margin at point of sale

D) net realizable value at split-off

Diff: 2

Objective: 3

AACSB: Analytical thinking

3) An example of allocating joint costs using physical measures is allocating joint costs based on the:

A) sales value at split-off point

B) volume of the products produced

C) constant gross-margin percentage

D) net realizable value

Diff: 2

Objective: 3

AACSB: Analytical thinking

4) Which of the following is a market-based approach to allocating joint costs?

A) sales units

B) units of production

C) physical measures

D) net realizable value

Diff: 2

Objective: 3

AACSB: Analytical thinking

5) How does the sales value at split-off method allocate joint costs?

A) allocates joint costs to joint products on the basis of the relative total sales value at the split-off point

B) allocates joint costs to joint products on the basis of a comparable physical measure at the split-off point

C) allocates joint costs to joint products on the basis of relative NRV

D) allocates joint costs to joint products in a way that each product has an identical gross-margin percentage

Diff: 2

Objective: 3

AACSB: Analytical thinking

6) Which of the following statements is true of the methods for allocating joint costs?

A) The net realizable value method uses the sales value of the units sold during the accounting period to allocate joint costs.

B) The sales value at split-off method always results in the same gross-margin percentage for all products.

C) The sales value at split-off method allocates joint costs to each product in proportion to the sales value of total production.

D) The net realizable value method results in the same joint production cost per unit for all products.

Diff: 2

Objective: 3

AACSB: Analytical thinking

7) How does the physical-measure method allocate joint costs?

A) allocates joint costs to joint products in a way that each product has an identical gross-margin percentage

B) allocates joint costs to joint products on the basis of a comparable physical measure at the split-off point

C) allocates joint costs to joint products on the basis of the relative sales value at the split-off point

D) allocates joint costs to joint products on the basis of relative NRV

Diff: 2

Objective: 3

AACSB: Analytical thinking

8) How does the net realizable value method allocate joint costs?

A) allocates joint costs to joint products on the basis of a comparable physical measure at the split-off point

B) allocates joint costs to joint products on the basis of the relative sales value at the split-off point

C) allocates joint costs to joint products in a way that each product has an identical gross-margin percentage

D) allocates joint costs to joint products on the basis of relative NRV

Diff: 2

Objective: 3

AACSB: Analytical thinking

9) Which of the following formulas would calculate the net realizable value of a product?

A) sales value at the split-off point less cost to produce up to the split-off point

B) sales value × constant gross-margin

C) final sales value minus cost of goods sold

D) final sales value minus separable costs

Diff: 2

Objective: 3

AACSB: Analytical thinking

10) Which of the following best describes how the constant gross-margin percentage NRV method allocates joint costs?

A) a gross margin is calculated and for each product and then the gross margin is deducted along with separable costs from the final sales value of a product to derive the joint cost allocation for a product

B) an overall gross margin is calculated and for each product and then the gross margin is deducted along with separable costs from the final sales value of all the products produced in the joint processing and the allocations are then made based on physical volume measures

C) an overall gross margin is calculated and for each product the gross margin is deducted along with separable costs from the final sales value of a product to derive the joint cost allocation for the product

D) a gross margin is calculated and for each product and then gross margin is deducted along from the final sales value of a product to derive the joint cost allocation for a product.

Diff: 2

Objective: 3

AACSB: Analytical thinking

11) Bismite Corporation purchases trees from Cheney lumber and processes them up to the split-off point where two products (paper and pencil casings) are obtained. The products are then sold to an independent company that markets and distributes them to retail outlets. The following information was collected for the month of October:

The cost of purchasing 280 trees and processing them up to the split-off point to yield 160,000 sheets of paper and 160,000 pencil casings is $13,000.

Bismite's accounting department reported no beginning inventory.

What is the total sales value at the split-off point for paper?

A) $20,605

B) $14,700

C) $16,000

D) $20,800

Diff: 2

Objective: 3

AACSB: Application of knowledge

12) Bismite Corporation purchases trees from Cheney lumber and processes them up to the split-off point where two products (paper and pencil casings) emerge from the process. The products are then sold to an independent company that markets and distributes them to retail outlets. The following information was collected for the month of October:

The cost of purchasing 300 trees and processing them up to the split-off point to yield 200,000 sheets of paper and 200,000 pencil casings is $12,500.

Bismite's accounting department reported no beginning inventory.

What is the total sales value at the split-off point of the pencil casings?

A) $20,000

B) $32,000

C) $31,280

D) $19,500

Diff: 2

Objective: 3

AACSB: Application of knowledge

13) Bismite Corporation purchases trees from Cheney lumber and processes them up to the split-off point where two products (paper and pencil casings) emerge from the process. The products are then sold to an independent company that markets and distributes them to retail outlets. The following information was collected for the month of October:

The cost of purchasing 320 trees and processing them up to the split-off point to yield 180,000 sheets of paper and 180,000 pencil casings is $13,000.

Bismite's accounting department reported no beginning inventory.

What are the paper's and the pencil's approximate weighted cost proportions using the sales value at split-off method, respectively?

A) 50.00% and 50.00%

B) 42.28% and 57.72%

C) 48.77% and 51.23%

D) 43.48% and 56.52%

Diff: 3

Objective: 3

AACSB: Application of knowledge

14) Bismite Corporation purchases trees from Cheney lumber and processes them up to the split-off point where two products (paper and pencil casings) emerge from the process. The products are then sold to an independent company that markets and distributes them to retail outlets. The following information was collected for the month of October:

The cost of purchasing 310 trees and processing them up to the split-off point to yield 200,000 sheets of paper and 200,000 pencil casings is $13,500.

Bismite's accounting department reported no beginning inventory.

If the sales value at split-off method is used, what are the approximate joint costs assigned to ending inventory for paper? (Round intermediary percentages to the nearest hundredth.)

A) $196.89

B) $84.38

C) $275.61

D) $204.03

Diff: 3

Objective: 3

AACSB: Application of knowledge

15) Bismite Corporation purchases trees from Cheney lumber and processes them up to the split-off point where two products (paper and pencil casings) emerge from the process. The products are then sold to an independent company that markets and distributes them to retail outlets. The following information was collected for the month of October:

The cost of purchasing 320 trees and processing them up to the split-off point to yield 200,000 sheets of paper and 200,000 pencil casings is $15,500.

Bismite's accounting department reported no beginning inventory.

If the sales value at split-off method is used, what is the approximate production cost for each pencil

casing? (Round intermediary percentages to the nearest hundredth.)

A) $0.036

B) $0.047

C) $0.034

D) $0.044

Diff: 3

Objective: 3

AACSB: Application of knowledge

16) Bismite Corporation purchases trees from Cheney lumber and processes them up to the split-off point where two products (paper and pencil casings) emerge. The products are then sold to an independent company that markets and distributes them to retail outlets. The following information was collected for the month of October:

The cost of purchasing 280 trees and processing them up to the split-off point to yield 190,000 sheets of paper and 190,000 pencil casings is $14,500.

Bismite's accounting department reported no beginning inventory.

If the sales value at split-off method is used, what is the approximate production cost for each paper sheet? (Round intermediary percentages to the nearest hundredth.)

