Exam 15: Cost Allocation: Joint Products and Byproducts

Use the information below to answer the following question(s). Beverage Drink Company processes direct materials up to the splitoff point, where two products, A and B, are obtained. The following information was collected for the month of July: Direct materials processed: 2,500 litres (with 20 percent shrinkage) Cost of purchasing 2,500 litres of direct materials and processing it up to the splitoff point to yield a total of 2,000 litres of good products was $4,500. There were no inventory balances of A and B. Product A may be processed further to yield 1,375 litres of Product Z5 for an additional processing cost of $150. Product Z5 is sold for $25.00 per litre. There was no beginning inventory and ending inventory was 125 litres. Product B may be processed further to yield 375 litres of Product W3 for an additional processing cost of $275. Product W3 is sold for $30.00 per litre. There was no beginning inventory and ending inventory was 25 litres. -What are the expected final sales values of production if Product Z5 and Product W3 are produced?

Which of the following is FALSE concerning the physical measure method?

Blue Paper Company processes wood pulp into two products. During January the joint costs of processing were $144,000. Production and sales value information for the month were as follows: Paper sells for $2.75 a kilogram and cardboard sells for $3.50 a kilogram. There were no beginning inventories for January but ending inventories totalled 10,000 kilograms for paper and 12,000 kilograms for cardboard. Required: Prepare a product line income statement in gross margin format. Joint costs are allocated using the net realizable value method assuming all available product is sold.

Helen Company processes 30,000 litres of direct materials to produce two products, Zander and Ifso. Zander, a byproduct, sells for $5 per litre, and Ifso, the main product, sells for $70 per litre. The following information is for July: The manufacturing costs totalled $145,000; beginning inventory $3,000. Required: 1. Prepare a July income statement assuming that Helen Company recognizes the byproduct revenue at the time of sale. The company uses FIFO for the inventory flow assumption. 2. Prepare the journal entry to record the byproduct sales.

Ontario Lumber Company prepares 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 $166,000 in total costs. Eighty thousand board metres of lumber were produced and sold along with 6,800 kilograms of shavings. The finished lumber sold for $3.00 per board metre and the shavings sold for $0.30 a kilogram. 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.

Use the information below to answer the following question(s). Cranbrook Chemical Ltd. manufactures two industrial compounds. In the month of May, 15,000 litres of direct material costing $160,000 were processed at a cost of $400,000. The joint process yielded 16,000 containers of a compound known as Jarlon and 4,000 containers of a compound known as Kharton. The respective selling prices of Jarlon and Kharton are $38 and $58. Both products may be processed further. Jarlon may be processed into Jaxton at an incremental cost of $8 per jar of the final product while Kharton may be processed into Kraxton at an additional cost of $32 per jar of the final product. The volume of jars of the final product are: 12,000 and 3,000 for Jaxton and Kraxton respectively. The selling price of Jaxton is $48 per jar. The selling price of Kraxton is $102 per jar. -Using the sales value at splitoff method, the percentage weightings for joint cost allocations for Jarlon and Kharton respectively are

Orange Paper Company processes wood pulp into two products. During April the joint costs of processing were $132,000. Production and sales value information for the month were as follows: Paper sells for $2.65 a kilogram and cardboard sells for $3.40 a kilogram. There were no beginning or ending inventories for April. Required: 1. Determine the amounts to be allocated to each product using the: a. estimated net realizable value method b. sales value at splitoff method 2. If the cardboard is sold at the splitoff point then the post splitoff factory capacity can be renovated and leased for the year. The cost of the renovation is budgeted at $125,000 and the annual lease revenue will be $165,000. Determine if it is more profitable for the cardboard to be sold at the splitoff point or at the end of production.

Answer the following question(s) using the information below: The Morton Company processes unprocessed goat milk up to the splitoff point where two products, condensed goat milk and skim goat milk result. The following information was collected for the month of October: Direct Materials processed: 65,000 litres (shrinkage was 10%) The costs of purchasing the 65,000 litres of unprocessed goat milk and processing it up to the splitoff point to yield a total of 58,500 litres of salable product was $72,240. There were no inventory balances of either product. Condensed goat milk may be processed further to yield 19,500 litres (the remainder is shrinkage) of a medicinal milk product, Xyla, for an additional processing cost of $3 per usable litre. Xyla can be sold for $18 per litre. Skim goat milk can be processed further to yield 28,100 litres of skim goat ice cream, for an additional processing cost per usable litre of $2.50. The product can be sold for $9 per litre. There are no beginning and ending inventory balances. -What is the estimated net realizable value of the skim goat ice cream at the splitoff point?

Paragon University operates an extensive and an expensive registration, testing, and counselling centre, 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 centre 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 centre. Required: Recommend to Paragon University a method (or methods) of allocating the costs of registration to the three departments.

