CHAPTER 16: COST ALLOCATION: JOINT PRODUCTS AND BYPRODUCTS
TRUE/FALSE
1. Joint costs are incurred beyond the splitoff point and are assignable to individual
products.
Answer: False Difficulty: 2 Objective: 1
Joint costs are incurred prior to the splitoff.
2. Separable costs are assignable after the splitoff point.
Answer: True Difficulty: 2 Objective: 1
3. The focus of joint costing is assigning costs to individual products as assembly occurs.
Answer: False Difficulty: 2 Objective: 1
The focus is accumulating costs incurred on the joint products.
4. A byproduct has a minimal sales value.
Answer: True Difficulty: 2 Objective: 2
5 The sales value at splitoff method is an example of allocating costs based upon the
benefits-received criterion.
Answer: True Difficulty: 2 Objective: 4
6. 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.
Answer: False Difficulty: 2 Objective: 4
The sales value at splitoff method enables the accountant to obtain individual product
costs and gross margins.
7. An advantage of the physical-measure method is that obtaining physical measures for
all products is an easy task.
Answer: False Difficulty: 2 Objective: 4
For some products such as gas, obtaining physical measures is difficult.
8. The general guideline for using the physical-measure method is to include only joint
products or main products in the physical-measure weighting computations.
Answer: True Difficulty: 2 Objective: 4
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9. The estimated net realizable value method is used when the market selling prices at the
splitoff point are not available.
Answer: True Difficulty: 2 Objective: 4
10. Net realizable value generally means expected sales value plus expected separable
costs.
Answer: False Difficulty: 2 Objective: 4
Net realizable value is expected sales value minus expected separable costs.
11. 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.
Answer: True Difficulty: 2 Objective: 4
12. The estimated net realizable value method allocates joint costs on the basis of the
expected final sales value in the ordinary course of business less the expected separable
costs of production and marketing.
Answer: True Difficulty: 2 Objective: 4
13. 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.
Answer: False Difficulty: 2 Objective: 4
The constant gross-margin percentage method takes account of the profits earned
before or after the splitoff when allocating joint costs.
14. The sales value at splitoff method presupposes the exact number of subsequent steps
undertaken for further processing.
Answer: False Difficulty: 2 Objective: 4
The sales value at splitoff method does not presuppose the exact number of subsequent
steps.
15. A criticism of the practice of carrying inventories at estimated net realizable values is
that this practice recognizes income before sales are made.
Answer: True Difficulty: 2 Objective: 4
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16. Physical measures such as weight or volume are the best indicator of the benefits
received for allocating joint costs.
Answer: False Difficulty: 2 Objective: 5
Revenues are a better indicator of the benefits received than are physical measures.
17. Joint costs that do not differ between alternatives are particularly relevant for decision
making.
Answer: False Difficulty: 2 Objective: 6
Only costs that differ are relevant to a manager’s decision.
18. Byproducts are recognized in the general ledger either at the time of production or at
the time of sale.
Answer: True Difficulty: 2 Objective: 7
19. Recognition of byproducts in the financial statements at the time of sale usually occurs
when the dollar amounts of the byproducts are immaterial.
Answer: True Difficulty: 2 Objective: 7
20. 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.
Answer: False Difficulty: 2 Objective: 7
This method makes it easier for managers to time earnings since they can time the sale
of products and give earnings a boost.
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MULTIPLE CHOICE
21. What type of cost is the result of an event that results in more than one product or
service simultaneously?
a. Byproduct cost
b. Joint cost
c. Main cost
d. Separable cost
Answer: b Difficulty: 2 Objective: 1
22. All costs incurred beyond the splitoff point that are assignable to one or more individual
products are called
a. byproduct costs.
b. joint costs.
c. main costs.
d. separable costs.
Answer: d Difficulty: 2 Objective: 1
23. In joint costing
a. costs are assigned to individual products as assembly of the product occurs.
b. costs are assigned to individual products as disassembly of the product occurs.
c. a single production process yields two or more products.
d. both (b) and (c).