A) $0.036

B) $0.046

C) $0.033

D) $0.043

Diff: 3

Objective: 3

AACSB: Application of knowledge

17) The Berkel Corporation manufactures Widgets, Gizmos, and Turnbols from a joint process. June production is 9,000 widgets; 12,500 gizmos; and 14,500 turnbols. Respective per unit selling prices at split-off are $100, $60, and $20. Joint costs up to the split-off point are $190,000. If joint costs are allocated based upon the sales value at split-off, what amount of joint costs will be allocated to the widgets? (Do not round any intermediary calculations.)

A) $18,608

B) $88,144

C) $28,402

D) $73,454

Diff: 3

Objective: 3

AACSB: Application of knowledge

18) The Berkel Corporation manufactures Widgets, Gizmos, and Turnbols from a joint process. June production is 7,000 widgets; 10,000 gizmos; and 11,500 turnbols. Respective per unit selling prices at split-off are $115, $85, and $50. Joint costs up to the split-off point are $188,000. What amount of joint costs will be allocated to the Turnbols? (Do not round any intermediary calculations.)

A) $48,475

B) $15,849

C) $71,659

D) $67,865

Diff: 3

Objective: 3

AACSB: Application of knowledge

19) The Berkel Corporation manufactures Widgets, Gizmos, and Turnbols from a joint process. June production is 7,000 widgets; 10,500 gizmos; and 12,500 turnbols. Respective per unit selling prices at split-off are $95, $65, and $30. Joint costs up to the split-off point are $188,000. What amount of joint costs will be allocated to the Gizmos? (Do not round any intermediary calculations.)

A) $40,929

B) $20,519

C) $74,491

D) $72,581

Diff: 3

Objective: 3

AACSB: Application of knowledge

20) Which of the following reasons explain why a physical-measure to allocate joint costs is less preferred than the sales value at split-off point?

A) a physical measure such as volume is difficult to estimate than sales value

B) physical volume usually has little relationship to the revenue producing power of products

C) a physical measure usually results in less costs being allocated to the product that weighs the most

D) customers will easily understand that the products are overpriced

Diff: 2

Objective: 3

AACSB: Analytical thinking

21) The Alfarm Corporation processes raw milk up to the split-off point where two products, cream and liquid skim, are produced and sold. There was no beginning inventory. The following material was collected for the month of February:

The cost of purchasing 820,000 gallons of direct materials and processing it up to the split-off point to yield a total of 797,500 gallons of good product was $1,060,000. What are the physical-volume proportions to allocate joint costs for cream and liquid skim, respectively?

A) 54.09% and 45.91%

B) 55.61% and 44.39%

C) 50.00% and 50.00%

D) 53.23% and 46.77%

Diff: 3

Objective: 3

AACSB: Application of knowledge

22) The Alfarm Corporation processes raw milk up to the split-off point where two products, cream and liquid skim, are produced and sold. There was no beginning inventory. The following material was collected for the month of February:

The cost of purchasing 850,000 gallons of direct materials and processing it up to the split-off point to yield a total of 828,500 gallons of good product was $1,190,000. When using a physical-volume measure, what is the approximate amount of joint costs that will be allocated to cream and liquid skim? (Round intermediary percentages to the nearest hundredth.)

A) $636,293 and $553,707

B) $595,000 and $595,000

C) $631,793 and $558,207

D) $620,200 and $569,800

Diff: 3

Objective: 3

AACSB: Application of knowledge

23) The Alfarm Corporation processes raw milk up to the split-off point where two products, cream and liquid skim, are produced and sold. There was no beginning inventory. The following material was collected for the month of February:

The cost of purchasing 810,000 gallons of direct materials and processing it up to the split-off point to yield a total of 787,500 gallons of good product was $1,010,000. When using the physical-volume method, what is Cream's approximate production cost per gallon? (Round intermediary percentages to the nearest hundredth.)

A) $1.14

B) $1.25

C) $1.28

D) $1.34

Diff: 3

Objective: 3

AACSB: Application of knowledge

24) The Alfarm Corporation processes raw milk up to the split-off point where two products, cream and liquid skim, are produced and sold. There was no beginning inventory. The following material was collected for the month of February:

The cost of purchasing 840,000 gallons of direct materials and processing it up to the split-off point to yield a total of 817,500 gallons of good product was $1,020,000. Which of the following statements about Alfarm's joint production costs is true?

A) The gross-margin percentage per gallon of Cream and Liquid skim are equal because joint costs are allocated based on the number of gallons.

B) The gross-margin percentage per gallon of Cream is higher than gross margin percentage per gallon of Liquid skim because of Cream's higher production volume.

C) The joint production cost per gallon of Cream and Liquid skim are equal because joint costs are allocated based on the number of gallons.

D) The joint production cost per gallon of Cream is higher than joint production cost per gallon of Liquid skim because of Cream's higher production volume.

Diff: 3

Objective: 3

AACSB: Application of knowledge

25) Netzone Company is in semiconductor industry and fabrication of silicon-wafer chips splits off two types of memory chips, Standard and Premium. The following information was collected for last quarter of the calendar year:

The cost of purchasing 200 kgs of direct materials and processing it up to the split-off point to yield a total of 16,600 chips of good products was $2,050,000. Beginning inventories totaled 100 chips for Standard and 80 chips for Premium. Ending inventory amounts reflected 100 chips of Standard and 80 chips of Premium. October costs per unit were the same as November. What are the physical-volume proportions for products Standard and Premium, respectively?

A) 60.90% and 39.10%

B) 64.10% and 35.90%

C) 60.24% and 39.76%

D) 50.00% and 50.00%

Diff: 3

Objective: 3

AACSB: Application of knowledge

26) Netzone Company is in semiconductor industry and fabrication of silicon-wafer chips splits off two types of memory chips, Standard and Premium. The following information was collected for last quarter of the calendar year:

The cost of purchasing 400 kgs of direct materials and processing it up to the split-off point to yield a total of 22,700 chips of good products was $2,010,000. Beginning inventories totaled 120 chips for Standard and 80 chips for Premium. Ending inventory amounts reflected 120 chips of Standard and 80 chips of Premium. October costs per unit were the same as November. When using a physical-volume measure, what is the approximate amount of joint costs that will be allocated Standard chips? (Round intermediary percentages to the nearest hundredth.)

A) $1,482,028

B) $1,435,714

C) $1,005,000

D) $1,416,648

Diff: 3

Objective: 3

AACSB: Application of knowledge

27) Netzone Company is in semiconductor industry and fabrication of silicon-wafer chips splits off two types of memory chips, Standard and Premium. The following information was collected for last quarter of the calendar year:

The cost of purchasing 200 kgs of direct materials and processing it up to the split-off point to yield a total of 26,100 chips of good products was $1,950,000. Beginning inventories totaled 140 chips for Standard and 60 chips for Premium. Ending inventory amounts reflected 140 chips of Standard and 60 chips of Premium. October costs per unit were the same as November. When using a physical-volume measure, what is the approximate amount of joint costs that will be allocated Premium chips? (Round intermediary percentages to the nearest hundredth.)

