Exam 7: Cost Allocation: Departments, Joint Products, and By-Products

Which one of the following methods of cost allocation is completed by taking the service flows to production departments only and determining each production department's share of that service?

Princess Corporation grows, processes, packages, and sells three apple products: slices that are used in frozen pies, applesauce, and apple juice.The outside skin of the apple, which is removed in the cutting department and processed as animal feed, is treated as a by-product.Princess uses the net realizable value method to assign costs of the joint process to its main products.The apple skin by-product net realizable value is used to reduce the joint production costs prior to allocation to the main products.Details of Princess' production process follow: • The cutting department washes the apples and removes the outside skin.The department then cores and trims the apples for slicing.At this point, each of the three main products and the by-product are recognizable.Each product is then transferred to the next department for final processing. • The slicing department receives the trimmed apples and slices and freezes them.Any juice generated during the slicing operation is frozen with the slices. • The crushing department trims pieces of apple and processes them into applesauce.The juice generated during this operation is used in the applesauce. • The juicing department pulverizes the core and any surplus apple from the cutting department into a liquid.This department experiences a loss equal to 8 percent of the weight of the good output produced. • The feed department chops the outside skin into animal food and packages it.A total of 270,000 pounds of apples entered the cutting department during November.The following information shows the costs incurred in each department, the proportion by weight (based on pounds) transferred to the four final processing departments, and the selling price of each end product.Assume no beginning or ending inventory of apple slices, applesauce, or juice. Required: 1.Princess Corporation uses the net realizable value method to determine inventory values for its main products and by-products.For the month of November, calculate each of the following: a.Output in pounds for apple slices, applesauce, apple juice, and animal feed. b.Net realizable value at the split-off point for each of the three main products. c.Cutting department cost assigned to each of the three main products and to the by-product in accordance with corporate policy. d.Gross margin in dollars for each of the three main products. 2.Comment on the significance to management of the gross margin dollar information by main product for planning and control purposes as opposed to inventory valuation. 3.List the important issues that Princess faces as a global company.What are its critical success factors? Which key issues arise because Princess operates in several countries? Should any of these issues affect the way Princess allocates costs, as determined in requirement 1?

Barstow Manufacturing Company has two service departments — product design and engineering support, and two production departments — assembly and finishing. The distribution of each service department's efforts to the other departments is shown below:The total cost accumulated in the assembly department using the reciprocal method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar):

Marin Products produces three products — DBB-1, DBB-2, and DBB-3 from a joint process. Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Key information about Marin's production, sales, and costs follows.The amount of joint costs allocated to product DBB-1 using the sales value at split-off method is (calculate all ratios and percentages to 2 decimal places, for example 33.33%, and round all dollar amounts to the nearest whole dollar):

Garrison Co. produces three products — X, Y, and Z — from a joint process. Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Last year all three products were processed beyond split-off. Joint production costs for the year were $120,000. Sales values and costs needed to evaluate Garrison's production policy follow.The amount of joint costs allocated to product Y using the net realizable value method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar):

The reciprocal method can be solved using the Excel function:

Marin Products produces three products — DBB-1, DBB-2, and DBB-3 from a joint process. Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Key information about Marin's production, sales, and costs follows. The amount of joint costs allocated to product DBB-2 using the net realizable value method is (calculate all ratios and percentages to 2 decimal places, for example 33.33%, and round all dollar amounts to the nearest whole dollar):

Which is not a common method used to allocate costs under the departmental approach?

Johns Company manufactures products R, S, and T from a joint process.The following information is available: Assuming that joint product costs are allocated using the relative-sales-value at split-off approach, what was the sales value at split-off for products R and S?

Barstow Manufacturing Company has two service departments — product design and engineering support, and two production departments — assembly and finishing. The distribution of each service department's efforts to the other departments is shown below:The total cost accumulated in the assembly department using the step method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar; assume that the design department goes first):

Marin Products produces three products — DBB-1, DBB-2, and DBB-3 from a joint process. Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Key information about Marin's production, sales, and costs follows. The amount of joint costs allocated to product DBB-3 using the net realizable value method is (calculate all ratios and percentages to 2 decimal places, for example 33.33%, and round all dollar amounts to the nearest whole dollar):

Which one of the following methods of allocating joint costs uses a measure of weight, size or number of units to allocate joint costs to joint products?

Which of the following is not a "production" department in a service firm?

Which of the following is not a phase of the departmental approach?

Which of the following is not an ethical issue managers encounter with cost allocation?

The cost allocation method most widely used because of its accuracy and ability to provide a detailed level of analysis is:

Lond Company produces joint products Jana and Reta, and by-product Bynd.Jana is sold at split-off; Reta and Bynd undergo additional processing.Production data pertaining to these products for the year ended December 31, 2019 Lond had no beginning or ending inventories and no materials were spoiled in production.Bynd's net realizable value is deducted from joint costs.Joint costs are allocated to joint products to achieve the same gross margin percentage for each joint product. Required: Prepare the following information for Lond Company for the year ended December 31, 2019: 1.Total gross margin. 2.Allocation of joint costs to Jana and Reta. 3.Separate gross margins for Jana and Reta.

The Long Term Care Plus Company has two service departments — actuarial and premium rating, and two operations departments — marketing and sales. The distribution of each service department's efforts to the other departments is shown below:The total cost accumulated in the marketing department using the step method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar; assume the actuarial department goes first):

Allocation of service department costs to producing departments is the most complex of the allocation phase of departmental cost allocation because of the likely presence of:

Joint products are products that: