Cost Accounting: A Managerial Emphasis, 6e
Chapter 15 – Cost Allocation: Joint Products and Byproducts
Chapter 15 Cost Allocation: Joint Products and Byproducts
15.1 Distinguish among different types of saleable products, scrap and toxic waste.
1) Joint costs are incurred beyond the split off point and are assignable to individual products.
2) A byproduct has a minimal sales value.
3) Scrap frequently has a zero sales value.
4) There are no logical reasons for allocating joint costs.
5) Separable costs are assignable after the splitoff point.
6) Separable costs include manufacturing costs only.
7) The costs of production that yield multiple products simultaneously are known as joint costs.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 15 – Cost Allocation: Joint Products and Byproducts
8) The juncture in a joint production process when two products become separable is the byproduct
point.
9) The products of a joint production process that have low total sales values compared with the total
sales value of the main product are called joint products.
10) If the value of a byproduct rises significantly, it could also be viewed as a joint product.
11) What type of cost is the result of an event that results in multiple products simultaneously?
A) byproduct cost
B) joint cost
C) main cost
D) separable cost
E) split off cost
12) Costs which are assignable beyond the split off point at which individual products emerge are called
A) byproduct cost.
B) joint cost.
C) main cost.
D) separable cost.
E) split off costs.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 15 – Cost Allocation: Joint Products and Byproducts
13) 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.
E) byproducts and scrap.
14) Byproducts and scrap are differentiated by
A) number of units per processing period.
B) weight or volume of outputs per period.
C) management preference only.
D) the amount of sales value per unit.
E) the amount of costs assigned to each unit.
15) Which of the following is FALSE concerning manufacturing of joint products and joint costing?
A) The number of outputs produced may exceed the number of products.
B) An output from the process may be recycled without any value being added by its production.
C) Some outputs from a joint process have no value and are not recognized in the accounting system.
D) The physical quantity of outputs not recognized in the accounting system, can exceed the quantities of
outputs that recognized in the accounting system.
E) Joint processes always yield either scrap or byproducts.
16) All of the following changes may indicate a change in product classification of a manufacturing
process which has a split off point EXCEPT
A) scrap items increase in sales value.
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.
E) a byproduct increases in market value.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 15 – Cost Allocation: Joint Products and Byproducts
17) Products with a zero sales value are known as
A) scrap.
B) main products.
C) joint products.
D) byproducts.
E) separable products.
18) Which of the following statements is true regarding main products, byproducts, and scrap?
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.
E) The distinctions between main products, byproducts, and scrap are well-established in practice.
19) Which of the following is NOT a reason to allocate joint cost?
A) rate regulation requirements, if applicable
B) cost of goods sold computations
C) insurance settlement cost information requirements
D) customer profitability analysis
E) cause-and-effect analysis
20) Assigning joint costs when only a portion of a business’s products are sold to a single customer is an
example of which of the following?
A) inventory costing for external financial statements
B) customer profitability analysis
C) rate regulation requirements
D) price regulation
E) cost reimbursement
Cost Accounting: A Managerial Emphasis, 6e
Chapter 15 – Cost Allocation: Joint Products and Byproducts
21) 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 CICA requires the business to participate in the cost allocation process.
D) Both A and B are correct.
E) Both A and C are correct.
22) Proper joint cost allocations for inventory costing and cost-of-goods-sold computations are important
because
A) inventory costing is essential for proper balance sheet presentation.
B) divisional profitability may affect compensation for divisional managers.
C) cost of goods sold is an important component in the determination of net income.
D) the information may be required for insurance settlement or litigation.
E) All of the above are correct.
23) Identify each item on the following list as a joint cost or a separable cost.
a. Cost of processing crude oil in a gasoline refinery.
b. Cost of processing timber (trees) at a sawmill.
c. Cost of processing lumber into different lengths and sizes at a sawmill.
d. Cost of raw tomato processing, tomatoes are to be used for different soups in a soup plant.
e. Cost of canning soup in a soup plant.
f. Cost of moulding plastic for use in making different toys on an assembly line.
g Cost of refining gasoline for use in automobiles.
h. Cost of processing water for human consumption.
i. Cost of processing pulp into paper.
j. Cost of processing pulp into cardboard.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 15 – Cost Allocation: Joint Products and Byproducts
24) In each of the following industries, identify possible joint (or severable) products at the splitoff point.
a. Coal
b. Petroleum
c. Dairy
d. Lamb
e. Lumber
f. Cocoa Beans
g. Christmas Trees
h. Salt
i. Cowhide
25) For each of the following items tell whether it is a main product, joint product, byproduct, or scrap.
