Exam 16: Cost Allocation: Joint Products and Byproducts

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

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 780,000 gallons of direct materials and processing it up to the split-off point to yield a total of 758,500 gallons of good product was $2,310,000. 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.)

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: 24,500 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 24,500 gallons of saleable product was $55,000. 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?

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

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

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.

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.

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 104,000 gallons of saleable product was $186,480. There were no inventory balances of either product. Condensed goat milk may be processed further to yield 45,000 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 $19 per gallon. Skim goat milk can be processed further to yield 57,200 gallons of skim goat ice cream, for an additional processing cost per usable gallon of $4. The product can be sold for $9 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 ice cream? (Round intermediary percentage calculations to the nearest hundredth.)

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.

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

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 190,000 sheets of paper and 190,000 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.)

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.

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.

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:28,000 gallons The costs of purchasing the of unprocessed milk and processing it up to the split-off point to yield a total of 28,000 gallons of saleable product was $113,100. The company uses constant gross-margin percentage NRV method to allocate the joint costs of production. If separable costs of Butter Cream was $17,500 and constant gross margin was 20%, what would have been the allocated joint costs of Condensed Milk?

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:29,500 gallons The costs of purchasing the of unprocessed milk and processing it up to the split-off point to yield a total of 29,500 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 Brital?

The Berkel Corporation manufactures Widgets, Gizmos, and Turnbols from a joint process. June production is 10,000 widgets; 13,500 gizmos; and 15,000 turnbols. Respective per unit selling prices at split-off are $95, $60, and $20. Joint costs up to the split-off point are $187,500. What amount of joint costs will be allocated to the Turnbols? (Do not round any intermediary calculations.)

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

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 $2,350,000. What are the physical-volume proportions to allocate joint costs for cream and liquid skim, respectively?

The Berkel Corporation manufactures Widgets, Gizmos, and Turnbols from a joint process. June production is 9000 widgets; 12,500 gizmos; and 14,500 turnbols. Respective per unit selling prices at split-off are $75, $50, and $25. 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.)

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