A) $530,400

B) $526,190

C) $975,000

D) $479,762

Diff: 3

Objective: 3

AACSB: Application of knowledge

28) The Green Company processes unprocessed goat milk up to the split-off point where two products, condensed goat milk and skim goat milk result. The following information was collected for the month of October:

The costs of purchasing the of unprocessed goat milk and processing it up to the split-off point to yield a total of 103,000 gallons of saleable product was $188,480. There were no inventory balances of either product. Condensed goat milk may be processed further to yield 45,500 gallons (the remainder is shrinkage) of a medicinal milk product, Xyla, for an additional processing cost of $5 per usable gallon. Xyla can be sold for $21 per gallon.

Skim goat milk can be processed further to yield 55,700 gallons of skim goat milk ice cream, for an additional processing cost per usable gallon of $5. The product can be sold for $10 per gallon.

There are no beginning and ending inventory balances.

What is the estimated net realizable value of Xyla at the split-off point?

A) $278,500

B) $285,000

C) $728,000

D) $736,000

Diff: 3

Objective: 3

AACSB: Application of knowledge

29) The Green Company processes unprocessed goat milk up to the split-off point where two products, condensed goat milk and skim goat milk result. The following information was collected for the month of October:

The costs of purchasing the of unprocessed goat milk and processing it up to the split-off point to yield a total of 101,000 gallons of saleable product was $185,480. There were no inventory balances of either product. Condensed goat milk may be processed further to yield 43,500 gallons (the remainder is shrinkage) of a medicinal milk product, Xyla, for an additional processing cost of $5 per usable gallon. Xyla can be sold for $21 per gallon.

Skim goat milk can be processed further to yield 55,700 gallons of skim goat milk ice cream, for an additional processing cost per usable gallon of $5. The product can be sold for $10 per gallon.

There are no beginning and ending inventory balances.

What is the estimated net realizable value of the skim goat milk ice cream at the split-off point?

A) $278,500

B) $285,000

C) $696,000

D) $704,000

Diff: 3

Objective: 3

AACSB: Application of knowledge

30) The Green Company processes unprocessed goat milk up to the split-off point where two products, condensed goat milk and skim goat milk result. The following information was collected for the month of October:

The costs of purchasing the of unprocessed goat milk and processing it up to the split-off point to yield a total of 99,500 gallons of saleable product was $184,480. There were no inventory balances of either product. Condensed goat milk may be processed further to yield 43,000 gallons (the remainder is shrinkage) of a medicinal milk product, Xyla, for an additional processing cost of $7 per usable gallon. Xyla can be sold for $25 per gallon.

Skim goat milk can be processed further to yield 54,700 gallons of skim goat milk ice cream, for an additional processing cost per usable gallon of $7. The product can be sold for $13 per gallon.

There are no beginning and ending inventory balances.

Using estimated net realizable value, what amount of the joint costs would be allocated Xyla and the skim goat milk ice cream? (Round intermediary percentage calculations to the nearest hundredth.)

A) $774,000 and $328,200

B) $129,542 and $54,938

C) $92,240 and $92,240

D) $88,518 and $95,962

Diff: 3

Objective: 3

AACSB: Application of knowledge

31) The Green Company processes unprocessed goat milk up to the split-off point where two products, condensed goat milk and skim goat milk result. The following information was collected for the month of October:

The costs of purchasing the of unprocessed goat milk and processing it up to the split-off point to yield a total of 102,500 gallons of saleable product was $190,480. There were no inventory balances of either product. Condensed goat milk may be processed further to yield 44,500 gallons (the remainder is shrinkage) of a medicinal milk product, Xyla, for an additional processing cost of $6 per usable gallon. Xyla can be sold for $20 per gallon.

Skim goat milk can be processed further to yield 56,200 gallons of skim goat milk ice cream, for an additional processing cost per usable gallon of $6. The product can be sold for $11 per gallon.

There are no beginning and ending inventory balances.

Using the sales value at split-off method, what is the gross-margin percentage for condensed goat milk at the split-off point? (Round intermediary percentages to the nearest hundredth.)

A) 47.73%

B) 50.00%

C) 42.28%

D) 52.27%

Diff: 3

Objective: 3

AACSB: Application of knowledge

32) The Green Company processes unprocessed goat milk up to the split-off point where two products, condensed goat milk and skim goat milk result. The following information was collected for the month of October:

The costs of purchasing the of unprocessed goat milk and processing it up to the split-off point to yield a total of 100,000 gallons of saleable product was $187,480. There were no inventory balances of either product. Condensed goat milk may be processed further to yield 43,000 gallons (the remainder is shrinkage) of a medicinal milk product, Xyla, for an additional processing cost of $7 per usable gallon. Xyla can be sold for $21 per gallon.

Skim goat milk can be processed further to yield 55,200 gallons of skim goat milk ice cream, for an additional processing cost per usable gallon of $7. The product can be sold for $15 per gallon.

There are no beginning and ending inventory balances.

Using the sales value at split-off method, what is the gross-margin percentage for skim goat milk at the split-off point? (Round intermediary percentages to the nearest hundredth.)

A) 50.66%

B) 50.00%

C) 45.42%

D) 49.34%

Diff: 3

Objective: 3

AACSB: Application of knowledge

33) The Green Company processes unprocessed goat milk up to the split-off point where two products, condensed goat milk and skim goat milk result. The following information was collected for the month of October:

The costs of purchasing the of unprocessed goat milk and processing it up to the split-off point to yield a total of 102,500 gallons of saleable product was $184,480. There were no inventory balances of either product. Condensed goat milk may be processed further to yield 44,500 gallons (the remainder is shrinkage) of a medicinal milk product, Xyla, for an additional processing cost of $5 per usable gallon. Xyla can be sold for $19 per gallon.

Skim goat milk can be processed further to yield 56,200 gallons of skim goat milk ice cream, for an additional processing cost per usable gallon of $5. The product can be sold for $13 per gallon.

There are no beginning and ending inventory balances.

How much (if any) extra income would Green earn if it produced and sold all of the Xyla from the condensed goat milk? Allocate joint processing costs based upon relative sales value on the split-off. (Extra income means income in excess of what Green would have earned from selling condensed goat milk. Do not round intermediary percentages.)

A) $534,953

B) $277,100

C) $465,500

D) $353,167

Diff: 3

Objective: 3

AACSB: Application of knowledge

34) The Green Company processes unprocessed goat milk up to the split-off point where two products, condensed goat milk and skim goat milk result. The following information was collected for the month of October:

The costs of purchasing the of unprocessed goat milk and processing it up to the split-off point to yield a total of 101,500 gallons of saleable product was $184,480. There were no inventory balances of either product. Condensed goat milk may be processed further to yield 42,500 gallons (the remainder is shrinkage) of a medicinal milk product, Xyla, for an additional processing cost of $4 per usable gallon. Xyla can be sold for $20 per gallon.

Skim goat milk can be processed further to yield 57,200 gallons of skim goat milk ice cream, for an additional processing cost per usable gallon of $4. The product can be sold for $10 per gallon.

