Exam 16: Cost Allocation: Joint Products and Byproducts

The constant gross-margin percentage NRV method makes the simplifying assumption of treating the joint products as though they comprise a single product.

Joint costs are incurred beyond the splitoff point and are assignable to individual products.

Which of the following methods of allocating costs use market-based data?

Which method of allocating costs would be used if the selling prices of all products at the splitoff point are UNAVAILABLE?

The ________ point is the juncture in a joint production process when two or more products become separately identifiable.

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

Wharf Fisheries processes many of its seafood items to the demands of its largest customers, most of which are large retail distributors. To keep the accounting system simple, it has always assigned cost by the weight of the finished product. However, with increased competition, it has had to watch its prices closely and, in recent years, several items have incurred zero profit margins. After several weeks of investigation, your consulting firm has found that, while weight is important in processing of seafood, numerous items have very distinct processing steps and some items are processed through more steps than others. Required: Based on the findings of your consulting firm, what changes might you recommend to the company in the way of cost allocation among its products?

Products with a relatively low sales value are known as:

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

Sugar Cane Company processes sugar cane into three products. During May, the joint costs of processing were $240,000. Production and sales value information for the month were as follows: Required: Determine the amount of joint cost allocated to each product if the sales value at splitoff method is used.

Answer the following questions using the information below: 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 November: The cost of purchasing 100 trees and processing them up to the splitoff point to yield 60,000 sheets of paper and 60,000 pencil casings is $3,000. Yakima's accounting department reported no beginning inventories and an ending inventory of 2,000 sheets of paper. -What is the sales value at the splitoff point for paper?

If the sales value at splitoff method is used, what are the approximate joint costs assigned to ending inventory for paper?

What revenue or expense amounts are necessary to make a sell-or-process-further decision and why? What items are irrelevant to the decision and why?

The constant gross-margin percentage method differs from market-based joint-cost allocation method (sales value at splitoff and estimated net realizable value)since no account is taken of profits earned before or after the splitoff point when allocating joint costs.

List the reasons that the sales value at splitoff method of joint cost allocation should be used.

Answer the following questions using the information below: The Gows Company processes unprocessed goat milk up to the splitoff point where two products, condensed goat milk and skim goat milk result. The following information was collected for the month of October: The costs of purchasing the 130,000 gallons of unprocessed goat milk and processing it up to the splitoff point to yield a total of 117,000 gallons of salable product was $144,480. There were no inventory balances of either product. Condensed goat milk may be processed further to yield 39,000 gallons (the remainder is shrinkage)of a medicinal milk product, Xyla, for an additional processing cost of $3 per usable gallon. Xyla can be sold for $18 per gallon. Skim goat milk can be processed further to yield 56,200 gallons of skim goat ice cream, for an additional processing cost per usable gallon of $2.50. The product can be sold for $9 per gallon. There are no beginning and ending inventory balances. -Using estimated net realizable value, what amount of the $72,240 of joint costs would be allocated Xyla and the skim goat ice cream?

Distinguish between the two principal methods of accounting for byproducts, the production byproduct method and the sale byproduct method. Briefly discuss the relative merits (or lack thereof)of each.

The sales value at splitoff method is preferable when selling-price data exists at splitoff.

Byproducts and main products are differentiated by the:

Define the terms main product, joint product, and byproduct. Give at least one example of each type of product.