Profit increases
£28,000
43. The decision of whether or NOT to process joint products beyond their split-off point is
a.
based on the total cost of the finished product including joint costs.
b.
based on joint costs only.
c.
based on selling price at split-off point.
d.
based on additional revenues versus additional costs of processing further.
44. Which of the following costs is NOT relevant to a decision to sell a product at split-off or to process
the product further and then sell the product?
a.
the joint costs allocated to the product
b.
the selling price of the product at split-off
c.
the additional processing costs after split-off
d.
the selling price of the product after further processing
45. A joint producft should be processed beyond split-off if additional revenue from further processing
exceeds
a.
joint costs.
b.
allocated joint costs.
c.
allocated joint costs and additional costs of further processing.
d.
additional costs of further processing.
46. Which of the following costs is NOT relevant to a decision to sell a product at split-off or process the
product further and then sell the product?
a.
joint costs allocated to the product
b.
the selling price of the product at split-off
c.
the additional processing costs after split-off
d.
the selling price of the product after further processing
Figure 6-9
Stars Manufacturing Company produces Products A1, B2, C3, and D4 through a joint process. The
joint costs amount to £200,000.
If Processed Further
Sales Value
Product
Units Produced
at Split-Off
Sales Value
A1
3,000
£10,000
£15,000
B2
5,000
30,000
35,000
C3
4,000
20,000
25,000
D4
6,000
40,000
45,000
47. Refer to Figure 6-9. If Product B2 is processed further, profits will
a.
increase by £30,000.
b.
decrease by £3,000.
c.
increase by £32,000.
d.
increase by £2,000.
48. Refer to Figure 6-9. Which product(s) should be sold at split-off to maximize profits in the short run?
a.
Product A1
b.
Product D4
c.
Product B2
d.
Products A1 and D4
Revenues
£5,000
£2,500
£5,000
£5,000
£1,000
£5,000
(£1,000)
Figure 6-10
Manning Company uses a joint process to produce products W, X, Y, and Z. Each product may be sold
at its split-off point or processed further. Additional processing costs of specific products are entirely
variable. Joint processing costs for a single batch of joint products are £120,000. Other relevant data
are as follows:
Sales Value
Additional
Sales Value of
Product
at Split-Off
Processing Costs
Final Product
Y
£ 20,000
£ 32,000
£120,000
Z
28,000
20,000
32,000
W
40,000
60,000
80,000
X
__12,000
____4,000
__20,000
£100,000
£116,000
£252,000
49. Refer to Figure 6-10. Which products should Manning process further?
a.
all
b.
all except Z
c.
Y and X
d.
none
Additional
Y
£68,000
50. Refer to Figure 6-10. Processing Y further will cause profits to
a.
increase by £120,000.
b.
increase by £52,000.
c.
increase by £68,000.
d.
decrease by £32,000.
51. Information about three joint products follows:
A
B
C
Anticipated production
5,000 kgs.
1,000 kgs.
2,000 kgs.
Selling price/kg. at split-off
£10
£30
£16
Additional processing costs/kg.
after split-off (all variable)
£ 6
£12
£24
Selling price/kg. after further
processing
£20
£40
£50
The cost of the joint process is £60,000. Which of the joint products should be sold at split-off?
a.
A
b.
B
c.
C
d.
both A and B
Process Further
£10
£20 – £6 = £14
£30
£40 – £12 = £28
*Sell now
£16
£50 – £24 = £26
Figure 6-11
Information about three joint products follows:
X
Y
Z
Anticipated production
12,000 kgs.
8,000 kgs.
7,000 kgs.
Selling price/kg. at split-off
£16
£26
£48
Additional processing costs/kg.
after split-off (all variable)
£ 8
£20
£20
Selling price/kg. after further
Sell now
Sell now
4,000
Process on
52. Refer to Figure 6-11. Which of the joint products should be processed further?
a.
X
b.
Y
c.
Z
d.
both X and Y
53. Refer to Figure 6-11. If the firm is currently processing all three products beyond split-off, the firm’s
income would be
a.
£736,000.
b.
£654,000.
c.
£596,000.
d.
£514,000.
54. Refer to Figure 6-11. Assuming all of the sell now or process further decisions were correctly made,
what will be the firm’s income?
a.
£736,000
b.
£654,000
c.
£596,000
d.
£610,000
Ottawa Ltd. produces two products from a joint process. Information about the two joint products is as
follows:
Product
Product
____X____
____Y____
Anticipated production (in kgs)
2,000
4,000
Selling price per kg at split-off
£30
£16
Additional processing costs per kg
after split-off (all variable)
£15
£30
Selling price per kg after
further processing
£40
£50
The cost of the joint process is £85,000.
55. Refer to Figure 6-12. Which of Ottawa’s joint products should be sold at split-off?
a.
Product X only
b.
