PROBLEM 17-28 (CONTINUED)
2. October production cost per gallon:
Product
HTP-3
PST-4
RJ-5
Joint cost allocation …………………………...
$ 654,840
$ 436,560
$268,600
Additional processing costs ………………..
699,200
652,800
48,000
Total cost
$1,089,360
$316,600
Quantity produced (gallons) ………………..
Inventory valuation:
Product
HTP-3
PST-4
RJ-5
October 1 inventory (gallons) ……………….
18,000
52,000
3,000
October production (gallons) ……………….
Quantity available (gallons) ………………….
October sales (gallons) ………………………..
October 31 inventory (gallons) ……………..
23,000
3. LeMonde Company should sell PST-4 at the split-off point. The incremental revenue
of sales beyond the split-off point is less than the incremental cost of further
processing.
Per gallon sales value beyond the split-off point …………………………..
$4.80
Per gallon sales value at the split-off point ……………………………………………………..
Incremental sales value ………………………………………………………………………………….
$1.76
Per gallon gain (loss) of further processing …………………………..
$ (.11
)
PROBLEM 17-29 (35 MINUTES)
1. Joint cost allocations using the relative-sales-value method:
Gamma: joint cost allocation
=
off–splitat valuesales total
off–splitat valuesales sGamma’
joint cost
=
$78,000 – $46,800 – $11,700 = $19,500
Summary of joint cost allocations:
Alpha …………………………………………………………………………………………………………….
$46,800
(given)
Beta ………………………………………………………………………………………………………………
19,500
Gamma ……………………………………………………………………………………
Total ……………………………………………………………………………………………………………..
$78,000
2.
Alpha’s joint cost allocation
=
off–splitat valuesales total
off–splitat valuesales sAlpha’
joint cost
=
$78,000
=
$78,000
PROBLEM 17-29 (CONTINUED)
3. Joint cost allocation using the net-realizable-value method:
Joint
Cost
Joint
Products
Sales Value of
Final Product
Separable
Cost of
Processing
Net
Realizable
Value
Relative
Proportion
Allocation
of Joint
Cost
PROBLEM 17-30 (30 MINUTES)
1. Physical-units method of allocation:
Joint
Joint
Quantity at
Relative
Allocation of
2. Relative-sales-value method of allocation:
Joint
Joint
Sales Value at
Relative
Allocation of
Chapter 17 – Allocation of Support Activity Costs and Joint Costs
PROBLEM 17-30 (CONTINUED)
3. Net-realizable-value method of allocation:
$750,000
Sales
Additional
Net
Allocation
*$12.50 60,000
†$25 (90,000 – 10,000)
Joint cost allocation …………………………………………………………
$ 500,000
Additional processing costs ……………………………………………..
Total cost ……………………………………………………….………………..
$1,500,000
Quantity (good units) ………………………………………………………..
Cost per unit ($1,500,000 ÷ 80,000) …………………………………….
4.
Sales value if coated (60,000 $12.50) ………………………………
$ 750,000
Additional cost of coating …………………………………………………
250,000
Incremental contribution if coated …………………………………….
$ 500,000
300,000
Decline in contribution if uncoated ……………………………………
5. The allocation of joint costs is irrelevant to the decision about coating the mine
Chapter 17 – Allocation of Support Activity Costs and Joint Costs
PROBLEM 17-31 (40 MINUTES)
1. Joint costs arise from the simultaneous processing or manufacturing of two or more
products made from the same process. These joint costs are not traceable to any
2. The dollar value of the finished-goods inventories on November 30 for products MJ-4
and HD–10 are calculated as follows:
MJ-4 HD–10
November production (in gallons) ……………………… 600,000 320,000
Final sales value per gallon ………………………………. $8.00 $12.75
Chapter 17 – Allocation of Support Activity Costs and Joint Costs
PROBLEM 17-31 (CONTINUED)
Inventory values on November 30:
MJ-4 HD–10
Joint cost allocation …………………………………………. $1,800,000 $1,200,000
3. Wyalusing Chemicals should continue to process HD-10 beyond the split-off point,
since the incremental revenue is $1.00 greater per gallon than the incremental cost.