Assume traditional situations.
a. Bones from a butcher shop
b. Sawdust from a sawmill
c. Sawdust from a furniture manufacturer
d. Fuel oil from petroleum processing
e. Salt from a salt works process
f. Broth from cooking food
g. Raw milk for dairy processing
h. Skim milk from dairy processing
Cost Accounting: A Managerial Emphasis, 6e
Chapter 15 – Cost Allocation: Joint Products and Byproducts
26) 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.
27) What are a joint cost and a splitoff point?
28) Explain the difference between a joint product and a byproduct. Can a byproduct ever become a joint
product?
Cost Accounting: A Managerial Emphasis, 6e
Chapter 15 – Cost Allocation: Joint Products and Byproducts
29) What are separable costs?
30) Golden Company uses one raw material, gold ore, for all its products. It spends considerable time
getting the gold 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 requires difficult extraction methods.
Required:
Can you explain how the company might change its accounting system to better reflect the reporting
problems? Are there other problems with the purchasing area?
31) How should toxic waste be accounted for?
Cost Accounting: A Managerial Emphasis, 6e
Chapter 15 – Cost Allocation: Joint Products and Byproducts
15.2 Analyze the physical measure and sales value at splitoff methods to allocate joint
costs.
1) The cause-and-effect criterion is not present when joint costing is used.
2) It is easier to cost inventory if the joint products are sold before the split off point without further
processing.
3) The sales value at split off method allocates joint costs according to each product’s value, at the split off
point, of the total production in the accounting period of each product.
4) The sales value at split off method can be used to value inventory as well as determining cost of goods
sold.
5) One problem with the physical measure method of allocation is that the physical weights used for
allocating joint costs may have no relation to the product’s ability to produce revenue.
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.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 15 – Cost Allocation: Joint Products and Byproducts
7) An advantage of the physical-measure method is that obtaining physical measures for all products is
an easy task.
8) Chem Manufacturing Company processes direct materials up to the split off point, where two products
(X and Y) are obtained and sold. The following information was collected for the month of November.
Direct materials processed:
10,000 litres (10,000 litres yield 9,500 litres of good product and 500 litres of shrinkage)
Production:
X 5,000 litres
Y 4,500 litres
Sales:
X 4,750 at $150 per litre
Y 4,000 at $100 per litre
The cost of purchasing 10,000 litres of direct materials and processing it up to the split off point to yield a
total of 9,500 litres of good products was $975,000.
The beginning inventories totalled 50 litres for X and 25 litres for Y. Ending inventory amounts reflected
300 litres of product X and 525 litres of product Y. October costs per unit were the same as November.
What is the approximate amount of joint costs in Product Y’s ending inventory if the physical volume
method is used and the company uses the FIFO inventory method?
A) $50,917
B) $53,883
C) $60,145
D) $60,285
E) $67,358
9) All of the following methods may be used to allocate joint costs EXCEPT
A) the constant gross-margin percentage NRV method.
B) the estimated net realizable value method.
C) the present-value allocation method.
D) the sales value at split off method.
E) the physical measure method.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 15 – Cost Allocation: Joint Products and Byproducts
10) Which of the following is NOT a strategy for costing inventory when joint-cost circumstances are
involved?
A) Allocate costs according to the market selling-price.
B) Allocate costs based on constant gross margin.
C) Allocate costs according to a predetermined physical measure.
D) Use the estimated net realizable value.
E) Aallocate costs according to the amount in the respective cost pools.
11) 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) The cause-and-effect relationship depends on the relative costs to be incurred after split off.
E) There is no cause-and-effect relationship.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 15 – Cost Allocation: Joint Products and Byproducts
Use the information below to answer the following question(s).
Raynor Manufacturing purchases trees from Tree Nursery and processes them up to the split off point,
where two products (paper and pencil casings) are obtained. 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.
Trees processed:
50 trees (yield is 30,000 sheets of paper and 30,000 pencil casings and no scrap)
Production:
paper
30,000 sheets
pencil casings
30,000
Sales:
paper
29,000 at $0.04 per page
pencil casings
30,000 at $0.10 per casing
Cost of purchasing 50 trees and processing them up to the split off point to yield 30,000 sheets of paper
and 30,000 pencil casings is $1,500.
Raynor Manufacturing’s accounting department reported no beginning inventories; however, ending
inventory amounts reflected 1,000 sheets of paper in stock.
