Deck 9: Joint Product and By-Product Costing

Question 1

Joint costs are always incurred before the split-off point.

Answer 1

True

Question 2

Costs allocated to joint products are generally referred to as separable costs.

Answer 2

False

Question 3

Managers normally differentiate main products from by-products based on their weight.

Answer 3

False

Question 4

A company can increase or decrease its total gross margin by using different joint cost allocation methods.

Question 5

Separable costs generally must be allocated to joint products because they are difficult to trace directly.

Question 6

Costs incurred after the split-off point are referred to as split-off costs.

Question 7

Managers normally differentiate main products from by-products based on their sales values.

Question 8

The choice of joint cost allocation method depends somewhat on the nature of the products' characteristics.

Question 9

Different joint cost allocation methods cause products to show different contribution margins.

Question 10

Only companies in manufacturing industries produce joint products.

Question 11

Managers should choose a joint cost allocation method to avoid giving the impression that one or more products are sold at a loss when they actually contribute to profitability.

Question 12

In the beef production industry, bones sold for dogs can generally be considered a by-product.

Question 13

The physical output method is appropriate when products are sold in units of similar size and their net realizable values are similar.

Question 14

The constant gross margin NRV method of allocating joint costs results in all joint products having equal gross margins (in dollars).

Question 15

The sales value at split-off point method of joint cost allocation avoids the problem of negative contribution margins for some products.

Question 16

Managers who want to avoid arbitrary joint cost allocations should use the physical output method.

Question 17

Joint costs are common to all joint products.

Question 18

The constant gross margin NRV method of allocating joint costs results in all joint products having equal gross profit percentages (gross profit / sales).

Question 19

The physical output method of joint cost allocation is seldom used in practice because of its measurement difficulties.

Question 20

Managers choose from a variety of logical joint cost allocation methods, but the allocation process itself is always arbitrary.

Question 21

Jordan, Inc. produces 2 products from a joint process costing $24,000. The results from the most recent period follow: Sales Value Separable Sales Value After
Product Tons at Split-Off Costs Further Processing
Alpha-1 800 $10,000 $12,000 $24,000
Alpha-2 400 8,000 4,000 20,000
Waste 200 --- --- ---
If Jordan uses the sales value at split-off point method, the joint costs allocated to Alpha-2 would be:

A)$8,889
B)$10,667
C)$8,727
D)$13,333

Question 22

Joint product cost allocation information can be used for financial reporting and for short-term decisions such as whether to process the product further.

Question 23

Balley, Inc. produces three milk products (all are main products)from a joint process costing $200,000. Data from the current period's operation follow: Units Unit Sales Price Separable Total Revenue After
Produced at Split-Off Costs Further Processing
Regular 5,000 $5 $10,000 $ 40,000
Fat-free 15,000 7 16,000 120,000
2% 30,000 8 5,000 250,000
If Balley produces and sells the best mix, what is the total gross margin?

A)$195,000
B)$210,000
C)$180,000
D)$164,000

Question 24

Recyclers, Inc. reprocesses paper and obtains 2 main products: a by-product and a waste. By-product revenues are treated as a reduction in joint costs. During the period 1,000 tons were processed at a cost of $12,000 for materials and processing, resulting in the following: Sales Value Separable Sales Value After
Product Tons at Split-Off Costs Further Processing
Main-1 200 $4,000 $2,000 $10,000
Main-2 400 5,000 6,000 12,000
By-product 300 2,000 -0- 2,000
Waste 100 -0- -0- -0-
If the firm allocates joint costs to the main products using the sales value at split-off point method, how much will be allocated to Main-2?

A)$5,556
B)$4,545
C)$5,333
D)$6,666

Question 25

A joint input costing $500 results in four distinct products at the point of split-off. Relevant data follows: Sales Value Separable Sales Value After
Product at Split-Off Cost Further Processing
J $200 $100 $400
K 300 200 600
L 100 50 140
M 20 10 40
Assume that K is processed further and that management is considering an alternative to the current process. The new separable cost of processing would be $250. If the firm is to be no worse off, the product must sell for at least:

A)$550
B)$650
C)$750
D)$850

Question 26

A joint input costing $500 results in four distinct products at the point of split-off. Relevant data follows: Sales Value Separable Sales Value After
Product at Split-Off Cost Further Processing
J $200 $100 $400
K 300 200 600
L 100 50 140
M 20 10 40
Which of the four products should not be further processed?