There are no beginning and ending inventory balances.

How much (if any) extra income would Green earn if it produced and sold skim milk ice cream from goats rather than skim goat milk? Allocate joint processing costs based upon the relative sales value at the split-off point. Do not round intermediary percentages.)

A) $138,450

B) $590,366

C) $486,500

D) $248,354

Diff: 3

Objective: 3

AACSB: Application of knowledge

35) Chem Manufacturing Company processes direct materials up to the split-off point where two products (X and Y) are obtained and sold. The following information was collected for the month of November:

The cost of purchasing 10,400 gallons of direct materials and processing it up to the split-off point to yield a total of 9,800 gallons of good products was $1,125,000.

The beginning inventories totaled 30 gallons for X and 350 gallons for Y. Ending inventory amounts reflected 535 gallons of Product X and 400 gallons of Product Y. October costs per unit were the same as November.

Using the physical-volume method, what is Product X's approximate gross-margin percentage? (Round all intermediary calculations two decimal places.)

A) 67%

B) 51%

C) 205%

D) 72%

Diff: 3

Objective: 3

AACSB: Application of knowledge

36) Beverage Drink Company processes direct materials up to the split-off point where two products, A and B, are obtained. The following information was collected for the month of July:

The cost of purchasing 3,000 liters of direct materials and processing it up to the split-off point to yield a total of 2,550 liters of good products was $7,000. There were no inventory balances of A and B.

Product A may be processed further to yield 375 liters of Product Z5 for an additional processing cost of $200. Product Z5 is sold for $45 per liter. There was no beginning inventory and ending inventory was 125 liters.

Product B may be processed further to yield 1,900 liters of Product W3 for an additional processing cost of $280. Product W3 is sold for $50 per liter. There was no beginning inventory and ending inventory was 25 liters.

If Product Z5 and Product W3 are produced, what are the expected sales values of production, respectively?

A) $95,000 and $16,875

B) $15,000 and $51,250

C) $18,750 and $85,500

D) $16,875 and $95,000

Diff: 3

Objective: 3

AACSB: Application of knowledge

37) Cola Drink Company processes direct materials up to the split-off point where two products, A and B, are obtained. The following information was collected for the month of July:

The cost of purchasing 3,500 liters of direct materials and processing it up to the split-off point to yield a total of 2,800 liters of good products was $4,500. There were no inventory balances of A and B.

Product A may be processed further to yield 2,000 liters of Product Z5 for an additional processing cost of $190. Product Z5 is sold for $70.00 per liter. There was no beginning inventory and ending inventory was 125 liters.

Product B may be processed further to yield 575 liters of Product W3 for an additional processing cost of $325. Product W3 is sold for $75 per liter. There was no beginning inventory and ending inventory was 25 liters.

What is Product Z5's estimated net realizable value at the split-off point?

A) $42,935

B) $31,310

C) $139,810

D) $140,000

Diff: 3

Objective: 3

AACSB: Application of knowledge

38) Which of the following is true of the physical-measure approach of allocating joint costs?

A) Costs cannot be allocated if the measurement basis for each product are different.

B) Physical measures usually result in less costs being allocated to the product that weighs the most.

C) The physical measure reflects a product's ability to generate revenues.

D) Obtaining comparable physical measures for all products is always straightforward.

Diff: 2

Objective: 3

AACSB: Analytical thinking

39) The Kenton Company processes unprocessed milk to produce two products, Butter Cream and Condensed Milk. The following information was collected for the month of June:

Direct Materials processed: 27,500 gallons (after shrinkage)

The cost of purchasing the of unprocessed milk and processing it up to the split-off point to yield a total of 27,500 gallons of saleable product was $49,000.

The company uses constant gross-margin percentage NRV method to allocate the joint costs of production. What is the constant gross-margin percent for Kenton?

A) 71.9%

B) 40.8%

C) 42.9%

D) 70.9%

Diff: 2

Objective: 3

AACSB: Application of knowledge

40) The Kenton Company processes unprocessed milk to produce two products, Butter Cream and Condensed Milk. The following information was collected for the month of June:

Direct Materials processed: 22,500 gallons (after shrinkage)

The cost of purchasing the of unprocessed milk and processing it up to the split-off point to yield a total of 22,500 gallons of saleable product was $53,000.

The company uses constant gross-margin percentage NRV method to allocate the joint costs of production. What is the allocated joint costs of Condensed Milk? (Round intermediary percentages to the nearest hundredth.)

A) $25,040

B) $27,958

C) $14,000

D) $34,900

Diff: 3

Objective: 3

AACSB: Application of knowledge

41) The Kenton Company processes unprocessed milk to produce two products, Butter Cream and Condensed Milk. The following information was collected for the month of June:

Direct Materials processed: 23,500 gallons (after shrinkage)

The cost of purchasing the of unprocessed milk and processing it up to the split-off point to yield a total of 23,500 gallons of saleable product was $47,000.

The company uses constant gross-margin percentage NRV method to allocate the joint costs of production. What is the allocated joint costs of Butter Cream? (Round intermediary percentages to the nearest hundredth.)

A) $21,398

B) $12,500

C) $35,600

D) $25,600

Diff: 3

Objective: 3

AACSB: Application of knowledge

42) The Kenton Company processes unprocessed milk to produce two products, Butter Cream and Condensed Milk. The following information was collected for the month of June:

Direct Materials processed: 25,500 gallons (after shrinkage)

The cost of purchasing the of unprocessed milk and processing it up to the split-off point to yield a total of 25,500 gallons of saleable product was $49,000.

The company uses constant gross-margin percentage NRV method to allocate the joint costs of production. Which of the following statements is true of Kenton's joint cost allocations?

A) The gross margin is same for both products because constant gross margin percentage NRV method ignores profits earned before the split-off point.

B) One product can receive negative joint costs allocations to bring the other unprofitable product to the overall average gross margin.

C) Kenton has chosen the easiest method for allocating its joint costs of production.

D) The gross profit percent of condensed milk is lower than the gross profit of butter cream.

Diff: 3

Objective: 3

AACSB: Application of knowledge

43) Which of the methods of allocating joint costs usually is considered the simplest to implement?

A) estimated net realizable value

B) constant gross-margin percentage NRV

C) sales value at split-off

D) physical measures

Diff: 2

Objective: 3

AACSB: Analytical thinking

44) Which of the following statements is true of the methods for allocating joint costs?

A) Under the cause-and-effect criterion, the physical-measure method is highly desirable.

B) Byproducts are never excluded from the denominator used in the physical-measure method.

C) The NRV method is never used when the selling prices of joint products vary frequently.

D) The sales value at split-off method follows the benefits-received criterion of cost allocation.

Diff: 2

Objective: 3

AACSB: Analytical thinking

45) The Brital Company processes unprocessed milk to produce two products, Butter Cream and Condensed Milk. The following information was collected for the month of June:

Direct Materials processed: 28,500 gallons

The costs of purchasing the of unprocessed milk and processing it up to the split-off point to yield a total of 28,500 gallons of saleable product was $48,000.

The company uses constant gross-margin percentage NRV method to allocate the joint costs of production. What is the constant gross margin percent for Brital?