12) What is the paper’s sales value at the split off point?
A) $120
B) $1,160
C) $1,200
D) $1,950
E) $3,000
13) What are the pencil casings’ sales value at the split-off point?
A) $300
B) $1,480
C) $3,000
D) $3,750
E) $4,500
Cost Accounting: A Managerial Emphasis, 6e
Chapter 15 – Cost Allocation: Joint Products and Byproducts
14) What are the paper’s and the pencil’s approximate weighted cost proportions using the sales value at
split off method, respectively?
A) 28.57% and 71.43%
B) 33.33% and 66.67%
C) 40% and 60%
D) 49.00% and 51.00%
E) 50.00% and 50.00%
15) What are the approximate joint costs assigned to the paper ending inventory if joint costs are allocated
using the sales value at split off method?
A) $14.29
B) $50.00
C) $428.55
D) $435.00
E) $750.00
16) What is the approximate cost assigned to the pencil casings if joint costs are allocated using the sales
value at split off method?
A) $750
B) $765
C) $1,005
D) $1,071
E) $1,500
Cost Accounting: A Managerial Emphasis, 6e
Chapter 15 – Cost Allocation: Joint Products and Byproducts
17) What is the paper’s production approximate cost per unit if the sales value at split off method is used?
A) $0.0143
B) $0.0150
C) $0.0250
D) $0.0259
E) $0.0300
18) What is the approximate production cost per unit for each pencil casing if the sales value at split off
method is used?
A) $0.0250
B) $0.0255
C) $0.0335
D) $0.0357
E) $0.0533
19) Two finished products, [A & B], are sold for $16 a unit and $24 a unit, respectively. Each product can
also be sold at the split off point. Product A can be sold for $10 and Product B for $8. Joint costs for the
two products totalled $8,000 for January for 600 units of A and 500 units of B.
What are the respective joint costs assigned to each unit of products A and B if the sales value at split off
method is used?
A) $5.92 and $8.88
B) $6.40 and $14.40
C) $6.40 and $9.10
D) $8.00 and $9.10
E) $8.00 and $6.40
Cost Accounting: A Managerial Emphasis, 6e
Chapter 15 – Cost Allocation: Joint Products and Byproducts
20) Which method allocates joint costs on the basis of each product’s relative sales value at the split off
point?
A) the constant gross-margin percentage NRV method
B) the estimated net realizable value method
C) the physical measure method
D) the sales value at split off method
E) the split off method
Use the information below to answer the following question(s).
Chem Manufacturing Company processes direct materials up to the split off point, where two products
(X and Y) are obtained and sold. The following information was collected for the month of November.
Direct materials processed:
10,000 litres (10,000 litres yield 9,500 litres of good product and 500 litres of shrinkage)
Production:
X 5,000 litres
Y 4,500 litres
Sales:
X 4,750 at $150 per litre
Y 4,000 at $100 per litre
The cost of purchasing 10,000 litres of direct materials and processing it up to the split off point to yield a
total of 9,500 litres of good products was $975,000.
The beginning inventories totalled 50 litres for X and 25 litres for Y. Ending inventory amounts reflected
300 litres of product X and 525 litres of product Y. October costs were per unit were the same as
November.
21) What are the respective physical volume proportions for products X and Y?
A) 55.00% and 45.00%
B) 54.00% and 46.00%
C) 52.63% and 47.37%
D) 47.37% and 53.63%
E) 36.36 % and 63.64%
Cost Accounting: A Managerial Emphasis, 6e
Chapter 15 – Cost Allocation: Joint Products and Byproducts
22) What is the approximate portion of the joint costs that should be allocated to products X and Y,
respectively, using a physical volume measure?
A) $461,858 and $513,142
B) $487,500 and $487,500
C) $513,142 and $461,858
D) $529,285 and $445,715
E) $530,000 and $470,000
23) What is Product X‘s approximate production cost per unit using the physical volume method?
A) $0.10
B) $10.23
C) $53.15
D) $55.00
E) $102.63
24) What method is used when joint costs are allocated according to each item’s relative proportion of
weight at the split off point?
A) direct proportion method
B) proportional value method
C) physical measure method
D) weighted sales value method
E) constant margin method
Cost Accounting: A Managerial Emphasis, 6e
Chapter 15 – Cost Allocation: Joint Products and Byproducts
25) An advantage of the sales value at split off method is
A) the fact that it can be supported subjectively.