The joint cost is irrelevant to the decision because it will not change regardless of
Chapter 17 – Allocation of Support Activity Costs and Joint Costs
PROBLEM 17-32 (45 MINUTES)
1. Physical-units method:
Joint Cost
Joint
Cost
Joint
Quantity at
Relative
Allocation of
2. Relative-sales-value method:
Cost
Joint
Relative
Allocation of
Joint
3. Now there are additional processing costs beyond the split-off point.
b. Net-realizable-value method:
Joint
Cost
per Run
Joint
Products
Sales Value of
Final Product
Separable Cost
of Processing
Net
Realizable
Value
Relative
Proportion
Allocation
of Joint
Cost
Chapter 17 – Allocation of Support Activity Costs and Joint Costs
PROBLEM 17-32 (CONTINUED)
4.
Incremental revenue per gallon from further processing
into Compodalene ($7.80 – $6.00) …………………………………………………………………
$1.80
Incremental cost per gallon from further processing:
$1.20
Incremental loss per gallon from further processing
5. The director of research, Jack Turner, acted improperly in asking the assistant
controller to alter her analysis in favor of producing Compodalene. If he believes the
further processing of Compod is in Chemco’s best interests, he should try to back
up his claim with some projected cost reductions and the potential impact on the
Chapter 17 – Allocation of Support Activity Costs and Joint Costs
PROBLEM 17-32 (CONTINUED)
6. It is preferable to sell Compod than to sell Compodalene, as the solution to
requirement (4) showed. Nevertheless, it is preferable to sell Compodalene than to
sell nothing, since each gallon of Compodalene makes a positive contribution
toward covering the joint production cost, fixed costs, and profit.
PROBLEM 17-33 (30 MINUTES)
1. Reciprocal-services method:
Equations: M = 96,000 + .2C
PROBLEM 17-33 (CONTINUED)
Solution of equations:
Allocation:
Service Departments
Production Departments
Maintenance
Computing
Etching
Finishing
Traceable costs …………………..
$ 96,000
$500,000
Allocation of Maintenance
Department costs ……………..
(200,000
)
20,000
(.1)
$ 20,000
(.1)
$160,000
(.8)
Department costs ……………..
(.2)
(520,000
)
(.7)
(.1)
Total service department costs allocated ………………………..
$384,000
$212,000
Overhead costs traceable to production departments ……..
Total overhead cost ……………………………………………………….
$784,000
Direct-labor hours (DLH)
40,000
Overhead rate per hour (total overhead ÷ DLH) ……………….
$19.60
$5.325
Check on allocation procedure:
Allocation of Computing
2. The direct allocation method ignores any service rendered by one service
department to another. Allocation of each service department’s total cost is made
Chapter 17 – Allocation of Support Activity Costs and Joint Costs
PROBLEM 17-34 (55 MINUTES)
1. Variable costs:
Notation: R denotes the total variable cost of Patient Records
H denotes the total variable cost of Human Resources
A denotes the total variable cost of Administration and Accounting
Chapter 17 – Allocation of Support Activity Costs and Joint Costs
PROBLEM 17-34 (CONTINUED)
Allocation of variable costs:
Service Departments
Direct-Patient-Care
Departments
Human
Resources
Administration
and
Accounting
Patient
Records
Orthopedics
Internal Medicine
Traceable costs ……………………
$15,000
$47,500
$24,000
)
(.20)
*(.05)
*(.25)
*(.50)
Allocation of Administration
*(.05)
(51,010
)
(0)
*(.35)
(.60)
(0)
(0)
)
*(.30)
*(.70)
Allocation of Human
PROBLEM 17-34 (CONTINUED)
2. Fixed costs:
Notation: R denotes the total fixed cost of Patient Records
H denotes the total fixed cost of Human Resources
A denotes the total fixed cost of Administration and Accounting
PROBLEM 17-34 (CONTINUED)
Allocation of fixed costs:
Service Departments
Direct-Patient-Care
Departments
Human
Resources
Administration
and
Accounting
Patient
Records
Orthopedics
Internal Medicine
Traceable costs ……………………
$45,000
$142,500
$76,000
)
*(.10)
*(.10)
$11,970
*(.20)
*(.60)
Allocation of Administration
14,849
*(.10)
)
(0)
*(.45)
*(.45)
(0)
(0)
)
(.60)
Allocation of Human
Resources Department
Chapter 17 – Allocation of Support Activity Costs and Joint Costs
PROBLEM 17-34 (CONTINUED)
Total costs allocated:
Orthopedics
Internal
Medicine
Variable costs ………………………………………………………………….
