70) Berkel Company processes sugar cane into three products. During May, the joint costs of processing
were $600,000. Production and sales value information for the month were as follows:
Product
Units Produced
Sales Value at
Splitoff Point
Separable
costs
Sugar
15,000
$200,000
$60,000
Sugar Syrup
10,000
175,000
192,000
Fructose Syrup
5,000
125,000
96,000
Required:
Determine the amount of joint cost allocated to each product if the sales value at splitoff method is used.
Sugar Syrup
Fructose Syrup
Total
71) Calamata Corporation processes a single material into three separate products A, B, and C. During
September, the joint costs of processing were $300,000. Production and sales value information for the
month were as follows:
Product
Units Produced
Final Sales
Value per Unit
Separable
Costs
A
10,000
$25
$125,000
B
15,000
30
250,000
C
12,500
24
125,000
Required:
Determine the amount of joint cost allocated to each product if the constant gross-margin percentage
NRV method is used.
Product
Value
Margin
Costs
Costs
Allocated
A
$ 250,000
$50,000
$ 200,000
$ 125,000
$ 75,000
B
250,000
C
125,000
Total
1,000,000
800,000
$ 500,000
72) Oregon Lumber processes timber into four products. During January, the joint costs of processing
were $280,000. There was no inventory at the beginning of the month. Production and sales value
information for the month is as follows:
Sales Value at
Product
Board feet
Splitoff Point
Ending Inventory
2 × 4’s
6,000,000
$0.30 per board foot
500,000 bdft.
2 × 6’s
3,000,000
0.40 per board foot
250,000 bdft.
4 × 4‘s
2,000,000
0.45 per board foot
100,000 bdft.
Slabs
1,000,000
0.10 per board foot
50,000 bdft.
Required:
Determine the value of ending inventory if the sales value at splitoff method is used for product costing.
Round to 3 decimal places when necessary.
2 × 4’s
2 × 6’s
4 × 4’s
2 × 4’s
2 × 6’s
4 × 4’s
Slabs
Total
73) Zenon Chemical, Inc., processes pine rosin into three products: turpentine, paint thinner, and spot
remover. During May, the joint costs of processing were $240,000. Production and sales value information
for the month is as follows:
Product
Units Produced
Sales Value at
Splitoff Point
Turpentine
15,000 liters
$120,000
Paint thinner
15,000 liters
100,000
Spot remover
7,500 liters
50,000
Required:
Determine the amount of joint cost allocated to each product if the physical-measure method is used.
$288,000
Paint thinner
Spot remover
$720,000
74) Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned tomatoes.
During the summer of 20X5, the joint costs of processing the tomatoes were $420,000. There was no
beginning or ending inventories for the summer. Production and sales value information for the summer
is as follows:
Product
Cases
Sales Value at
Splitoff Point
Separable Costs
Selling Price
Catsup
100,000
$6 per case
$3.00 per case
$28 per case
Juice
150,000
8 per case
5.00 per case
25 per case
Canned
200,000
5 per case
2.50 per case
10 per case
Required:
Determine the amount allocated to each product if the estimated net realizable value method is used, and
compute the cost per case for each product.
100.00
Catsup
35.71% ×
Juice
42.86% ×
Canned
21.43% ×
75) Pilgrim Corporation processes frozen turkeys. The company has not been pleased with its profit
margin per product because it appears that the high value items have too few costs assigned to them,
while the low value items have too many costs assigned to them. The processing results in several
products, the primary one of which is frozen small turkeys. Other products include frozen parts such as
wings and legs, byproducts such as skin and bones, and unused scrap items.
Required:
What may be the cost assignment problem if a key consideration is the value of the products being sold?
76) 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?
77) Paragon University operates an extensive and an expensive registration, testing, and counseling
center, through which all students are required to pass through when they enter the university. The
registration effort’s costs (for the most part) are almost impossible to allocate based upon which students
require time, effort, etc. The cost of this center is approximately 15% of the total costs of Paragon. This
department engages in no other activities than the registration of students. Paragon is interested in
determining the profitability of the three technical departments it operates. Paragon has the perception
that some departments are more profitable than others, and it would like to determine an appropriate
method of allocating the costs of this registration center.
Required:
Recommend to Paragon University a method (or methods) of allocating the costs of registration to the
three departments.
1) In joint costing, the sales value at splitoff method is used frequently ________.
A) in a dynamic business environment where the selling prices change frequently
B) in anticipation of subsequent management decisions
C) when selling prices are dependent on further processing decisions
D) since the selling-price data exists at the splitoff
2) When the selling prices of all products at the splitoff point are unavailable, the ________ is the best
alternative for allocating joint costs.
A) sales value at splitoff method
B) NRV method
C) physical measures method
D) constant gross-margin percentage method
3) Which of the following statements is true of the methods for allocating joint costs?
A) The sales value at splitoff method lacks a common basis for allocating joint costs to products.
B) The complexity of the sales value at splitoff method increases when managers make frequent changes
to the sequence of post-splitoff processing decisions.
C) The NRV method assumes that none of the markup is attributable to the separable costs.
D) The NRV method treats the joint products as though they comprise a single product.
4) The drawback of the constant gross-margin percentage NRV method in joint costing is that ________.
A) it recognizes that profits are derived from the costs incurred after splitoff
B) it assumes the profit margin to be identical across all products
C) it attempts to approximate the sales values at splitoff by subtracting from final selling prices the
separable costs incurred after the splitoff point
D) it ignores the separable costs of further processing
5) In joint costing, the ________ assumes that all the markup is attributable to the joint process costs.
A) sales value at splitoff method
B) NRV method
C) constant gross-margin percentage method
D) physical measures method
6) In process costing, the sales value at splitoff method does not require information on the processing
steps after the splitoff.