Product Y only
c.
both Product X and Product Y
d.
neither Product X nor Product Y
Product X
Product Y
56. Refer to Figure 6-12. Ottawa currently sells both products at the split-off point. If Ottawa makes
decisions that maximize profit, Ottawa’s profit will increase by
a.
£16,000.
b.
£4,000.
c.
£50,000.
d.
£10,000.
Product X
Product Y
57. Refer to Figure 6-12. Which of Ottawa’s joint products should be processed further?
a.
Product X only
b.
Product Y only
c.
both Product X and Product Y
d.
neither Product X nor Product Y
58. Moore Manufacturing Company makes two products from a common input. Joint processing costs up
to the split-off point total £23,400. The company allocates the joint costs to the products on the basis
of their total sales values at split-off. The total sales value at split-off for both products is the same.
Each product may be sold at the split-off point or processed further. Data concerning one of these
products are as follows:
Sales value at split-off
£15,000
Cost of further processing
10,000
Sales value after further processing
30,000
What is the minimum amount the company would accept for this product if it is to be sold at the
split-off point?
a.
£10,000
b.
£21,700
c.
£20,000
d.
£26,700
PROBLEM
1. Lake Ltd. manufactures two products, AA and BB, from a joint process. A production run costs
£20,000 and results in 500 units of AA and 2,000 units of BB. Both products must be processed past
the split-off point, incurring separable costs of £5 per unit for AA and £10 per unit for BB. The market
price is £25 for AA and £20 for BB.
Required:
a.
Allocate joint production costs to each product using the physical units method.
b.
Allocate joint production costs to each product using the net realizable value method.
c.
Allocate joint production costs to each product using the constant gross margin percentage
method.
Allocation
Product X
Product Y
2. Anderson Company pays a flat fee of £500 for the right to retrieve stray golf balls from lakes and
ponds at golf and country clubs. The recovered balls are then cleaned, graded as to quality (birdie,
bogey, or duffer), and sold to sporting goods stores at the following prices per dozen: birdie quality,
£5; bogey quality, £4; and duffer quality, £3. Last month £8,000 of cost was incurred retrieving the
following quantities of golf balls: birdie quality, 1000 dozen; bogey quality, 3,000 dozen; and duffer
quality, 2,000 dozen.
Required:
(Calculate relative quantity to three decimal points.)
a.
Determine the cost and gross profit per cent for each type of golf ball using the physical units
method of joint cost allocation.
b.
Repeat part (a) using the sales-value-at-split-off method of joint cost allocation.
c.
The company has an opportunity to sell bogey quality balls for £4.50 per dozen to a company
that operates golf driving ranges; however, the balls will have to be painted and striped. The
company estimates that the cost of painting and striping will be 60 cents per dozen. Assuming
the physical unit method is used to allocate joint costs, should the offer be accepted?
Relative
Product
Allocation
5/25 £20,000 =
AA: 10/30 £20,000 = £6,667
BB: 20/30 £20,000 = £13,333
Sales (500 £25) + (2,000 £20) = £52,500
Costs (500 £5) + (2,000 £10) + £20,000 = £42,500
COGS Percentage = £42,500/£52,500 = 80.9524%
AA: (500 £25 80.9524%) – £2,500 = £7,619.05
BB: (2,000 £20 80.9524%) – £20,000 = £12,380.96
3. Maddux Company manufactures products X, Y, and Z in a joint process. The following information is
available:
Products
X
Y
Z
Total
Units produced
12,000
?
?
24,000
Sales value
at split-off
?
?
£50,000
£200,000
Joint costs
£48,000
?
?
£120,000
Sales value if
processed further
£110,000
£90,000
£60,000
£260,000
Additional cost if
processed further
£18,000
£14,000
£10,000
£42,000
Joint product costs are allocated using the sales value at split-off approach.
Required:
a.
What is the sales-value-at-split-off for Product X?
b.
What is the amount of joint costs allocated to Product Y using the sales-value-at-split-off
method?
c.
If the company used the physical units method to allocate joint cost, how much joint cost
would be allocated to Product X?
Sales price/dozen
£4.00
Sales
£6,000
Joint costs
_2,664
Gross profit
£3,336
Gross profit %
b.
Product
Allocation
Bogeys
Total
Joint costs
2,080
Gross profit
£ 7,840
Gross profit %
4. Nelson SA. obtains two products and a by-product from its production process. By-product revenues
are treated as other income and a noncost approach is used to assign costs to them. During the period,
1,200 units were processed at a cost of £12,000 for materials and conversion costs, resulting in the
following:
Sales Value
Costs after
Final
Product
Units
at Separation
Separation
Value
X
200
£4,000
£2,000
£10,000
Y
400
5,000
6,000
12,000
By-product
150
500
500
1,500
Required:
a.
Account for all costs using a physical basis for allocation.
b.
Account for all costs using net realizable value as the basis for allocation.
c.
Account for all costs using final sales value as the basis for allocation.
d.