Use the information below to answer the following question(s). Cranbrook Chemical Ltd. manufactures two industrial compounds. In the month of May, 15,000 litres of direct material costing $160,000 were processed at a cost of $400,000. The joint process yielded 16,000 containers of a compound known as Jarlon and 4,000 containers of a compound known as Kharton. The respective selling prices of Jarlon and Kharton are $38 and $58. Both products may be processed further. Jarlon may be processed into Jaxton at an incremental cost of $8 per jar of the final product while Kharton may be processed into Kraxton at an additional cost of $32 per jar of the final product. The volume of jars of the final product are: 12,000 and 3,000 for Jaxton and Kraxton respectively. The selling price of Jaxton is $48 per jar. The selling price of Kraxton is $102 per jar. -Using the sales value at splitoff method, the joint costs allocated to Jarlon would be

Answer the following question(s) using the information below. The Oxnard Corporation processes a liquid component up to the splitoff point where two products, Mr. DirtOut and Mr. SinkClean, are produced and sold. There was no beginning inventory. The following material was collected for the month of January: Direct materials processed: 250,000 litres (242,500 litres of good product) The cost of purchasing 250,000 litres of direct materials and processing it up to the splitoff point to yield a total of 242,500 litres of good product was $380,000. -What are the physical volume proportions to allocate joint costs for Mr. DirtOut and Mr. SinkClean, respectively?

Match each of the following costs with the appropriate joint production process cost classification. -Salt from a salt works process

Use the information below to answer the following question(s). Cranbrook Chemical Ltd. manufactures two industrial compounds. In the month of May, 15,000 litres of direct material costing $160,000 were processed at a cost of $400,000. The joint process yielded 16,000 containers of a compound known as Jarlon and 4,000 containers of a compound known as Kharton. The respective selling prices of Jarlon and Kharton are $38 and $58. Both products may be processed further. Jarlon may be processed into Jaxton at an incremental cost of $8 per jar of the final product while Kharton may be processed into Kraxton at an additional cost of $32 per jar of the final product. The volume of jars of the final product are: 12,000 and 3,000 for Jaxton and Kraxton respectively. The selling price of Jaxton is $48 per jar. The selling price of Kraxton is $102 per jar. -Using the sales value at splitoff method, the joint costs allocated to Kharton would be

Use the information below to answer the following question(s). Cranbrook Chemical Ltd. manufactures two industrial compounds. In the month of May, 15,000 litres of direct material costing $160,000 were processed at a cost of $400,000. The joint process yielded 16,000 containers of a compound known as Jarlon and 4,000 containers of a compound known as Kharton. The respective selling prices of Jarlon and Kharton are $38 and $58. Both products may be processed further. Jarlon may be processed into Jaxton at an incremental cost of $8 per jar of the final product while Kharton may be processed into Kraxton at an additional cost of $32 per jar of the final product. The volume of jars of the final product are: 12,000 and 3,000 for Jaxton and Kraxton respectively. The selling price of Jaxton is $48 per jar. The selling price of Kraxton is $102 per jar. -Using the NRV method, the amount of joint costs allocated to Jaxton is

Use the information below to answer the following question(s). Chem Manufacturing Company processes direct materials up to the splitoff point, where two products (X and Y) are obtained and sold. The following information was collected for the month of November. Direct materials processed: 10,000 litres (10,000 litres yield 9,500 litres of good product and 500 litres of shrinkage) The cost of purchasing 10,000 litres of direct materials and processing it up to the splitoff point to yield a total of 9,500 litres of good products was $975,000. The beginning inventories totalled 50 litres for X and 25 litres for Y. Ending inventory amounts reflected 300 litres of product X and 525 litres of product Y. October costs were per unit were the same as November. -What is the approximate portion of the joint costs that should be allocated to products X and Y, respectively, using a physical volume measure?

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?

Golden Company uses one raw material, gold ore, for all its products. It spends considerable time getting the gold 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 requires difficult extraction methods. Required: Can you explain how the company might change its accounting system to better reflect the reporting problems? Are there other problems with the purchasing area?

Match each of the following costs with the appropriate joint production process cost classification. -Bones from a butcher shop

Use the information below to answer the following question(s). Cranbrook Chemical Ltd. manufactures two industrial compounds. In the month of May, 15,000 litres of direct material costing $160,000 were processed at a cost of $400,000. The joint process yielded 16,000 containers of a compound known as Jarlon and 4,000 containers of a compound known as Kharton. The respective selling prices of Jarlon and Kharton are $38 and $58. Both products may be processed further. Jarlon may be processed into Jaxton at an incremental cost of $8 per jar of the final product while Kharton may be processed into Kraxton at an additional cost of $32 per jar of the final product. The volume of jars of the final product are: 12,000 and 3,000 for Jaxton and Kraxton respectively. The selling price of Jaxton is $48 per jar. The selling price of Kraxton is $102 per jar. -Using the physical measures method, the joint costs allocated to Jarlon would be

Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned tomatoes. During the summer 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 were 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.