A)J
B)K
C)L
D)M

Question 27

Recyclers, Inc. reprocesses paper and obtains 2 main products: a by-product and a waste. By-product revenues are treated as a reduction in joint costs. During the period 1,000 tons were processed at a cost of $12,000 for materials and processing, resulting in the following: Sales Value Separable Sales Value After
Product Tons at Split-Off Costs Further Processing
Main-1 200 $4,000 $2,000 $10,000
Main-2 400 5,000 6,000 12,000
By-product 300 2,000 -0- 2,000
Waste 100 -0- -0- -0-
If the firm allocates joint costs to the main products using the physical output method, how much will be allocated to Main-1?

A)$2,000
B)$2,400
C)$2,222
D)$3,333

Question 28

Jordan, Inc. produces 2 products from a joint process costing $24,000. The results from the most recent period follow: Sales Value Separable Sales Value After
Product Tons at Split-Off Costs Further Processing
Alpha-1 800 $10,000 $12,000 $24,000
Alpha-2 400 8,000 4,000 20,000
Waste 200 --- --- ---
If Jordan uses the sales value at split-off point method to allocate joint costs, the cost per ton for Alpha-1 would be:

A)$15
B)$32
C)$28
D)$29

Question 29

A joint input costing $500 results in four distinct products at the point of split-off. Products J, K and L are main products, and product M is a by-product. Relevant data follows: Sales Value Separable Sales Value After
Product at Split-Off Cost Further Processing
J (main)$200 $100 $400
K (main)300 200 600
L (main)100 -- --
M (by-product)20 10 40
If the revenue from product M is recognized at the time of sale, what amount will be recorded as the cost of product M inventory at the time of split-off?

A)$0
B)$10
C)$20
D)$30

Question 30

Jordan, Inc. produces 2 products from a joint process costing $24,000. The results from the most recent period follow: Sales Value Separable Sales Value After
Product Tons at Split-Off Costs Further Processing
Alpha-1 800 $10,000 $12,000 $24,000
Alpha-2 400 8,000 4,000 20,000
Waste 200 --- --- ---
If Jordan uses the physical output method to allocate joint costs, the cost per ton for Alpha-2 would be:

A)$27
B)$22
C)$30
D)$20

Question 31

Jordan, Inc. produces 2 products from a joint process costing $24,000. The results from the most recent period follow: Sales Value Separable Sales Value After
Product Tons at Split-Off Costs Further Processing
Alpha-1 800 $10,000 $12,000 $24,000
Alpha-2 400 8,000 4,000 20,000
Waste 200 --- --- ---
If Jordan uses the net realizable value method, the joint costs allocated to Alpha-1 would be:

A)$8,571
B)$,9000
C)$10,909
D)$10,286

Question 32

When joint production processes include a sales mix, the sales mix should be incorporated into the allocation method.

Question 33

By-products can only be recognized at the time of sale.

Question 34

Major Foods, Inc. produces a cereal from oat grain. The company buys unprocessed oats for $400 per ton. It costs $60 per ton to send the oats through a processor, which produces 1,900 kilograms of pure oats and 100 kilograms of oat shells. The oat shells are ground and packaged at a cost of $100 per hundred kilograms. They are sold to a poultry feed company for $3 per kilogram. The pure oats are cooked and packaged into 4-kilogram containers at a cost of $350. The packaged oats are sold for $2 per 4-kilogram container. If Major uses the net realizable value method, the joint costs allocated to the oats is:

A)$345
B)$110
C)$350
D)$115

Question 35

Major Foods, Inc. produces a cereal from oat grain. The company buys unprocessed oats for $400 per ton. It costs $60 per ton to send the oats through a processor, which produces 1,900 kilograms of pure oats and 100 kilograms of oat shells. The oat shells are ground and packaged at a cost of $100 per hundred kilograms. They are sold to a poultry feed company for $3 per kilogram. The pure oats are cooked and packaged into 4-kilogram containers at a cost of $350. The packaged oats are sold for $2 per 4-kilogram container. If Major uses the net realizable value method, the gross profit from the oat shells is:

A)$185
B)$200
C)$85
D)$215

Question 36

A joint input costing $500 results in four distinct products at the point of split-off. Products J, K and L are main products, and product M is a by-product. Relevant data follows: Sales Value Separable Sales Value After
Product at Split-Off Cost Further Processing
J (main)$200 $100 $400
K (main)300 200 600
L (main)100 -- --
M (by-product)20 10 40
If the revenue from Product M is recognized at time of sale, at what cost will it be inventoried before further processing?

