Exam 16: Cost Allocation: Joint Products and Byproducts

What type of cost is the result of an event that results in more than one product or service simultaneously?

Which method of accounting recognizes byproducts in the financial statements at the time their production is completed?

Which of the methods of allocating joint costs usually is considered the simplest to implement?

Joint costs are NOT allocated to individual products for the preparation of tax returns.

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

Yakima 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. Yakima's Manufacturing's accounting department reported no beginning inventories and an ending inventory of 2,000 sheets of paper. What are the paper's and the pencils' approximate weighted cost proportions using the sales value at splitoff method, respectively?

All of the following methods may be used to allocate joint costs EXCEPT the:

The estimated net realizable value method is used when the market selling prices at the splitoff point are NOT available.

The juncture in a joint production process when two products become separable is the byproduct point.

The production method of accounting for byproducts recognizes byproducts in the financial statements at the time when production is completed.

Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned tomatoes. During the summer of 20X5, the joint costs of processing the tomatoes were $420,000. There was no beginning or ending inventories for the summer. Production and sales value information for the summer is as follows: Required: Determine the amount allocated to each product if the estimated net realizable value method is used, and compute the cost per case for each product.

Which statement is NOT true regarding the sales method of accounting for byproducts.

Which of the following is NOT a market-based approach to allocating costs?

Litigation may be a reason that joint costs are allocated to individual products.

Separable costs include manufacturing costs only.

All costs incurred beyond the splitoff point that are assignable to one or more individual products are called:

List three reasons why we allocate joint costs to individual products or services. Give an example of when the particular cost allocation reason would come into use.

Joint costs that do NOT differ between alternatives are particularly relevant for decision making.

All separable costs in joint-cost allocations are always incremental costs.

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