Exam 16: Cost Allocation: Joint Products and Byproducts

Which of the following would explain why a company might need to follow very stringent rules that specify the way in which joint costs are assigned to products?

Which of the following factors would guide you in classifying a product as a main product or byproduct?

Cola Drink Company processes direct materials up to the split-off point where two products,A and B,are obtained.The following information was collected for the month of July: The cost of purchasing 3500 liters of direct materials and processing it up to the split-off point to yield a total of 2975 liters of good products was $7000.There were no inventory balances of A and B. Product A may be processed further to yield 2000 liters of Product Z5 for an additional processing cost of $160.Product Z5 is sold for $60.00 per liter.There was no beginning inventory and ending inventory was 125 liters. Product B may be processed further to yield 800 liters of Product W3 for an additional processing cost of $290.Product W3 is sold for $65 per liter.There was no beginning inventory and ending inventory was 25 liters. What is Product Z5's estimated net realizable value at the split-off point?

In joint costing,the physical measures are generally used for products or services that are processed and,after split-off,additional value is added to the product and a selling price can be determined.

Bismite Corporation purchases trees from Cheney lumber and processes them up to the split-off point where two products (paper and pencil casings)emerge from the process.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: The cost of purchasing 310 trees and processing them up to the split-off point to yield 190,000 sheets of paper and 190,000 pencil casings is $13,500. Bismite's accounting department reported no beginning inventory. If the sales value at split-off method is used,what are the approximate joint costs assigned to ending inventory for paper? (Round intermediary percentages to the nearest hundredth. )

The challenge of a production facility that is producing several products from is how to allocate the joint costs that are incurred ________.

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

What are joint costs,separable costs,and a split-off point?

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.

Timber logs are processed into standard lumber used in home construction and wood chips that will be sold to landscapers.How would these products be classified?

The Brital Company processes unprocessed milk to produce two products,Butter Cream and Condensed Milk.The following information was collected for the month of June: The costs of purchasing the of unprocessed milk and processing it up to the split-off point to yield a total of 29,500 gallons of saleable product was $49,000. The company uses constant gross-margin percentage NRV method to allocate the joint costs of production.What is the constant gross margin percent for Brital?

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.

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?

Beverage Drink Company processes direct materials up to the split-off point where two products,A and B,are obtained.The following information was collected for the month of July: The cost of purchasing 3000 liters of direct materials and processing it up to the split-off point to yield a total of 2550 liters of good products was $7500.There were no inventory balances of A and B. Product A may be processed further to yield 500 liters of Product Z5 for an additional processing cost of $170.Product Z5 is sold for $25 per liter.There was no beginning inventory and ending inventory was 125 liters. Product B may be processed further to yield 1875 liters of Product W3 for an additional processing cost of $325.Product W3 is sold for $35 per liter.There was no beginning inventory and ending inventory was 25 liters. If Product Z5 and Product W3 are produced,what are the expected sales values of production,respectively?

The production method for recognizing byproducts reduces the cost of manufacturing the main or joint products in the income statement.

The Brital Company processes unprocessed milk to produce two products,Butter Cream and Condensed Milk.The following information was collected for the month of June: The costs of purchasing the of unprocessed milk and processing it up to the split-off point to yield a total of 33,000 gallons of saleable product was $89,450. The company uses constant gross-margin percentage NRV method to allocate the joint costs of production.What is the allocated joint costs of Butter Cream?

In joint costing,using physical measures at split-off to allocate costs enables the accountant to obtain individual product costs and gross margins.

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

Firms should be wary of using the full cost of a joint product as the basis for making pricing decisions.Why?

The production method for recognizing byproducts is simpler and is often used in practice,primarily because the dollar amounts of byproducts are immaterial.