How much joint costs should be allocated to the by-product?
Product
Units
200
Product
Total
£ 4,000
£ 6,000
6,000
Product
Sales
£ 8,000
_6,000
£8,000
Product
Total
£ 6,857
£ 8,857
6,000
Product
Sales
12/22
6,545
Product
Total
£2,000
£48,000/£120,000 £200,000 = £80,000
{£120,000 – £48,000 – [(£50,000/£200,000) £120,000]} = £42,000
12,000/24,000 £120,000 = £60,000
5. Explain how joint cost allocation may be misleading in managerial decision making.
6. Park Company produces three products in a joint process: A, B, and C. The joint costs are described as
follows:
Direct materials
£45,000
Direct labour
60,000
Overhead
30,000
The split-off values for A, B, and C are £100,000, £120,000 and £80,000, respectively. If management
processes A beyond the split-off point, the sales value of A would increase to £150,000. In order to
process A further, the company must rent another facility for £24,000, as well as incur additional
materials and labour costs equal to £15,000.
Required:
a.
What is the amount of joint costs allocated to products A, B, and C if the sales value at
split-off value method is used?
b.
Should the division process A further or sell it at split-off? What is the effect of the
decision on gross profit?
Joint Cost
b.
Additional revenues
(£150,000 – £100,000)
Additional costs
(£24,000 + £15,000)
Profit would increase by
7. Mickey Company manufactures three joint products: X, Y, and Z. The cost of the joint process is
£30,000. Information about the three products follows:
X
Y
Z
Anticipated production
5,600 kgs.
10,000 kgs.
2,500 kgs.
Selling price/kg. at split-off
£2.00
£1.00
£3.00
Additional processing costs/kg.
after split-off (all variable)
£1.50
£1.25
£.75
Selling price/kg. after
further processing
£2.50
£3.75
£6.25
Allocated joint costs
£12,000
£10,500
£7,500
Required:
a.
Determine whether each product should be sold at split-off or processed further. Show all
supporting calculations in good form.
b.
Determine the firm’s income if the firm processed all three products beyond split-off.
8. Arcadia, SA, uses a joint process to produce Products W, X, Y, Z. Each product may be sold at its
split-off point or processed further. Additional processing costs of specific products are entirely
variable. Joint processing costs for a single batch of joint products are £200,000. Other relevant data
are as follows:
Sales Value
Additional
Sales Value of
Product
at Split-off
Processing Costs
Final Product
W
£ 40,000
£24,000
£ 70,000
X
16,000
10,000
20,000
Y
20,000
10,000
48,000
Z
__24,000
_16,000
__36,000
£100,000
£60,000
£174,000
Required:
a.
Determine which products should be processed further.
b.
How will processing each product further affect profits?
Process Further
X
£11,200
£14,000
_(8,400)
£ 5,600
Y
£37,500
£25,000
Z
£ 7,500
£15,625
£13,750
b.
£14,350 (£13,750 + £25,000 + £5,600 – £30,000)
9. Maxwell Company manufactures two products from a joint process. Information about the two joint
products is as follows:
Product ABC
Product XYZ
Anticipated production (in gallons)
40,000
50,000
Selling price per gallon at split-off
£50
£60
Additional processing costs per gallon
after split-off (all variable)
£25
£95
Selling price per gallon after further
processing
£100
£140
The cost of the joint process is £1,500,000.
Required:
a.
Which of Maxwell’s joint products should be processed further?
b.
Assume that Maxwell currently sells both products at the split-off point. What is Maxwell’s
income?
c.
Assume that Maxwell makes decisions about its joint products that maximize profit. What is
Maxwell’s income?
Product ABC should be processed further; Product XYZ should be sold at split-off.
Product ABC
Product XYZ
b.
£3,500,000
Product ABC (40,000 gallons £50)
Product XYZ (50,000 gallons £60)
Less: Joint process costs
Income
£4,500,000
Product ABC (40,000 gallons £100)
12,000
10. Jazzmyne Company manufactures two products from a joint process. Information about the two joint
products is as follows:
Product X
Product Y
Anticipated production (in units)
10,000
15,000
Selling price per unit at split-off
£60
£100
Additional processing costs per unit
after split-off (all variable)
£100
£55
Selling price per unit after further
processing
£150
£175
The cost of the joint process is £1,750,000.
Required:
a.
Which of Jazzmyne’s joint products should be processed further?
b.
Assume that Jazzmyne currently sells both products at the split-off point. What is Jazzmyne’s
income?
c.
Assume that Jazzmyne makes decisions about its joint products that maximize profit. What is
Jazzmyne’s income?
Process Further
Product X
Product Y
b.
£350,000
(10,000 units £60)
(15,000 units £100)
Less: Joint process costs
Income
£650,000
£2,400,000
Less: Joint process costs
_1,750,000
Income
£ 650,000
Product XYZ (50,000 gallons £60)
Less: Joint process costs
Income