A)$0
B)$10
C)$20
D)$30

Question 37

Jordan, Inc. produces 2 products from a joint process costing $24,000. The results from the most recent period follow: Sales Value Separable Sales Value After
Product Tons at Split-Off Costs Further Processing
Alpha-1 800 $10,000 $12,000 $24,000
Alpha-2 400 8,000 4,000 20,000
Waste 200 --- --- ---
If Jordan uses the physical output method, the joint costs allocated to Alpha-1 were:

A)$8,000
B)$6,400
C)$16,000
D)$9,600

Question 38

Recyclers, Inc. reprocesses paper and obtains 2 main products: a by-product and a waste. By-product revenues are treated as a reduction in joint costs. During the period 1,000 tons were processed at a cost of $12,000 for materials and processing, resulting in the following: Sales Value Separable Sales Value After
Product Tons at Split-Off Costs Further Processing
Main-1 200 $4,000 $2,000 $10,000
Main-2 400 5,000 6,000 12,000
By-product 300 2,000 -0- 2,000
Waste 100 -0- -0- -0-
If the firm allocates joint costs to the main products using the net realizable value, how much will be allocated to Main-1?

A)$5,000
B)$5,714
C)$6,857
D)$6,000

Question 39

Balley, Inc. produces three milk products (all are main products)from a joint process costing $200,000. Data from the current period's operation follow: Units Unit Sales Price Separable Total Revenue After
Produced at Split-Off Costs Further Processing
Regular 5,000 $5 $10,000 $ 40,000
Fat-free 15,000 7 16,000 120,000
2% 30,000 8 5,000 250,000
If Balley allocates joint costs using the physical output method instead of the net realizable value method, income will be:

A)higher
B)lower
C)unchanged
D)unable to determine from data given

Question 40

Balley, Inc. produces three milk products (all are main products)from a joint process costing $200,000. Data from the current period's operation follow: Units Unit Sales Price Separable Total Revenue After
Produced at Split-Off Costs Further Processing
Regular 5,000 $5 $10,000 $ 40,000
Fat-free 15,000 7 16,000 120,000
2% 30,000 8 5,000 250,000
Which product(s)should be processed beyond the split-off point?

A)Regular and Fat-free only
B)Regular and 2% only
C)Fat-free only
D)2% only

Question 41

Joint product costs:

A)Are irrelevant in deciding whether or not to produce beyond the split-off point
B)Cannot be allocated using the physical output method
C)Are not included in the costs of ending inventory
D)Require use of the alternative cost method

Question 42

When individual products/services become separately identifiable, this is called the:

A)Break point
B)Split-off point
C)Breakeven point
D)Point of no return

Question 43

RKH Corporation produces three joint products. During a recent accounting period, joint costs totalled $365 and RKH had no beginning inventories. Additional data appear below: M1 M2 M3
Volume (kilograms)150 50 300
Sales value at the split-off point $375 $155 $600
Sales value after further processing $450 $200 $900
Separable costs $50 $35 $100
Using the constant gross margin NRV method, the combined gross margin percentage (rounded to the nearest whole percent)is:

A)65%
B)88%
C)76%
D)None of the above

Question 44

If the incremental revenues for a joint product that has been processed further exceed the incremental costs, the general decision is to:

A)Process beyond the split-off point
B)Sell at the split-off point
C)Be indifferent about whether to process further
D)Allocate the separable costs using the net realizable value method

Question 45

RKH Corporation produces three joint products. During a recent accounting period, joint costs totalled $365 and RKH had no beginning inventories. Additional data appear below: M1 M2 M3
Volume (kilograms)150 50 300
Sales value at the split-off point $375 $155 $600
Sales value after further processing $450 $200 $900
Separable costs $50 $35 $100
Which of the following methods will result in the smallest joint cost allocation to M3?