A) 77%

B) 52%

C) 54%

D) 60%

Diff: 2

Objective: 3

AACSB: Application of knowledge

46) The Brital Company processes unprocessed milk to produce two products, Butter Cream and Condensed Milk. The following information was collected for the month of June:

Direct Materials processed: 30,000 gallons

The costs of purchasing the of unprocessed milk and processing it up to the split-off point to yield a total of 30,000 gallons of saleable product was $57,150.

The company uses constant gross-margin percentage NRV method to allocate the joint costs of production. What is the allocated joint costs of Butter Cream?

A) $34,900

B) $15,500

C) $49,250

D) $7,900

Diff: 3

Objective: 3

AACSB: Application of knowledge

47) The Brital Company processes unprocessed milk to produce two products, Butter Cream and Condensed Milk. The following information was collected for the month of June:

Direct Materials processed: 33,500 gallons

The costs of purchasing the of unprocessed milk and processing it up to the split-off point to yield a total of 33,500 gallons of saleable product was $77,625.

The company uses constant gross-margin percentage NRV method to allocate the joint costs of production. What is the allocated joint costs of Condensed Milk?

A) $50,100

B) $15,000

C) $33,900

D) $27,525

Diff: 3

Objective: 3

AACSB: Application of knowledge

48) The Brital Company processes unprocessed milk to produce two products, Butter Cream and Condensed Milk. The following information was collected for the month of June:

Direct Materials processed: 30,500 gallons

The costs of purchasing the of unprocessed milk and processing it up to the split-off point to yield a total of 30,500 gallons of saleable product was $50,000.

The company uses constant gross-margin percentage NRV method to allocate the joint costs of production. Which of the following statements is true of Brital?

A) The gross profit percent of condensed milk is lower than the gross profit of butter cream.

B) The gross margin is same for both products because constant gross margin percentage NRV method ignores profits earned before the split-off point.

C) The gross profit of condensed milk is lower than the gross profit of butter cream.

D) The gross margin is allocated to the joint products in order to determine the joint-cost allocations.

Diff: 3

Objective: 3

AACSB: Application of knowledge

49) The Brital Company processes unprocessed milk to produce two products, Butter Cream and Condensed Milk. The following information was collected for the month of June:

Direct Materials processed: 33,000 gallons

The costs of purchasing the of unprocessed milk and processing it up to the split-off point to yield a total of 33,000 gallons of saleable product was $167,700.

The company uses constant gross-margin percentage NRV method to allocate the joint costs of production. If separable costs of Butter Cream was $19,500 and constant gross margin was 10%, what would have been the allocated joint costs of Condensed Milk?

A) $30,900

B) $48,900

C) $136,800

D) $131,800

Diff: 3

Objective: 3

AACSB: Application of knowledge

50) The Brital Company processes unprocessed milk to produce two products, Butter Cream and Condensed Milk. The following information was collected for the month of June:

Direct Materials processed: 29,000 gallons

The costs of purchasing the of unprocessed milk and processing it up to the split-off point to yield a total of 29,000 gallons of saleable product was $89,600.

The company uses constant gross-margin percentage NRV method to allocate the joint costs of production. If separable costs of Butter Cream was $17,000 and constant gross margin was 20%, what would have been the total allocated joint costs of production?

A) $89,600

B) $35,800

C) $63,400

D) $142,400

Diff: 3

Objective: 3

AACSB: Application of knowledge

51) The G-Lab Company produced three joint products at a joint cost of $140,000. Two of these products were processed further. Production and sales were:

If joint costs are allocated based on relative weight of the outputs and all products are main products, how much of the joint costs would be allocated to product A? (Do not round intermediary calculations. Round final answer to the nearest cent.)

A) $62,222.22

B) $76,222.22

C) $31,111.11

D) $93,333.33

Diff: 3

Objective: 3

AACSB: Application of knowledge

52) Which of the following is false regarding net realizable value (NRV)?

A) it is better to use a product's market value at the split-off point than its estimated NRV

B) the estimated NRV at the split-off point is calculated by taking the sales value after further processing and deducting additional processing costs

C) NRV is the estimated selling price after processing the product beyond the split-off point.

D) the constant NRV method uses an identical gross-margin percentage for each product to allocate joint costs

Diff: 2

Objective: 3

AACSB: Application of knowledge

53) The constant gross-margin percentage NRV method of joint cost allocation:

A) involves allocating costs in such a way that maintaining the same gross margin percentage for each product that was obtained in prior years

B) computes gross margin before allocating the costs to the products

C) is the same as the estimated NRV method

D) is the same as the sales-value at split-off method

Diff: 2

Objective: 3

AACSB: Analytical thinking

54) Which of the following methods of allocating joint costs are market-based approaches is not a market-based approach?

A) sales-value at splitoff method

B) physical-measure method

C) net realizable value (NRV) method

D) constant gross-margin percentage NRV method

Diff: 2

Objective: 3

AACSB: Analytical thinking

55) In joint costing, the constant gross-margin percentage NRV method is an example of allocating costs using physical measures.

Diff: 1

Objective: 3

AACSB: Analytical thinking

56) In joint costing, using physical measures at split-off to allocate costs enables the accountant to obtain individual product costs and gross margins.

Diff: 2

Objective: 3

AACSB: Analytical thinking

57) An advantage of the physical-measure method is that obtaining physical measures for all products is an easy task.

Diff: 1

Objective: 3

AACSB: Analytical thinking

58) In joint costing, the sales value at split-off method allocates joint costs entirely to joint products sold during the accounting period on the basis of the relative total sales value at the split-off point.

Diff: 2

Objective: 3

AACSB: Analytical thinking

59) In joint costing, the sales value at split-off method is typically used in preference to the NRV method only when net realizable value for one or more products at split-off do not exist.

Diff: 2

Objective: 3

AACSB: Analytical thinking

60) The net realizable value (NRV) method allocates joint costs to joint products produced during the accounting period on the basis of their relative NRV—final sales value plus separable costs.

Diff: 2

Objective: 3

AACSB: Analytical thinking

61) In joint costing, the physical measures are generally used for products or services that are processed and, after split-off, additional value is added to the product and a selling price can be determined.

Diff: 2

Objective: 2

AACSB: Analytical thinking

62) The net realizable value (NRV) method allocates joint costs to joint products produced during the accounting period in such a way that each individual product achieves an identical gross-margin percentage.

Diff: 2

Objective: 3

AACSB: Analytical thinking

63) The constant gross-margin percentage method differs from market-based joint-cost allocation method (sales value at split-off and estimated net realizable value) since no account is taken of profits earned before or after the split-off point when allocating joint costs.

Diff: 2

Objective: 3

AACSB: Analytical thinking

64) In joint costing, outputs with no sales value are always excluded when costs are allocated using physical measures.

Diff: 1

Objective: 3

AACSB: Analytical thinking

65) The only allowable method of joint cost allocation is net realizable value which is specified by FASB.

Diff: 1

Objective: 3

AACSB: Analytical thinking

66) The constant gross-margin percentage NRV method is the only method of allocating joint costs under which products may receive negative allocations.

