Exam 16: Cost Allocation: Joint Products and Byproducts

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

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

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 $60,000 or it can be processed further at a total cost of $16,000 and then sold for $78,000. Product C:

Separable costs include manufacturing costs only.

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?

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 180,000 sheets of paper and 180,000 pencil casings is $15,000. 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?

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 310 trees and processing them up to the split-off point to yield 180,000 sheets of paper and 180,000 pencil casings is $12,500. Bismite's accounting department reported no beginning inventory. What is the total sales value at the split-off point for paper?

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.

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

Which of the following statements best define joint products?

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

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.

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

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

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

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

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

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 800,000 gallons of direct materials and processing it up to the split-off point to yield a total of 778,500 gallons of good product was $2,350,000. Which of the following statements about Alfarm's joint production costs is true?

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

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