Grasyaxxx.Cost accounting activity answers answers PDF

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LO.3 (Physical measure allocation) Michigan Timber uses a joint process to manufacture two grades of wood: A and B. During October 2010, the company incurred $12,000,000 of joint production cost in producing 18,000,000 board feet of Grade A and 6,000,000 board feet of Grade B lumber. Th e company allocates joint cost on the basis of board feet of lumber produced. The company can sell Grade A lumber at the split-off point for $0.80 per board foot. Alternatively, Grade A lumber can be further processed at a cost of $0.75 per board foot and then sold for $1.90 per board foot. No opportunity exists for processing Grade B lumber after split-off. a. b.

How much joint cost should be allocated to Grade A and to Grade B lumber? If Grade A lumber is processed further and then sold, what is the incremental effect on Michigan Timber’s net income? Should the additional processing be performed?

13. a.

b.

Allocation rate = $12,000,000 ÷ 24,000,000 feet = $0.50 per foot Grade A: $0.50  18,000,000 = $9,000,000 Grade B: $0.50  6,000,000 = $3,000,000 Incremental revenue (18,000,000  $0.80) Incremental costs (18,000,000  $0.75) Increase in income (18,000,000  $0.05)

$ 14,400,000 (13,500,000) $ 900,000

Based on the incremental change in net income, the company should process Grade A lumber further. Sales value (18,000,000  1.90) Less: incremental revenue (18,000,000  $0.80) Net Less: Incremental costs (18,000,000  $0.75) Income :

34,200,000 13,500,000 20,700,000 14,400,000 6,300,000

LO.3 (Sales value and physical value allocation) Cal-C-Yum produces milk and sour cream from a joint process. During June, the company produced 120,000 quarts of milk and 160,000 pints of sour cream (there are two pints in a quart). Sales value at split-off point was $120,000 for the milk and $280,000 for the sour cream. The milk was assigned $45,000 of the joint cost. a. b.

Using the sales value at split-off approach, determine the total joint cost for June. Assume, instead, that the joint cost was allocated based on the number of quarts produced. What was the total joint cost incurred in June?

23. a.

Sales value of milk Sales value of sour cream Total sales value

$120,000 (30%) 280,000 (70%) $400,000

Since the milk represents 68 percent of the total sales value at split-off, $45,000 represents 30 percent of the total joint cost. Total joint cost for June is ($45,000 ÷ 0.30) or $150,000. (1) 160,000 pints = 80,000 quarts of sour cream Quarts of milk Quarts of sour cream Total quarts

120,000 (60%) 80,000 (40%) 200,000

Since the milk represents 60 percent of the total physical quantity produced, $45,000 represents 60 percent of the total joint costs. Total joint cost is ($45,000 ÷ 0.60) or $75,000. LO.3 (Allocating joint cost) Keiffer Production manufactures three joint products in a single process. The following information is available for August 2010: Product

Gallons

JP-4539 JP-4587 JP-4591

4,500 18,000 13,500

Sales Value at Split-Off/Gallon 14 8 18

Cost after Split-Off

Final Selling Price

4 5 2

24 15 22

Allocate the joint cost of $558,000 to the production based on the: a. number of gallons. b. sales value at split-off. c. approximated net realizable values at split-off. (Round all percentages to the nearest whole percentage.) 14. a. JP-4539 JP-4587 JP-4591

b.

JP-4539 JP-4587 JP-4591

c.

JP-4539 JP-4587 JP-4591

4,500 18,000 13,500 36,000

0.125  $558,000 = 0.500  $558,000 = 0.375  $558,000 = 1.000

$ 69,750 279,000 209,250 $558,000

4,500  $14 = $ 63,000 18,000  $ 8 = 144,000 13,500  $18 = 243,000 $450,000

0.14  $558,000 = $ 78,120 0.32  $558,000 = 178,560 0.54  $558,000 = 301,320 1.00 $558,000

4,500  ($24 – $4) = $ 90,000 18,000  ($15 – $5) = 180,000 13,500  ($22 – $2) = 270,000 $540,000

0.17  $558,000 = $ 94,860 0.33  $558,000 = 184,140 0.50  $558,000 = 279,000 1.00 $558,000

LO.3 (Processing beyond split-off and cost allocations) All-A-Buzz makes three products from a joint production process using honey. Joint cost for the process in 2010 is $123,200.

