Exam 16: Cost Allocation: Joint Products and Byproducts

Under the benefits-received criterion,the physical-measure method is much less desirable than the sales value at splitoff method.Why?

Chem Manufacturing Company processes direct materials up to the splitoff point where two products (X and Y)are obtained and sold.The following information was collected for the month of November: Direct materials processed: 10,000 gallons (10,000 gallons yield 9,500 gallons of good product and 500 gallons of shrinkage) Production: X 5,000 gallons Y 4,500 gallons Sales: X 4,750 at \ 150 per gallon Y 4,000 at \ 100 per gallon The cost of purchasing 10,000 gallons of direct materials and processing it up to the splitoff point to yield a total of 9,500 gallons of good products was $975,000. The beginning inventories totaled 50 gallons for X and 25 gallons for Y.Ending inventory amounts reflected 300 gallons of Product X and 525 gallons of Product Y.October costs per unit were the same as November. Using the physical-volume method,what is Product X's approximate gross-margin percentage?

Which of the following statements is true of sell-or-process-further decisions in joint costing?

A business which enters into a contract to purchase a product which compensates the manufacturer under a cost reimbursement agreement should take an active part in the determination of how joint costs are allocated because ________.

In joint costing,which of the following changes may lead to a change in product classification?

Explain why some companies carry their inventories at NRV minus an estimated operating income margin instead of the NRV itself.

Answer the following questions using the information below: Torid Company processes 17,500 gallons of direct materials to produce two products, Product X and Product Y. Product X sells for $5 per gallon and Product Y, the main product, sells for $150 per gallon. The following information is for December: Production Sales Beginning Inventory Ending Inventory Product X: 5,375 5,300 0 75 Product Y: 9,975 9,990 25 10 The manufacturing costs totalled $25,000. -If the byproduct inventory is recorded at NRV less profit margin of 20%,the balance sheet will report ________ of byproduct inventory.

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

Which of the following journal entries can happen only under the production method of recording byproducts?

Answer the following questions using the information below: Bismite Corporation 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 October: Trees processed: 250 trees Production: paper 180,000 sheets pencil casings 180,000 Sales: paper 174,000 at \ 0.12 per page pencil casings 178,500 at \ 0.15 per casing The cost of purchasing 250 trees and processing them up to the splitoff point to yield 180,000 sheets of paper and 180,000 pencil casings is $12,500. Bismite's accounting department reported no beginning inventory. -If the sales value at splitoff method is used,what is the approximate production cost for each pencil casing?

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

The constant gross-margin percentage NRV method allocates joint costs to joint products in such a way that the gross margin on each joint product is the same as it was in the previous year.

Answer the following questions using the information below: The Green 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: $\text { Direct Materials processed: } \quad 98,000 \text { gallons (after shrinkage) }$ Proauction: Condensed goat milk 42,500 gallons Skim goat milk 55,500 gallons Sales: Condensed goat milk \ 3.50 per gallon skim goat milk \ 2.50 per gallon The costs of purchasing the of unprocessed goat milk and processing it up to the splitoff point to yield a total of 98,000 gallons of saleable product was $184,480. There were no inventory balances of either product. Condensed goat milk may be processed further to yield 42,000 gallons (the remainder is shrinkage) of a medicinal milk product, Xyla, for an additional processing cost of $4 per usable gallon. Xyla can be sold for $20 per gallon. Skim goat milk can be processed further to yield 54,200 gallons of skim goat ice cream, for an additional processing cost per usable gallon of $4. The product can be sold for $9 per gallon. There are no beginning and ending inventory balances. -How much (if any)extra income would Green 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 Green would have earned from selling condensed goat milk.)

Which of the following statements is true of the sales method of accounting for byproducts?

Answer the following questions using the information below: Bismite Corporation 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 October: Trees processed: 250 trees Production: paper 180,000 sheets pencil casings 180,000 Sales: paper 174,000 at \ 0.12 per page pencil casings 178,500 at \ 0.15 per casing The cost of purchasing 250 trees and processing them up to the splitoff point to yield 180,000 sheets of paper and 180,000 pencil casings is $12,500. Bismite's accounting department reported no beginning inventory. -If the sales value at splitoff method is used,what is the approximate production cost for each paper sheet?

In process costing,the sales value at splitoff method does not require information on the processing steps after the splitoff.

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.

What are joint costs,separable costs,and a splitoff point?

Answer the following questions using the information below: The Berkel Corporation manufactures Widgets, Gizmos, and Turnbols from a joint process. June production is 5,000 widgets; 8,750 gizmos; and 10,000 turnbols. Respective per unit selling prices at splitoff are $75, $50, and $25. Joint costs up to the splitoff point are $187,500. -What amount of joint costs will be allocated to the Turnbols?

Answer the following questions using the information below: The Green 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: $\text { Direct Materials processed: } \quad 98,000 \text { gallons (after shrinkage) }$ Proauction: Condensed goat milk 42,500 gallons Skim goat milk 55,500 gallons Sales: Condensed goat milk \ 3.50 per gallon skim goat milk \ 2.50 per gallon The costs of purchasing the of unprocessed goat milk and processing it up to the splitoff point to yield a total of 98,000 gallons of saleable product was $184,480. There were no inventory balances of either product. Condensed goat milk may be processed further to yield 42,000 gallons (the remainder is shrinkage) of a medicinal milk product, Xyla, for an additional processing cost of $4 per usable gallon. Xyla can be sold for $20 per gallon. Skim goat milk can be processed further to yield 54,200 gallons of skim goat ice cream, for an additional processing cost per usable gallon of $4. The product can be sold for $9 per gallon. There are no beginning and ending inventory balances. -How much (if any)extra income would Green earn if it produced and sold skim milk ice cream from goats rather than goat skim milk? Allocate joint processing costs based upon the relative sales value at the splitoff point.