Diff: 1

Objective: 3

AACSB: Analytical thinking

67) The sales value at split-off method of joint cost allocation involves computation of the relative amounts of the sales value of the amount of each joint product sold during the period.

Diff: 2

Objective: 3

AACSB: Analytical thinking

68) The constant gross-margin percentage NRV method allocates joint costs to joint products in such a way that the gross margin on each joint product is the same as it was in the previous year.

Diff: 2

Objective: 3

AACSB: Analytical thinking

69) The constant gross-margin percentage NRV method is the only method whereby products can receive negative allocations.

Diff: 1

Objective: 3

AACSB: Analytical thinking

70) Under the benefits-received criterion, the physical-measure method is much less desirable than the sales value at split-off method. Why?

Consider a gold mine that extracts ore containing gold, silver, and lead. Using a common physical measure (tons) would result in almost all costs being allocated to lead, the product that weighs the most but has the lowest revenue-generating power. This method of cost allocation is inconsistent with the main reason the mining company is incurring mining costs—to earn revenues from gold and silver, not lead. When a company uses the physical-measure method in a product-line income statement, products that have a high sales value per ton, like gold and silver, would show a large "profit" and products that have a low sales value per ton, like lead, would show sizable losses.

Diff: 2

Objective: 3

AACSB: Analytical thinking

71) For each of the following methods of allocating joint costs, give a positive or a negative aspect of selecting each one to allocate joint costs.

a. sales value at split-off

b. estimated net realizable value method

c. the constant gross margin method

d. a physical measure such as volume

a. Positive: Costs are allocated to products in proportion to their potential revenues. This is a fairly simple method to implement.

Negative: We use the sales value of the entire production of the accounting period.

b. Positive: It can be used when the market prices of the products are not known or available.

Negative: It can be very complex in operations with multiple products and multiple split-off points.

c. Positive: Account is taken of the profits earned either before or after the split-off point when allocating the joint costs.

Negative: The assumption is made that all have the same ratio of cost to sales value. This is likely not true.

d. Positive: It is fairly simple to use.

Negative: It has no relationship to the revenue-producing power of individual products.

Diff: 2

Objective: 3

AACSB: Analytical thinking

72) Berkel Company processes sugar cane into three products. During May, the joint costs of processing were $600,000. Production and sales value information for the month were as follows:

Required:

Determine the amount of joint cost allocated to each product if the sales value at split-off method is used.

Diff: 2

Objective: 3

AACSB: Application of knowledge

73) Calamata Corporation processes a single material into three separate products A, B, and C. During September, the joint costs of processing were $300,000. Production and sales value information for the month were as follows:

Required:

Determine the amount of joint cost allocated to each product if the constant gross-margin percentage NRV method is used.

Diff: 2

Objective: 3

AACSB: Application of knowledge

74) Oregon Lumber processes timber into four products. During January, the joint costs of processing were $280,000. There was no inventory at the beginning of the month. Production and sales value information for the month is as follows:

Required:

Determine the value of ending inventory if the sales value at split-off method is used for product costing. Round to 3 decimal places when necessary.

Diff: 3

Objective: 3

AACSB: Application of knowledge

75) Zenon Chemical, Inc., processes pine rosin into three products: turpentine, paint thinner, and spot remover. During May, the joint costs of processing were $240,000. Production and sales value information for the month is as follows:

Required:

Determine the amount of joint cost allocated to each product if the physical-measure method is used.

Diff: 2

Objective: 3

AACSB: Application of knowledge

76) Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned tomatoes. During the summer of 2020, the joint costs of processing the tomatoes were $420,000. There was no beginning or ending inventories for the summer. Production and sales value information for the summer is as follows:

Required:

Determine the amount allocated to each product if the estimated net realizable value method is used, and compute the cost per case for each product.

Catsup cost per case = $449,982/100,000 = $4.50

Juice cost per case = $930,012/150,000 = $6.20

Canned cost per case = $590,006/200,000 = $2.95

Diff: 3

Objective: 3

AACSB: Application of knowledge

77) Pilgrim Corporation processes frozen turkeys. The company has not been pleased with its profit margin per product because it appears that the high value items have too few costs assigned to them, while the low value items have too many costs assigned to them. The processing results in several products, the primary one of which is frozen small turkeys. Other products include frozen parts such as wings and legs, byproducts such as skin and bones, and unused scrap items.

Required:

What may be the cost assignment problem if a key consideration is the value of the products being sold?

A second consideration is the method used to assign the costs. It is possible that some physical measure (weight) is being used, in which case the parts items and the byproducts may weigh as much as the primary product. It may be necessary to evaluate the various methods of allocation and select the one which management feels is best for decision making.

Diff: 2

Objective: 3

AACSB: Application of knowledge

78) Wharf Fisheries processes many of its seafood items to the demands of its largest customers, most of which are large retail distributors. To keep the accounting system simple, it has always assigned cost by the weight of the finished product. However, with increased competition, it has had to watch its prices closely and, in recent years, several items have incurred zero profit margins. After several weeks of investigation, your consulting firm has found that, while weight is important in processing of seafood, numerous items have very distinct processing steps and some items are processed through more steps than others.

Required:

Based on the findings of your consulting firm, what changes might you recommend to the company in the way of cost allocation among its products?

a. Categorize the fishing expeditions as joint costs, especially if multiple items are caught.

b. Categorize all processing activities where multiple items are processed as joint costs.

c. For those processes that are unique to only one product or a set of products, use separable cost categories.

d. Choose something other than weight for allocating joint costs. Select one of the value methods of assigning the costs.

e. Carefully separate main products from byproducts in the costing system.

f. Do not allocate the joint costs for internal decisions.

Diff: 2

Objective: 3

AACSB: Application of knowledge

79) Paragon University operates an extensive and an expensive registration, testing, and counseling center, through which all students are required to pass through when they enter the university. The registration effort's costs (for the most part) are almost impossible to allocate based upon which students require time, effort, etc. The cost of this center is approximately 15% of the total costs of Paragon. This department engages in no other activities than the registration of students. Paragon is interested in determining the profitability of the three technical departments it operates. Paragon has the perception that some departments are more profitable than others, and it would like to determine an appropriate method of allocating the costs of this registration center.

Required:

Recommend to Paragon University a method (or methods) of allocating the costs of registration to the three departments.

Volume. Allocating on volume would be based not upon physical measures, but upon the number of credit hours each of the three departments offer each semester. If the ratio of credit hours for the three departments were 25%, 45%, and 30% then the costs would be allocated based upon these ratios.

Sales Dollars. It is possible that some departments charge more per credit hour than others. In this case it might be appropriate to allocate the costs based upon the total tuition revenues of each department.

Diff: 2

Objective: 3

AACSB: Application of knowledge

Objective 17.4

1) Which of the following is NOT true of the joint allocation methods?

A) the sales value at the split-off method is the best measure of benefits received

B) when selling prices of all products at the split-off are unavailable, the NRV method is the best alternative

C) the constant gross-margin percentage NRV method treats the joint products as though they comprise a single product

D) when selling prices are at the split-off point are available but further processing is necessary, the NRV method is the preferred allocation method

Diff: 1

Objective: 4

AACSB: Analytical thinking

2) When the selling prices of all products at the split-off point are unavailable, the ________ is the best alternative for allocating joint costs.