B) the fact that only a few assumptions are required beyond the split off point.
C) the fact that there may not be a ready market at the split off point.
D) it always yields the same results as the gross margin percentage method.
E) the cost allocation base is well understood.
Use the information below to answer the following question(s).
Chem Manufacturing Company processes direct materials up to the split off point, where two products
(X and Y) are obtained and sold. The following information was collected for the month of November.
Direct materials processed:
10,000 litres (10,000 litres yield 9,500 litres of good product and 500 litres of shrinkage)
Production:
X 5,000 litres
Y 4,500 litres
Sales:
X 4,750 at $150 per litre
Y 4,000 at $100 per litre
The cost of purchasing 10,000 litres of direct materials and processing it up to the split off point to yield a
total of 9,500 litres of good products was $975,000.
The beginning inventories totalled 50 litres for X and 25 litres for Y. Ending inventory amounts reflected
300 litres of product X and 525 litres of product Y. October costs were per unit were the same as
November.
26) What is product Y’s approximate joint production cost if the sales value at split off point method is
used?
A) $365,625
B) $419,250
C) $458,250
D) $600,000
E) $609,375
Cost Accounting: A Managerial Emphasis, 6e
Chapter 15 – Cost Allocation: Joint Products and Byproducts
15–18
27) If joint products end up with the same gross margin percentage, which of the following is true?
A) The cost allocation method assigned the same cost per unit to each product.
B) The physical measure method must have been used.
C) The gross margin percentage NRV method must have been used.
D) The estimated net-realizable method must have been used.
E) If all products are sold at the split off point, and there were no opening inventories, the sales value at
split off method could have been used.
28) Which of the following is FALSE concerning the physical measure method?
A) Technical personnel outside of accounting may be required in the joint costing determinations.
B) Using the benefits-received criterion, the physical measure method less preferred than the sales at split
off method.
C) The physical measure may not reflect each individual product’s ability to generate revenues.
D) Using a common physical measure can result in the product with the lowest revenue-producing
power having the most costs assigned to it.
E) It results in a constant gross margin for all products.
Use the information below to answer the following question(s).
Chem Manufacturing Company processes direct materials up to the split off point, where two products
(X and Y) are obtained and sold. The following information was collected for the month of November.
Direct materials processed:
10,000 litres (10,000 litres yield 9,500 litres of good product and 500 litres of shrinkage)
Production:
X 5,000 litres
Y 4,500 litres
Sales:
X 4,750 at $150 per litre
Y 4,000 at $100 per litre
The cost of purchasing 10,000 litres of direct materials and processing it up to the split off point to yield a
total of 9,500 litres of good products was $975,000.
The beginning inventories totalled 50 litres for X and 25 litres for Y. Ending inventory amounts reflected
300 litres of product X and 525 litres of product Y. October costs were per unit were the same as
November.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 15 – Cost Allocation: Joint Products and Byproducts
15–19
29) What is product X’s approximate gross margin percentage using the physical volume method?
A) 30%
B) 32%
C) 33%
D) 35%
E) 38%
Use the information below to answer the following question(s).
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:
Direct materials processed: 2,500 litres (with 20 percent shrinkage)
Production:
A
B
Sales:
A
B
Cost of purchasing 2,500 litres of direct materials and processing it up to the split off point to yield a total
of 2,000 litres of good products was $4,500. There were no inventory balances of A and B.
Product A may be processed further to yield 1,375 litres of Product Z5 for an additional processing cost of
$150. Product Z5 is sold for $25.00 per litre. There was no beginning inventory and ending inventory was
125 litres.
Product B may be processed further to yield 375 litres of Product W3 for an additional processing cost of
$275. Product W3 is sold for $30.00 per litre. There was no beginning inventory and ending inventory was
25 litres.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 15 – Cost Allocation: Joint Products and Byproducts
30) What is Product B’s estimated sales value at the split off point?
A) $3,500
B) $3,750
C) $4,500
D) $5,000
E) $8,250
31) In rate regulation settings, which method is usually preferred over the sales value method?
A) constant gross-margin percentage NRV method
B) estimated net-realizable method
C) physical measure method
D) sales value at split off method
E) rate regulation method
32) Advantages of the sales value at split off method include all of the following EXCEPT
A) it does not presuppose an exact number of subsequent steps for further processing.
B) it uses a meaningful denominator.
C) there is no anticipation of subsequent management decisions.
D) it is simple.
E) the allocation of joint costs could lead managers to make poor decisions.