A)Net realizable value
B)Sales value at split-off point
C)Physical output
D)Constant gross margin NRV

Question 46

RKH Corporation produces three joint products. During a recent accounting period, joint costs totalled $365 and RKH had no beginning inventories. Additional data appear below: M1 M2 M3
Volume (kilograms)150 50 300
Sales value at the split-off point $375 $155 $600
Sales value after further processing $450 $200 $900
Separable costs $50 $35 $100
Which of the following methods will result in the greatest total joint cost allocation among the three products?
I) Net realizable value
II) Sales value at split-off point
III) Physical output
IV) Constant gross margin NRV

A)I and II only
B)II and III only
C)I and IV only
D)All methods will result in the same total joint cost allocated

Question 47

RKH Corporation produces three joint products. During a recent accounting period, joint costs totalled $365 and RKH had no beginning inventories. Additional data appear below: M1 M2 M3
Volume (kilograms)150 50 300
Sales value at the split-off point $375 $155 $600
Sales value after further processing $450 $200 $900
Separable costs $50 $35 $100
Using the constant gross margin NRV method, the total separable costs allocated to the three products will be:

A)$0
B)$185
C)$365
D)$550

Question 48

Which of the following are sub-categories of joint products?

A)Main products and by-products
B)Main products and split-off products
C)By-products and split-off products
D)Main products, by-products and split-off products

Question 49

By-products are products that:

A)Are chosen to measure profitability
B)Are immaterial in value relative to main products
C)Are intentionally produced
D)Share in the allocation of joint product costs

Question 50

RKH Corporation produces three joint products. During a recent accounting period, joint costs totalled $365 and RKH had no beginning inventories. Additional data appear below: M1 M2 M3
Volume (kilograms)150 50 300
Sales value at the split-off point $375 $155 $600
Sales value after further processing $450 $200 $900
Separable costs $50 $35 $100
Using the constant gross margin NRV method, the total joint costs allocated to the three products will be:

A)$0
B)$185
C)$365
D)$550

Question 51

When separable costs are deducted from the selling price that can be achieved after further processing, the result is called the:

A)Relative sales value
B)Net realizable value
C)Budgeted value
D)Inventory value

Question 52

RKH Corporation produces three joint products. During a recent accounting period, joint costs totalled $365 and RKH had no beginning inventories. Additional data appear below: M1 M2 M3
Volume (kilograms)150 50 300
Sales value at the split-off point $375 $155 $600
Sales value after further processing $450 $200 $900
Separable costs $50 $35 $100
Which of the following methods will result in the greatest joint cost allocation to M1?

A)Physical output
B)Sales value at split-off point
C)Net realizable value
D)Constant gross margin NRV

Question 53

A main product is typically differentiated from other joint products by its:

A)Allocated joint costs
B)Size or weight
C)Sales value
D)Cost

Question 54

Costs incurred beyond the split-off point that are traceable to individual products are:

A)Joint costs
B)Common costs
C)Net realizable costs
D)Separable costs

Question 55

Joint processes can result in:
I) Products
II) Services
III) Intangible assets

A)I only
B)II only
C)I and III only
D)I and II only

Question 56

In which of the following industries would you be least likely to find a joint production process?

A)Oil and gas
B)Food
C)Chemicals
D)Textbook production

Question 57

RKH Corporation produces three joint products. During a recent accounting period, joint costs totalled $365 and RKH had no beginning inventories. Additional data appear below: M1 M2 M3
Volume (kilograms)150 50 300
Sales value at the split-off point $375 $155 $600
Sales value after further processing $450 $200 $900
Separable costs $50 $35 $100
Using the constant gross margin NRV method, the joint costs allocated to M1 will be:

A)$290
B)$160
C)$110
D)$50

Question 58

When the products emerging from a joint process are similar in size and in relative value per unit, the most appealing joint cost allocation method is:

A)Relative sales value
B)Net realizable value
C)Physical output method
D)Reciprocal method

Question 59

RKH Corporation produces three joint products. During a recent accounting period, joint costs totalled $365 and RKH had no beginning inventories. Additional data appear below: M1 M2 M3
Volume (kilograms)150 50 300
Sales value at the split-off point $375 $155 $600
Sales value after further processing $450 $200 $900
Separable costs $50 $35 $100
Which of the following methods will result in the greatest joint cost allocation to M2?