Answer: d Difficulty: 3 Objective: 1
24. 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. joint products and byproducts.
b. joint products and scrap.
c. main products and byproducts.
d. main products and joint products.
Answer: c Difficulty: 2 Objective: 2
25. Byproducts and main products are differentiated by
a. number of units per processing period.
b. weight or volume of outputs per period.
c. the amount of sales value per unit.
d. none of the above.
Answer: c Difficulty: 2 Objective: 2
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26. All of the following changes may indicate a change in product classification of a
manufacturing process which has a splitoff point EXCEPT
a. a byproduct increases in sales value due to a new application.
b. a main product becomes a joint product.
c. a main product becomes technologically obsolete.
d. a byproduct loses its market due to a new invention.
Answer: b Difficulty: 2 Objective: 2
27. Which of the following methods of allocating costs use market-based data?
a. Sales value at splitoff method
b. Estimated net realizable value method
c. The constant gross-margin percentage method
d. All of the above use market-based methods
Answer: d Difficulty: 1 Objective: 2
28. Products with a relatively low sales value are known as
a. scrap.
b. main products.
c. joint products.
d. byproducts.
Answer: d Difficulty: 1 Objective: 2
29. Which of the following statements is true regarding main products and byproducts?
a. Product classifications do not change over the short run.
b. Product classifications do not change over the long run.
c. Product classifications may change over time.
d. The cause-and-effect criterion determines the classification.
Answer: c Difficulty: 3 Objective: 2
30. Outputs with zero sales value are accounted for by
a. listing these various outputs in a footnote to the financial statements.
b. including the items as a relatively small portion of the value assigned to the
products produced during the accounting period.
c. making journal entries to reflect an estimate of possible values.
d. none of the above.
Answer: d Difficulty: 3 Objective: 2
31. Which of the following is a reason to allocate joint costs?
a. Rate regulation requirements, if applicable
b. Cost of goods sold computations
c. Insurance settlement cost information requirements
d. All of the above are reasons to allocate joint costs.
Answer: d Difficulty: 1 Objective: 3
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32. 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
a. the manufacturer will attempt to allocate as large a portion of its costs to these
products.
b. if the manufacturer successfully allocates a large portion of its costs to these
products then it will be able to sell its other nonreimbursed products at lower
prices.
c. the FASB requires the business to participate in the cost allocation process.
d. of both (a) and (b).
Answer: d Difficulty: 3 Objective: 3
33. Proper costs allocation for inventory costing and cost-of-goods-sold computations are
important because
a. inventory costing is essential for proper balance sheet presentation.
b. most states have laws requiring proper balance sheet presentation, and
recommended allocation methods.
c. cost of goods sold is an important component in the determination of net income.
d. of both (a) and (c).
Answer: d Difficulty: 3 Objective: 3
34. Which of the following is NOT a primary reason for allocating joint costs?
a. Cost justification and insurance settlement cost information requirements
b. Cost justification and asset measurement
c. Income measurement and rate regulation requirements
d. To calculate the bonus of the chief executive officer
Answer: d Difficulty: 1 Objective: 3
35. All of the following methods may be used to allocate joint costs EXCEPT
a. the constant gross-margin percentage method.
b. the estimated net realizable value method.
c. the present value allocation method.
d. the sales value at splitoff method.
Answer: c Difficulty: 2 Objective: 4
36. An example of a market-based approach to allocating joint costs is (are) allocating joint
costs based on
a. sales value at splitoff method.
b. physical volume.
c. constant gross-margin percentage method.
d. both (a) and (c).
Answer: d Difficulty: 3 Objective: 4
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37. Which of the following statements is true in regard to the cause-and-effect relationship
between allocated joint costs and individual products?
a. A high individual product value results in a high level of joint costs.
b. A low individual product value results in a low level of joint costs.
c. A high individual product value results in a low level of joint costs.
d. There is no cause-and-effect relationship.
Answer: d Difficulty: 3 Objective: 4
38. The benefits-received criteria for allocating joint costs indicates market-based measures
are preferred because
a. physical measures such as volume are a clearer basis for allocating cost than other
