Exam 15: Cost Allocation: Joint Products and Byproducts

A criticism of the practice of carrying inventories at estimated net realizable values is that this practice recognizes income before sales are made.

A sound reason for reporting revenue from byproducts as an income statement item at the time of sale is to lessen the chance of managers managing reported earnings.

Processes that yield joint products always yield byproducts as well.

Recognizing byproduct cost at the time of sale is based on the matching principle.

Use the information below to answer the following question(s).Cranbrook Chemical Ltd.manufactures two industrial compounds.In the month of May, 15,000 litres of direct material costing $160,000 were processed at a cost of $400,000.The joint process yielded 16,000 containers of a compound known as Jarlon and 4,000 containers of a compound known as Kharton.The respective selling prices of Jarlon and Kharton are $38 and $58.Both products may be processed further.Jarlon may be processed into Jaxton at an incremental cost of $8 per jar of the final product while Kharton may be processed into Kraxton at an additional cost of $32 per jar of the final product.The volume of jars of the final product are: 12,000 and 3,000 for Jaxton and Kraxton respectively.The selling price of Jaxton is $48 per jar.The selling price of Kraxton is $102 per jar. -Using the sales value at splitoff method, the joint costs allocated to Kharton would be

Use the information below to answer the following question(s): Yip Manufacturing purchases trees from Cheney Lumber 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 May: The cost of purchasing 100 trees and processing them up to the splitoff point to yield 70,000 sheets of paper and 60,000 pencil casings is $3,000.Yip's Manufacturing's accounting department reported no beginning inventories and an ending inventory of 2,000 sheets of paper. -If the sales value at splitoff method is used, what is the approximate production cost for each pencil casing?

Use the information below to answer the following question(s).Troy Company processes 15,000 litres of direct materials to produce two products, Product X and Product Y.Product X, a byproduct, sells for $4 per litre, and Product Y, the main product, sells for $50 per litre.The following information is for August: The manufacturing costs totalled $95,000. -What is the net effect to the income statement for the recognition of the byproduct, if byproducts are recognized when production is completed, and the company uses FIFO?

Use the information below to answer the following question(s).Cranbrook Chemical Ltd.manufactures two industrial compounds.In the month of May, 15,000 litres of direct material costing $160,000 were processed at a cost of $400,000.The joint process yielded 16,000 containers of a compound known as Jarlon and 4,000 containers of a compound known as Kharton.The respective selling prices of Jarlon and Kharton are $38 and $58.Both products may be processed further.Jarlon may be processed into Jaxton at an incremental cost of $8 per jar of the final product while Kharton may be processed into Kraxton at an additional cost of $32 per jar of the final product.The volume of jars of the final product are: 12,000 and 3,000 for Jaxton and Kraxton respectively.The selling price of Jaxton is $48 per jar.The selling price of Kraxton is $102 per jar. -Assuming Cranbrook uses the physical measures method and 2,000 containers of Jarlon and 75 containers of Kharton are unsold at the end of the period, Cranbrook would report cost of goods sold of

Match each of the following costs with the appropriate joint production process cost classification. A)separable cost B)joint cost -Cost of processing pulp into paper.

Net realizable value generally means expected sales value plus expected separable costs.

The sales value at splitoff method can be used to value inventory as well as determining cost of goods sold.

Which of the following is NOT a reason to allocate joint cost?

Ontario Lumber Company prepares 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 $166,000 in total costs.Eighty thousand board metres of lumber were produced and sold along with 6,800 kilograms of shavings.The finished lumber sold for $3.00 per board metre and the shavings sold for $0.30 a kilogram.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.

Brittany Furniture manufactures two products, pillows and cushions, from a joint process.Pillows are allocated $7,000 of the total joint costs of $25,000.There are 2,500 pillows produced and 2,500 cushions produced each year.Pillows can be sold at the split-off point for $12 per unit, or they can be processed further into a deluxe pillow for additional processing costs of $8,000 and sold for $16 for each deluxe pillow.By how much will operating income change if the company chooses to process deluxe pillows?

Use the information below to answer the following question(s).Cranbrook Chemical Ltd.manufactures two industrial compounds.In the month of May, 15,000 litres of direct material costing $160,000 were processed at a cost of $400,000.The joint process yielded 16,000 containers of a compound known as Jarlon and 4,000 containers of a compound known as Kharton.The respective selling prices of Jarlon and Kharton are $38 and $58.Both products may be processed further.Jarlon may be processed into Jaxton at an incremental cost of $8 per jar of the final product while Kharton may be processed into Kraxton at an additional cost of $32 per jar of the final product.The volume of jars of the final product are: 12,000 and 3,000 for Jaxton and Kraxton respectively.The selling price of Jaxton is $48 per jar.The selling price of Kraxton is $102 per jar. -The incremental benefit or (loss)of processing Jarlon into Jaxton is

Sweet Sugar Company processes sugar beets into three products.During April the joint costs of processing were $240,000.Production and sales value information for the month were as follows: Sales Value at Required: 1.Determine the amount of joint cost allocated to each product if the physical measure method is used.

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 are the paper's and the pencil's approximate weighted cost proportions using the sales value at splitoff method, respectively?

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

Match each of the following costs with the appropriate joint production process cost classification. A)scrap B)joint product C)byproduct D)main product -Bones from a butcher shop

Match each of the following costs with the appropriate joint production process cost classification. A)scrap B)joint product C)byproduct D)main product -Sawdust from a furniture manufacturer