A)Constant gross margin NRV
B)Net realizable value
C)Physical output
D)Sales value at split-off point

Question 60

Joint costs are:

A)Easily traceable to individual product lines
B)Common costs that result in two or more unique products
C)Incurred by a particular product
D)Fixed costs incurred after the split-off point

Question 61

The joint cost allocation method affects the:

A)Apparent profitability of different products
B)Total profit of an organization
C)Revenue generated by an individual product
D)Total revenue of an organization

Question 62

HGT Corporation produces four products from a common production process. Selected data from HGT's accounting system for the four products appears below: Sofa Standard Floor Full-Body
Cushions Pillows Cushions Pillows
Quantity 100 150 50 200
Price per unit at split-off $10 $12 $18 $15
Price per unit after further processing $13 $15 $20 $18
Separable costs $100 $150 $150 $200
Joint costs for the accounting period totalled $5,000. Each product line has a different product manager who is evaluated based on product line profitability. Therefore each manager is motivated to reduce his / her total product line costs as much as possible. The managers have been given information about potential joint cost allocations using the following three methods: physical output, sales at split-off point, and net realizable value. The managers are comparing the joint cost allocations under each method so that they can give the accountant input about their preferred method(s).
Which product line would receive the least amount of joint cost under the sales value at the split-off point method?

A)Floor cushions
B)Full-body pillows
C)Sofa cushions and standard pillows
D)None of the above

Question 63

Cost distortions are likely when products have differential incremental contributions under which of the following methods?

A)Sales value at split-off point
B)Constant gross margin NRV
C)Physical output
D)Net realizable value

Question 64

When by-product value is recognized at the time of sale, the journal entry can include a credit to:
I) Sales revenue
II) Other income
III) Cost of goods sold
IV) Work in process

A)I, II, or IV only
B)II, III, or IV only
C)I, II, or III only
D)I, III, or IV only

Question 65

Which method of allocating joint costs is most likely to develop a true cost per unit of product?

A)Physical output
B)Sales value at split-off point
C)Net realizable value
D)None of the above; all methods result in arbitrary allocations

Question 66

A by-product can become a main product when:

A)Changes in technologies give it greater sales value
B)Markets contract, lessening demand
C)Its net costs increase
D)Its value decreases

Question 67

HGT Corporation produces four products from a common production process. Selected data from HGT's accounting system for the four products appears below: Sofa Standard Floor Full-Body
Cushions Pillows Cushions Pillows
Quantity 100 150 50 200
Price per unit at split-off $10 $12 $18 $15
Price per unit after further processing $13 $15 $20 $18
Separable costs $100 $150 $150 $200
Joint costs for the accounting period totalled $5,000. Each product line has a different product manager who is evaluated based on product line profitability. Therefore each manager is motivated to reduce his / her total product line costs as much as possible. The managers have been given information about potential joint cost allocations using the following three methods: physical output, sales at split-off point, and net realizable value. The managers are comparing the joint cost allocations under each method so that they can give the accountant input about their preferred method(s).
Which product line would receive the least amount of joint cost under the net realizable value method?

A)Floor cushions and full-body pillows
B)Full-body pillows
C)Sofa cushions
D)None of the above

Question 68

The value of a by-product can be recognized at the time:
I) Of production
II) Of its sale
III) Joint products are sold

A)I and II only
B)I and III only
C)II and III only
D)I, II, and III

Question 69

HGT Corporation produces four products from a common production process. Selected data from HGT's accounting system for the four products appears below: Sofa Standard Floor Full-Body
Cushions Pillows Cushions Pillows
Quantity 100 150 50 200
Price per unit at split-off $10 $12 $18 $15
Price per unit after further processing $13 $15 $20 $18
Separable costs $100 $150 $150 $200
Joint costs for the accounting period totalled $5,000. Each product line has a different product manager who is evaluated based on product line profitability. Therefore each manager is motivated to reduce his / her total product line costs as much as possible. The managers have been given information about potential joint cost allocations using the following three methods: physical output, sales at split-off point, and net realizable value. The managers are comparing the joint cost allocations under each method so that they can give the accountant input about their preferred method(s).
If HGT allocates joint costs using the physical output method, the total joint cost allocated to standard pillows will be:

A)$1,500
B)$1,650
C)$1,250
D)None of the above

Question 70

Compared to other products by-products have:

A)Low sales values
B)High joint cost allocations
C)Low sales volumes
D)Low physical outputs

Question 71

Which joint cost allocation method best reflects the idea that joint costs cannot be separated?