A) sales value at split-off method

B) NRV method

C) physical measures method

D) constant gross-margin percentage method

Diff: 2

Objective: 4

AACSB: Analytical thinking

3) When management believes that there is a direct link between the joint costs incurred and the value of products before further processing takes place, the ________ is the best alternative to allocating joint costs.

A) sales value at split-off method

B) NRV method

C) physical measures method

D) constant gross-margin percentage method

Diff: 2

Objective: 4

AACSB: Analytical thinking

4) The sales value at splitoff method is the preferred method when selling-price data exist at splitoff because:

A) this is seen as the best measure of benefits received as a result of joint processing

B) it anticipates subsequent management decisions

C) it requires easily obtainable information about any processing occurring after the splitoff point

D) it is more precise than methods involving NRV calculations

Diff: 2

Objective: 4

AACSB: Analytical thinking

5) Which of the following statements is true of the methods for allocating joint costs?

A) The sales value at split-off method lacks a common basis for allocating joint costs to products.

B) The complexity of the sales value at split-off method increases when managers make frequent changes to the sequence of post-split-off processing decisions.

C) The NRV method assumes that none of the markup is attributable to the separable costs.

D) The NRV method treats the joint products as though they comprise a single product.

Diff: 2

Objective: 4

AACSB: Analytical thinking

6) The drawback of the constant gross-margin percentage NRV method in joint costing is that it:

A) recognizes that profits are derived from the costs incurred after split-off

B) assumes the profit margin to be identical across all products

C) attempts to approximate the sales values at split-off by subtracting from final selling prices the separable costs incurred after the split-off point

D) ignores the separable costs of further processing

Diff: 2

Objective: 4

AACSB: Analytical thinking

7) In joint costing, which method assumes that all the markup is attributable to the joint process costs?

A) sales value at split-off method

B) NRV method

C) constant gross-margin percentage method

D) physical measures method

Diff: 2

Objective: 4

AACSB: Analytical thinking

8) When the selling prices at the split-off are unavailable, the NRV method is the best alternative.

Diff: 1

Objective: 4

AACSB: Analytical thinking

9) The net realizable value (NRV) method makes the assumption that products will be processed beyond the splitoff point.

Diff: 2

Objective: 4

AACSB: Analytical thinking

10) Physical measures such as weight or volume are the best indicators of the benefits received for allocating joint costs.

Diff: 2

Objective: 4

AACSB: Analytical thinking

11) In joint costing, the constant gross-margin percentage method recognizes that the profit margin is not just attributable to the joint process but is also derived from the costs incurred after split-off.

Diff: 2

Objective: 4

AACSB: Analytical thinking

12) The constant gross-margin percentage NRV method makes the simplifying assumption of treating the joint products as though they comprise a single product.

Diff: 1

Objective: 4

AACSB: Analytical thinking

13) List the reasons that the sales value at split-off method of joint cost allocation should be used.

1. Measurement of the value of the joint products at split-off - Sales value at split-off is the best measure of the benefits received as a result of joint processing.

2. No anticipation of subsequent management decisions - This method does not require information on processing steps after split-off.

3. Availability of a common basis to allocate joint costs to products - Revenue is the common basis to allocate costs.

4. Simplicity - It is the simplest method compared to the NRV and constant gross-margin percentage NRV methods.

Diff: 2

Objective: 4

AACSB: Analytical thinking

14) Explain why some companies choose not to allocate joint costs to products.

Diff: 2

Objective: 4

AACSB: Analytical thinking

15) What are the four methods of allocating joint costs to individual products? Which of these methods is preferred, and what are two advantages of this method?

Of these methods, the sales-value at split-off method is preferred when market prices are available, because it is consistent with the benefits-received criterion, it does not depend or anticipate further managerial decisions on further processing, and it is relatively simple.

Diff: 2

Objective: 4

AACSB: Analytical thinking

16) Explain why some companies carry their inventories at NRV minus an estimated operating income margin instead of the NRV itself.

Diff: 2

Objective: 4

AACSB: Application of knowledge

Objective 17.5

1) When a product is the result of a joint process, the decision to process the product past the split-off point further should be influenced by which of the following measures?

A) the product's proportion of the total costs

B) the portion of the joint costs allocated to the individual products

C) the extra revenue earned past the split-off point

D) the incremental operating income earned past the split-off point

Diff: 1

Objective: 5

AACSB: Analytical thinking

2) A company manufactures three products, A, B, and C from a single raw material input. Product C can be sold at the split-off point for total revenues of $50,000 or it can be processed further at a total cost of $11,000 and then sold for $68,000. Product C:

A) should be sold at the split-off point, rather than processed further

B) would increase the company's overall net income by $18,000 if processed further and then sold

C) would increase the company's overall net income by $68,000 if processed further and then sold

D) would increase the company's overall net income by $7,000 if processed further and then sold

Diff: 2

Objective: 5

AACSB: Analytical thinking

3) Which of the following statements is true of sell-or-process-further decisions in joint costing?

A) Joint costs incurred before the split-off point are relevant in deciding whether to process the product further.

B) All separable costs in joint-cost allocations are incremental costs.

C) Separable costs incurred before the split-off point are irrelevant in deciding whether to process the product further.

D) Costs that differ between the alternatives of selling products or processing further are relevant.

Diff: 2

Objective: 5

AACSB: Analytical thinking

4) Joint costs are:

A) not required to be allocated to inventory costs per GAAP

B) irrelevant to decision making as to whether to process further

C) have no impact on the contribution margin of a product

D) relevant to whether to process further beyond the split-off point

Diff: 2

Objective: 5

AACSB: Analytical thinking

5) Which of the following factors would NOT be one of the reasons why the sales value at the split-off would be used to allocate joint costs?

A) the sales value method is a good measure of benefits received

B) it helps determine manager compensation and performance evaluation

C) it is a method that is independent of further processing decisions

D) it provides a common allocation basis

Diff: 2

Objective: 5

AACSB: Analytical thinking

6) Separable costs that do not differ between alternatives are irrelevant for decision making.

Diff: 1

Objective: 5

AACSB: Analytical thinking

7) Joint processing costs are relevant in deciding whether to process the product further.

Diff: 1

Objective: 5

AACSB: Analytical thinking

8) All separable costs in joint-cost allocations are always incremental costs.

Diff: 2

Objective: 5

AACSB: Analytical thinking

9) There can be conflicts between cost concepts used for decision-making purposes and cost concepts used for performance evaluation however, market-based methods of joint cost allocation tend to reduce these conflicts.

Diff: 2

Objective: 5

AACSB: Analytical thinking

10) New York Liberty Corporation makes miniature statues of the Empire State Building from cast iron. Sales total 50,000 units a year. The statues are finished either rough or polished, with an average demand of 60% rough and 40% polished. Iron ingots, the direct material, costs $5 per pound. Processing costs are $300 to convert 30 pounds into 60 statues. Rough statues are sold for $17 each, and polished statues can be sold for $19 or engraved for an additional cost of $5. Polished statues can then be sold for $32.

