Exam 16: Cost Allocation: Joint Products and Byproducts

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:31,000 gallons The costs of purchasing the of unprocessed milk and processing it up to the split-off point to yield a total of 31,000 gallons of saleable product was $146,450. 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?

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.

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?

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

Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned tomatoes. During the summer of 2017, 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.

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 $186,480. 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 $3 per usable gallon. Xyla can be sold for $21 per gallon. Skim goat milk can be processed further to yield 58,200 gallons of skim goat ice cream, for an additional processing cost per usable gallon of $3. The product can be sold for $8 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.)

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?

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 20,400 chips of good products was $2,020,000. Beginning inventories totalled 130 chips for Standard and 60 chips for Premium. Ending inventory amounts reflected 130 chips of Standard and 60 chips of Premium. October costs per unit were the same as November. What are the physical-volume proportions for products Standard and Premium, respectively?

The sales value at split-off method presupposes the exact number of subsequent steps undertaken for further processing.

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

How does the physical-measure method allocate joint costs?

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 270 trees and processing them up to the split-off point to yield 150,000 sheets of paper and 150,000 pencil casings is $14,500. Bismite's accounting department reported no beginning inventory. What is the total sales value at the split-off point of the pencil casings?

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

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 16,800 chips of good products was $1,950,000. Beginning inventories totalled 140 chips for Standard and 90 chips for Premium. Ending inventory amounts reflected 140 chips of Standard and 90 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.)

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.

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

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

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

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

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 $189,480. 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 $22 per gallon. Skim goat milk can be processed further to yield 56,200 gallons of skim goat ice cream, for an additional processing cost per usable gallon of $6. The product can be sold for $14 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.) (Round intermediary percentages to the nearest hundredth.)