$ 29,705
$ 56,797
Fixed costs ……………………………………………………….……………..
Total costs ……………………………………………………………………….
Chapter 17 – Allocation of Support Activity Costs and Joint Costs
SOLUTIONS TO CASES
CASE 17-35 (40 MINUTES)
1. Product output in pounds:
Product
Proportion
Total
Pounds
Pounds
Lost in
Processing
Net
Pounds
Slices
.35
189,000
—
189,000
Crushed
.28
151,200
—
151,200
Juice
.27
145,800
135,000
Animal feed
.10
*Evaporation loss is 8% of the remaining good output. Let X denote the remaining
quantity of juice:
145,800 – .08X
=
X
=
2. Net realizable value at the split-off point:
Product
Pounds of
Production
Selling
Price
Sales
Revenue
Separable
Cost
Net Realizable Value
Amount
Percent
Slices
189,000
1.20
$226,800
$18,800
$208,000
52%
Crushed
151,200
1.10
31%
Juice
135,000
17%
Chapter 17 – Allocation of Support Activity Costs and Joint Costs
CASE 17-35 (CONTINUED)
3. Allocation of joint costs:
Cutting department costs …………………………………………………
Less net realizable value of by-product
)
Allocation of joint cost:
52% …………………………..……………………
31% …………………………..……………………
17% …………………………..……………………
Total ………………………………………………………………………………..
Chapter 17 – Allocation of Support Activity Costs and Joint Costs
CASE 17-36 (50 MINUTES)
1. Diagram of joint production process:
Resoline,
sales value:
$600,000
(8,000 x $75)
Separable
process costing:
$120,000
(8,000 x $15)
Resolite,
sales value:
$840,000
(8,000 x $105)
Chapter 17 – Allocation of Support Activity Costs and Joint Costs
CASE 17-36 (CONTINUED)
2. Allocation of joint costs:
a. Physical-units method:
Joint
Cost
Joint
Products
Quantity at
Split-Off Point
Relative
Proportion
Allocation of
Joint Cost
$630,000
Resoline
8,000 pounds
8/10
$504,000
2/10
b. Relative-sales-value method:
Joint
Cost
Joint
Products
Sales Value at
Split-Off Point
Relative
Proportion
Allocation of
Joint Cost
$630,000
Resoline
$420,000
c. Net-realizable-value method:
Joint
Cost
Joint
Products
Sales
Value of
Final Product
Separable
Cost of
Processing
Net
Realizable
Value
Relative
Proportion
Allocation
of Joint
Cost
Resolite
$840,000
$120,000
$ 720,000
.60
$378,000
Chapter 17 – Allocation of Support Activity Costs and Joint Costs
CASE 17-36 (CONTINUED)
3. Decision analysis:
Incremental revenue per pound:
Sales price of Omega ……………………………………………………
$390
Sales price of Kryptite …………………………………………………..
285
Incremental revenue ……………………………………………………..
Incremental cost per pound:*
Separable processing …………………………..………………………
$120
Packaging ……………………………………………………………………
Incremental cost …………………………………………………………..
Incremental loss per pound ………………………………………………
)