A)Net realizable value
B)Constant gross margin NRV
C)Physical output
D)Sales value at split-off

Question 72

Which of the following joint cost allocation methods is used in many industries because they have units of similar size with similar net realizable values?

A)Physical output
B)Constant gross margin NRV
C)Net realizable value
D)Sales value at split-off

Question 73

When deciding whether to process a product beyond the split-off point:

A)Joint costs are relevant
B)Joint costs are irrelevant
C)Separable costs are irrelevant
D)Revenue is irrelevant

Question 74

Managers should choose a joint cost allocation method to:

A)Justify dropping an unprofitable product
B)Minimize the total joint cost allocated to all products
C)Maximize the organization's overall profitability
D)Avoid giving the mistaken impression that one or more products are sold at a loss

Question 75

DRY Corporation recently disposed of a by-product at a net cost of $500. Provided that amount is considered material, the $500 should be accounted for as:

A)Part of the separable cost of the by-product
B)A decrease in by-product inventory on the balance sheet
C)An increase in by-product inventory on the balance sheet
D)Part of the joint costs of production

Question 76

The sales value at split-off point method of joint cost allocation is most appropriate when:

A)Products have roughly equal sales values
B)Products have roughly equal separable costs
C)Most products are sold at the split-off point
D)Few products are sold at the split-off point

Question 77

Managers are most likely to select a method of by-product accounting depending upon

A)The effect of the method on overall profitability
B)The degree of desired control over the by-product
C)The physical quantity of the by-product
D)Their incentive compensation package

Question 78

HGT Corporation produces four products from a common production process. Selected data from HGT's accounting system for the four products appears below: Sofa Standard Floor Full-Body
Cushions Pillows Cushions Pillows
Quantity 100 150 50 200
Price per unit at split-off $10 $12 $18 $15
Price per unit after further processing $13 $15 $20 $18
Separable costs $100 $150 $150 $200
Joint costs for the accounting period totalled $5,000. Each product line has a different product manager who is evaluated based on product line profitability. Therefore each manager is motivated to reduce his / her total product line costs as much as possible. The managers have been given information about potential joint cost allocations using the following three methods: physical output, sales at split-off point, and net realizable value. The managers are comparing the joint cost allocations under each method so that they can give the accountant input about their preferred method(s).
Which product line would receive the least amount of joint cost under the physical output method?

A)Floor cushions and sofa cushions
B)Floor cushions and full-body pillows
C)Standard pillows and full-body pillows
D)None of the above

Question 79

Which joint cost allocation methods are preferred because they are based on a product's ability to pay for its allocated cost?
I) Constant gross margin NRV
II) Physical output
III) Net realizable value

A)I and II only
B)I and III only
C)II and III only
D)III only

Question 80

HGT Corporation produces four products from a common production process. Selected data from HGT's accounting system for the four products appears below: Sofa Standard Floor Full-Body
Cushions Pillows Cushions Pillows
Quantity 100 150 50 200
Price per unit at split-off $10 $12 $18 $15
Price per unit after further processing $13 $15 $20 $18
Separable costs $100 $150 $150 $200
Joint costs for the accounting period totalled $5,000. Each product line has a different product manager who is evaluated based on product line profitability. Therefore each manager is motivated to reduce his / her total product line costs as much as possible. The managers have been given information about potential joint cost allocations using the following three methods: physical output, sales at split-off point, and net realizable value. The managers are comparing the joint cost allocations under each method so that they can give the accountant input about their preferred method(s).
If HGT allocates joint costs using the sales value at split-off point method, the total joint cost allocated to full-body pillows (rounded to the nearest dollar)will be:

A)$2,439
B)$1,250
C)$2,039
D)$2,239