7) Physical measures such as weight or volume are the best indicators of the benefits received for
allocating joint costs.
8) In joint costing, the constant gross-margin percentage method recognizes that the profit margin is not
just attributable to the joint process but is also derived from the costs incurred after splitoff.
9) The constant gross-margin percentage NRV method makes the simplifying assumption of treating the
joint products as though they comprise a single product.
10) List the reasons that the sales value at splitoff method of joint cost allocation should be used.
11) Explain why some companies choose not to allocate joint costs to products.
12) 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?
13) Explain why some companies carry their inventories at NRV minus an estimated operating income
margin instead of the NRV itself.
Objective 16.5
1) When a product is the result of a joint process, the decision to process the product past the splitoff
point further should be influenced by the ________.
A) total amount of the joint costs
B) portion of the joint costs allocated to the individual products
C) extra revenue earned past the splitoff point
D) extra operating income earned past the splitoff point
2) In joint costing, the potential conflict between cost concepts used for decision making and cost concepts
used for evaluating the performance of managers will be most severe when the ________ method is used.
A) sales value at splitoff
B) physical measure
C) constant gross-margin percentage NRV
D) estimated NRV
3) Which of the following statements is true of sell-or-process-further decisions in joint costing?
A) Joint costs incurred before the splitoff point are relevant in deciding whether to process the product
further.
B) All separable costs in joint-cost allocations are incremental costs.
C) Separable costs incurred before the splitoff point are irrelevant in deciding whether to process the
product further.
D) Costs that differ between the alternatives of selling products or processing further are relevant.
4) What factor most often drives joint cost allocation?
A) performance evaluation
B) manager compensation
C) selling prices
D) simplicity of the method
5) Separable costs that do not differ between alternatives are irrelevant for decision making.
6) Joint processing costs are relevant in deciding whether to process the product further.
7) All separable costs in joint-cost allocations are always incremental costs.
8) New York Liberty Corporation makes miniature statues of the Empire State Building from cast iron.
Sales total 50,000 units a year. The statues are finished either rough or polished, with an average demand
of 60% rough and 40% polished. Iron ingots, the direct material, costs $6 per pound. Processing costs are
$300 to convert 30 pounds into 60 statues. Rough statues are sold for $15 each, and polished statues can
be sold for $18 or engraved for an additional cost of $5. Polished statues can then be sold for $30.
Required:
Determine whether New York Liberty Company should sell the engraved statutes. Why?
9) What revenue or expense amounts are necessary to make a sell-or-process-further decision and why?
What items are irrelevant to the decision and why?
10) Firms should be wary of using the full cost of a joint product as the basis for making pricing decisions.
Why?
1) Which method of accounting recognizes byproducts in the financial statements at the time their
production is completed?
A) gross margin method
B) sales method
C) production method
D) market value method
2) Under production method, Product X NRV would be offset against the costs of Product Y by ________.
A) $26,500
B) $26,875
C) $50,000
D) $48,125
3) How much is the ending inventory for the byproduct if byproducts are recognized in the general
ledger at the point of sale?
A) $0
B) $375
C) $1,500
D) $2,500
4) The production method will report Product X in the balance sheet at ________.
A) $0
B) $1,500
C) $375
D) $2,500
5) If the byproduct inventory is recorded at NRV less profit margin of 20%, the balance sheet will report
________ of byproduct inventory.
A) $375
B) $0
C) $1,500
D) $300
6) A negative consequence of recording byproducts in the accounting records when the sale occurs is that
________.
A) the revenue from the byproducts is usually fairly large and the accounting records will be distorted
B) earnings cannot be timed under this method
C) managers can be tempted to stockpile byproducts
D) it involves complex calculations compared to the production method
7) Which of the following statements is true of the production method of accounting for byproducts?
A) It makes no journal entries until the byproduct is sold.
B) It is the preferred method because of the matching principle.
C) It records revenues of the byproduct in the income statement as revenue.
D) It adds revenues of the byproduct to the cost of goods sold in the income statement.
8) Which of the following statements is true of the sales method of accounting for byproducts?
A) It makes journal entries when the byproducts are produced.
B) It is the preferred method because of the matching principle.
C) It allows a firm to manage its reported earnings by timing the sale of byproducts.
D) This method recognizes the byproduct inventory in the accounting period in which it is produced.
9) Which of the following journal entries can happen only under the production method of recording
byproducts?
A) Work in Process
Finished Goods – Byproduct
Accounts Payable
B) Cash or Accounts Receivable
Revenues – Main product
C) Byproduct Inventory
Finished Goods – Main product
Work in Process
D) Cash or Accounts Receivable
Revenues – Byproduct
10) Byproducts are recognized in the general ledger either at the time production is completed or at the
time of sale.
11) The sales method for recognizing byproducts is conceptually correct because it is consistent with the
matching principle.
12) The production method for recognizing byproducts reduces the cost of manufacturing the main or
joint products in the income statement.
13) The production method for recognizing byproducts is simpler and is often used in practice, primarily
because the dollar amounts of byproducts are immaterial.
14) The Carolina Company prepares lumber for companies who manufacture furniture. The main
product is finished lumber with a byproduct of wood shavings. The byproduct is sold to plywood
manufacturers. For July, the manufacturing process incurred $332,000 in total costs. Eighty thousand
board feet of lumber were produced and sold along with 6,800 pounds of shavings. The finished lumber
sold for $6.00 per board foot and the shavings sold for $0.60 a pound. There were no beginning or ending
inventories.
Required:
Prepare an income statement showing the byproduct (1) as a cost reduction during production, and (2) as
a revenue item when sold.
15) 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.
16) What are the two methods to account for byproducts. Which is the more appropriate method to use
and why?