Required:

Determine whether New York Liberty Company should sell the engraved statutes. Why?

Diff: 3

Objective: 5

AACSB: Application of knowledge

11) What revenue or expense amounts are necessary to make a sell-or-process-further decision and why? What items are irrelevant to the decision and why?

Diff: 2

Objective: 5

AACSB: Analytical thinking

12) Firms should be wary of using the full cost of a joint product as the basis for making pricing decisions. Why?

Diff: 2

Objective: 5

AACSB: Analytical thinking

Objective 17.6

1) Which method of accounting recognizes byproducts in the financial statements at the time their production is completed?

A) gross margin method

B) sales method

C) production method

D) market value method

Diff: 1

Objective: 6

AACSB: Analytical thinking

2) Torid Company processes 18,225 gallons of direct materials to produce two products, Product X and Product Y. Product X sells for $10 per gallon and Product Y, the main product, sells for $160 per gallon. The following information is for December:

The manufacturing costs totaled $35,000.

Under production method, Product X NRV would be offset against the costs of Product Y by how much?

A) $60,000

B) $61,000

C) $16,000

D) $1,000

Diff: 2

Objective: 6

AACSB: Application of knowledge

3) Torid Company processes 18,800 gallons of direct materials to produce two products, Product X and Product Y. Product X sells for $9 per gallon and Product Y, the main product, sells for $170 per gallon. The following information is for December:

The manufacturing costs totaled $27,000.

How much is the ending inventory for the byproduct if byproducts are recognized in the general ledger at the point of sale?

A) $0

B) $1,575

C) $6,800

D) $29,750

Diff: 2

Objective: 6

AACSB: Application of knowledge

4) Torid Company processes 17,950 gallons of direct materials to produce two products, Product X and Product Y. Product X sells for $9 per gallon and Product Y, the main product, sells for $170 per gallon. The following information is for December:

The manufacturing costs totaled $34,000.

The production method will report Product X in the balance sheet at:

A) $0

B) $1,700

C) $1,125

D) $21,250

Diff: 3

Objective: 6

AACSB: Application of knowledge

5) Torid Company processes 18,250 gallons of direct materials to produce two products, Product X and Product Y. Product X sells for $6 per gallon and Product Y, the main product, sells for $160 per gallon. The following information is for December:

The manufacturing costs totaled $34,000.

If the byproduct inventory is recorded at NRV less profit margin of 20%, the balance sheet will report ________ of byproduct inventory.

A) $750

B) $0

C) $6,400

D) $600

Diff: 3

Objective: 6

AACSB: Application of knowledge

6) Which if the following is a negative consequence of recording byproducts in the accounting records when the sale occurs?

A) the revenue from the byproducts is usually fairly large and the accounting records will be distorted

B) earnings cannot be timed under this method

C) managers can be tempted to stockpile byproducts

D) it involves complex calculations compared to the production method

Diff: 2

Objective: 6

AACSB: Analytical thinking

7) Which of the following statements is true of the production method of accounting for byproducts?

A) It makes no journal entries until the byproduct is sold.

B) It is the preferred method because of the matching principle.

C) It records revenues of the byproduct in the income statement as revenue.

D) It adds revenues of the byproduct to the cost of goods sold in the income statement.

Diff: 2

Objective: 6

AACSB: Analytical thinking

8) Which of the following statements is true of the sales method of accounting for byproducts?

A) It makes journal entries when the byproducts are produced.

B) It is the preferred method because of the matching principle.

C) It allows a firm to manage its reported earnings by timing the sale of byproducts.

D) This method recognizes the byproduct inventory in the accounting period in which it is produced.

Diff: 2

Objective: 6

AACSB: Analytical thinking

9) Which of the following journal entries can happen only under the production method of recording byproducts?

A) Work in Process

Finished Goods - Byproduct

Accounts Payable

B) Cash or Accounts Receivable

Revenues - Main product

C) Byproduct Inventory

Finished Goods - Main product

Work in Process

D) Cash or Accounts Receivable

Revenues - Byproduct

Diff: 3

Objective: 6

AACSB: Application of knowledge

10) The production method of accounting for byproducts:

A) recognizes revenues from the sale of the byproducts when they are sold

B) recognizes the NRV of the byproduct as an offset against costs of the main product

C) recognizes the sales value of the byproduct at the time of sale as "other revenue"

D) deducts the sales value of the byproduct from cost of goods sold at the time of sale

Diff: 2

Objective: 6

AACSB: Application of knowledge

11) Byproducts are recognized in the general ledger either at the time production is completed or at the time of sale.

Diff: 1

Objective: 6

AACSB: Analytical thinking

12) The sales method for recognizing byproducts is conceptually correct because it is consistent with the matching principle.

Diff: 2

Objective: 6

AACSB: Analytical thinking

13) The sales method of accounting for byproducts allows companies to manage its reported earnings by the timing of the sale of byproducts.

Diff: 2

Objective: 6

AACSB: Analytical thinking

14) The production method for recognizing byproducts reduces the cost of manufacturing the main or joint products in the income statement.

Diff: 1

Objective: 6

AACSB: Analytical thinking

15) The production method for recognizing byproducts is simpler and is often used in practice, primarily because the dollar amounts of byproducts are immaterial.

Diff: 1

Objective: 6

AACSB: Analytical thinking

16) Woody City Manufacturing mills lumber for companies who manufacture furniture. The main product is finished lumber with a byproduct of wood shavings. The byproduct is sold to plywood manufacturers. For July, the manufacturing process incurred $412,000 in total costs. Eighty thousand board feet of lumber were produced and sold along with 7,000 pounds of shavings. The finished lumber sold for $6.00 per board foot and the shavings sold for $0.60 a pound. There were no beginning or ending inventories.

Required:

Prepare an income statement showing the byproduct (1) as a cost reduction during production, and (2) as a revenue item when sold.

Diff: 2

Objective: 6

AACSB: Application of knowledge

17) Distinguish between the two principal methods of accounting for byproducts, the production byproduct method and the sale byproduct method. Briefly discuss the relative merits (or lack thereof) of each.

a. Production byproduct method.

This method recognizes byproducts in the financial statements at the time their production is completed. The estimated net realizable value from the byproduct produced is offset against the costs of the main (or joint) products, and it is reported in the balance sheet as inventory. Accounting entries are made and the byproducts are reported in the balance sheet at their selling price.

b. Sale byproduct method.

This method delays recognition of the byproducts until the time of their sale. Revenues could be recorded in one accounting period, while the expense in an earlier period. Companies may find it necessary to keep an inventory of the byproduct processing costs in a separate account until the byproducts are sold. This practice can be rationalized on the grounds that the dollar amounts of byproducts are immaterial. But managers can use this method to manage reported earnings by timing when they sell byproducts.

Diff: 2

Objective: 6

AACSB: Analytical thinking

18) What are the two methods to account for byproducts. Which is the more appropriate method to use and why?

Diff: 2

Objective: 6

AACSB: Analytical thinking