Exam 15: Cost Allocation: Joint Products and Byproducts

Advantages of the sales value at split off method include all of the following EXCEPT

There are no logical reasons for allocating joint costs.

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 $15,000. -What is the net effect to the income statement for the sale of byproduct, if byproducts are recognized at the point of sale?

Answer the following question(s) using the information below: The Morton 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 65,000 litres of unprocessed goat milk and processing it up to the splitoff point to yield a total of 58,500 litres of salable product was $72,240. There were no inventory balances of either product. Condensed goat milk may be processed further to yield 19,500 litres (the remainder is shrinkage) of a medicinal milk product, Xyla, for an additional processing cost of $3 per usable litre. Xyla can be sold for $18 per litre. Skim goat milk can be processed further to yield 28,100 litres of skim goat ice cream, for an additional processing cost per usable litre of $2.50. The product can be sold for $9 per litre. There are no beginning and ending inventory balances. -Using the NRV method, the amount of joint costs allocated to Jaxton is:

What are the four methods of allocating joint costs to individual products? Which of these methods is preferred, and what are two advantages of this method?

The decision of whether to process products beyond the split off process should be based on which of the following?

Answer the following question(s) using the information below: The Morton 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 65,000 litres of unprocessed goat milk and processing it up to the splitoff point to yield a total of 58,500 litres of salable product was $72,240. There were no inventory balances of either product. Condensed goat milk may be processed further to yield 19,500 litres (the remainder is shrinkage) of a medicinal milk product, Xyla, for an additional processing cost of $3 per usable litre. Xyla can be sold for $18 per litre. Skim goat milk can be processed further to yield 28,100 litres of skim goat ice cream, for an additional processing cost per usable litre of $2.50. The product can be sold for $9 per litre. There are no beginning and ending inventory balances. -Using the physical measures method, the joint costs allocated to Kharton would be:

Framingham Ltd. produces three products out of a common process. The company currently uses the physical measures method to allocate joint costs to the three product lines: Leonid (L), Madagascar, (M) and Napoleon (N). The manager of the Napoleon product line is particularly disgruntled. He believes that his product line is allocated a disproportionate share of joint costs. In a recent managers' meeting, he argued that the company should consider using sales value as split off as the joint cost allocation method. He stated that his product is sold in a highly competitive market and increasing price is not an option. The manager of the Leonid product line disagreed strongly. He stated that all products are sold in a competitive market place and that allocating joint costs on physical measures was simple and easily verifiable. The manager of the Madagascar product line sat quietly through the meeting and she did not seem to favour one method over the other. As the assistant controller, you were asked by the controller to look into the concerns of the product line managers. The following additional information is available: Joint costs for the company are $950,000. Required: As the assistant controller, prepare a report to the controller.

A major deficiency of the sales value at splitoff method is that this method does not allow management to obtain individual product costs and gross-margin information.

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

Answer the following question(s) using the information below: The Morton 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 65,000 litres of unprocessed goat milk and processing it up to the splitoff point to yield a total of 58,500 litres of salable product was $72,240. There were no inventory balances of either product. Condensed goat milk may be processed further to yield 19,500 litres (the remainder is shrinkage) of a medicinal milk product, Xyla, for an additional processing cost of $3 per usable litre. Xyla can be sold for $18 per litre. Skim goat milk can be processed further to yield 28,100 litres of skim goat ice cream, for an additional processing cost per usable litre of $2.50. The product can be sold for $9 per litre. There are no beginning and ending inventory balances. -Using the sales value at splitoff method, what is the gross-margin percentage for condensed goat milk at the splitoff point?

How should toxic waste be accounted for?

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

Which of the following is False concerning the physical measure method?

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?

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 $15,000. -How much is the ending inventory reduction for the byproduct if byproducts are recognized in the general ledger at NRV during production?

What are separable costs?

BC Lumber processes timber into four products. During January the joint costs of processing were $280,000. There was no beginning inventory at the beginning of the month. Production and sales value information for the month were as follows: Sales Value at Required: Determine the value of ending inventory if the physical measures method is used for product costing. Round to 3 decimal places when necessary.

Use the information below to answer the following question(s). Raynor Manufacturing purchases trees from Tree Nursery and processes them up to the split off 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 split off 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. -Two finished products, [A & B], are sold for $16 a unit and $24 a unit, respectively. Each product can also be sold at the split off point. Product A can be sold for $10 and Product B for $8. Joint costs for the two products totalled $8,000 for January for 600 units of A and 500 units of B. What are the respective joint costs assigned to each unit of products A and B if the sales value at split off method is used?

Recognition of byproducts in the financial statements at the time of sale usually occurs when the dollar amounts of the byproducts are immaterial.