Exam 15: Cost Allocation: Joint Products and Byproducts

The method of allocating joint product costs is an important guide for other management decisions.

The products of a joint production process that have low total sales values compared with the total sales value of the main product are called joint products.

The estimated net realizable method allocates joint costs on the basis of

Match each of the following costs with the appropriate joint production process cost classification. A)scrap B)joint product C)byproduct D)main product -Raw milk for dairy processing

A byproduct is one or more products of a joint production process that have low total sales value compared to the total sales value of the main product or joint products.

Use the information below to answer the following questions: Argon Manufacturing Company processes direct materials up to the splitoff point where two products (U and V)are obtained and sold.The following information was collected for last quarter of the calendar year: The cost of purchasing 20,000 gallons of direct materials and processing it up to the splitoff point to yield a total of 19,000 gallons of good products was $1,950,000.Beginning inventories totaled 100 gallons for U and 50 gallons for V.Ending inventory amounts reflected 600 gallons of Product U and 1,050 gallons of Product V.October costs per unit were the same as November. -What is the joint cost allocation to product U using the sales value at splitoff method?

Match each of the following costs with the appropriate joint production process cost classification. A)separable cost B)joint cost -Cost of raw tomato processing, tomatoes are to be used for different soups in a soup plant.

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. -Which of the following statements is TRUE concerning the practice of carrying inventories at NRV?

Use the information below to answer the following question(s).Raynor Manufacturing purchases trees from Tree Nursery and processes them up to the splitoff 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.Trees processed: 50 trees (yield is 30,000 sheets of paper and 30,000 pencil casings and no scrap) Cost of purchasing 50 trees and processing them up to the splitoff point to yield 30,000 sheets of paper and 30,000 pencil casings is $1,500.Raynor Manufacturing's accounting department reported no beginning inventories; however, ending inventory amounts reflected 1,000 sheets of paper in stock. -What is the approximate cost assigned to the pencil casings if joint costs are allocated using the sales value at splitoff method?

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 Product X's approximate production cost per unit using the physical volume method?

Which of the following is FALSE concerning manufacturing of joint products and joint costing?

All of the following changes may indicate a change in product classification of a manufacturing process which has a splitoff point EXCEPT

The costs of production that yield multiple products simultaneously are known as joint costs.

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. -Which of the following methods allocates joint costs according to the appraised final sales value in the ordinary course of business less the appraised separable costs of production and marketing?

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.

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 method is used when joint costs are allocated according to each item's relative proportion of weight at the splitoff point?

All products yielded from joint product processing have some positive value to the firm.

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 splitoff b.estimated net realizable value method c.the constant gross margin method d.a physical measure such as volume

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.

If the value of a byproduct rises significantly, it could also be viewed as a joint product.