Exam 16: Cost Allocation: Joint Products and Byproducts

The sales value at splitoff method presupposes the exact number of subsequent steps undertaken for further processing.

Pilgrim Corporation processes frozen turkeys. The company has not been pleased with its profit margin per product because it appears that the high value items have too few costs assigned to them, while the low value items have too many costs assigned to them. The processing results in several products, the primary one of which is frozen small turkeys. Other products include frozen parts such as wings and legs, byproducts such as skin and bones, and unused scrap items. Required: What may be the cost assignment problem if a key consideration is the value of the products being sold?

What is the reason that accountants do NOT like to carry inventory at net realizable value?

Cola 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: The cost of purchasing 2,500 liters of direct materials and processing it up to the splitoff point to yield a total of 2,000 liters 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 liters of Product Z5 for an additional processing cost of $150. Product Z5 is sold for $25.00 per liter. There was no beginning inventory and ending inventory was 125 liters. Product B may be processed further to yield 375 liters of Product W3 for an additional processing cost of $275. Product W3 is sold for $30.00 per liter. There was no beginning inventory and ending inventory was 25 liters. What is Product Z5's estimated net realizable value at the splitoff point?

The physical-measure method:

What are a joint cost and a splitoff point?

Answer the following questions using the information below: The Oxnard Corporation processes a liquid component up to the splitoff point where two products, Mr. DirtOut and Mr. SinkClean, are produced and sold. There was no beginning inventory. The following material was collected for the month of January: The cost of purchasing 250,000 gallons of direct materials and processing it up to the splitoff point to yield a total of 242,500 gallons of good product was $760,000. -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 are the physical-volume proportions for products U and V, respectively?

When a single manufacturing process yields two products, one of which has a relatively high sales value compared to the other, the two products are respectively known as:

A business which enters into a contract to purchase a product (or products)and will compensate the manufacturer under a cost reimbursement formula, should take an active part in the determination of how joint costs are allocated because:

How much (if any)extra income would Morton earn if it produced and sold all of the Xyla from the condensed goat milk? Allocate joint processing costs based upon relative sales value on the splitoff. (Extra income means income in excess of what Morton would have earned from selling condensed goat milk.)

A reason why a physical-measure to allocate joint costs is less preferred than the sales value at splitoff is:

Outputs with a negative sales value are:

Which cost allocation method should NOT be used to eliminate the conflict between decision making and performance evaluation?

Answer the following questions using the information below: Athens Company processes 15,000 gallons of direct materials to produce two products, Product X and Product Y. Product X sells for $8 per gallon and Product Y, the main product, sells for $100 per gallon. The following information is for August: The manufacturing costs totaled $30,000. -What is the byproduct's net revenue reduction if byproducts are recognized in the general ledger during production and their revenues are a reduction of cost?

The net realizable value method is generally used for products or services that are processed and after splitoff additional value is added to the product and a selling price can be determined.

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

Proper costs allocation for inventory costing and cost-of-goods-sold computations are important because:

The constant gross-margin percentage NRV method allocates joint costs to joint products produced during the accounting period in such a way that each individual product achieves an identical gross-margin percentage.

Silver Company uses one raw material, silver ore, for all of its products. It spends considerable time getting the silver from the ore before it starts the actual processing of the finished products, rings, lockets, etc. Traditionally, the company made one product at a time and charged the product with all costs of production, from ore to final inspection. However, in recent months, the cost accounting reports have been somewhat disturbing to management. It seems that some of the finished products are costing more than they should, even to the point of approaching their retail value. It has been noted by the accounting manager that this problem began when the company started buying ore from different parts of the world, some of which require difficult extraction methods. Required: Can you explain how the company might change its accounting system to reflect the reporting problems better? Are there other problems with the purchasing area?

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.