Product Butter Jam Syrup

Incremental Processing Cost 3.00 4.00 0.40

Per Unit Selling Price at Split-Off 4.00 6.40 3.00

Units of Output 10,000 20,000 1,000

Final Sales Price 6.00 14.00 3.60

Each container of honey butter, jam, and syrup, respectively, contains 16 ounces, 8 ounces, and 3 ounces of product. a. b.

Determine which products should be processed beyond the split-off point. Assume honey syrup should be treated as a by-product. Allocate the joint cost based on units produced, weight, and sales value at split-off. Use the net realizable value method in accounting for the by-product. (Round to nearest whole percentage.)

15. a.

Final Product Butter Jam Syrup

Sales Value $ 6.00 14.00 3.60

Split-Off Sales Value $4.00 6.40 3.00

Increm. Revenue $2.00 7.60 0.60

Increm. Cost $3.00 4.00 0.40

Only jam and syrup should be processed beyond the split-off point. b.

Joint cost Less NRV of syrup ($3.60 – $0.40) × 1,000 Joint cost to be allocated

$123,200 3,200 $120,000

Unit-based allocation: Butter (10,000 ÷ 30,000) × $120,000 Jam (20,000 ÷ 30,000) × $120,000 Total

$ 40,000 80,000 $120,000

Weight-based allocation:

Increm. Profit $(1.00) 3.60 0.20

Butter (10,000 × 16 ounces) Jam (20,000 × 8 ounces) Total product weight

160,000 160,000 320,000

50% 50% 100%

Butter (0.50  $120,000) Jam (0.50  $120,000) Total

$ 60,000 60,000 $120,000

Sales value at split-off allocation [from (a)] Butter (10,000  $4.00) Jam (20,000  $6.40)

$ 40,000 128,000

24% 76%

NRV

$168,000

100%

Butter (0.24  $120,000) Jam (0.76  $120,000) Total

$ 28,800 91,200 $120,000

LO.3 (Net realizable value allocation) Media Forum has three operating groups: Games, News, and Documentaries. In May, the company incurred $24,000,000 of joint cost for facilities and administration. May revenues and separate production costs of each group are as follows: Games 34,040,000 31,040,000

Revenue Separate costs a. b. c.

News 30,720,000 16,320,000

Documentaries 189,320,000 110,720,000

What amount of joint cost is allocated to each operating group using the net realizable value approach? Compute the profit for each operating area after the allocation. What amount of joint cost is allocated to each operating group if the allocation is based on revenues? Compute the profit for each operating group after the allocation. Assume you are head of the Games Group. Would the difference in allocation bases create significant problems for you when you report to the top management of the company? Develop a short presentation for top management if the allocation base in (b) is used to determine each operating group’s relative profitability. Be certain to discuss important differences in revenues and cost figures for the Games and Documentaries groups.

17. a. Revenues

Games $ 34,040,000

News $ 30,720,000

Documentaries $ 189,320,000

Separate costs NRV

(31,040,000) $ 3,000,000

(16,320,000) $ 14,400,000

(110,720,000) $ 78,600,000

% of $96,000,000 total

3%

15%

82%

Joint cost allocation: Games ($24,000,000 × 0.03) $

720,000

News ($24,000,000 × 0.15) 3,600,000 Documentary ($24,000,000 × 0.82) 19,680,000 Total $24,000,000

Games News Documentaries

Revenues $ 34,040,000 $ 30,720,000 $ 189,320,000

Separate costs (31,040,000) (16,320,000) (110,720,000)

Allocated costs (720,000) (3,600,000) (19,680,000)

Net profit $ 2,280,000 $ 10,800,000 $ 58,920,000

b. Games News Documentaries Revenues $34,040,000 $30,720,000 $189,320,000

% of $254,080,000 total 13% 12% 75%

Joint cost allocation: Games ($24,000,000 × 0.13) News ($24,000,000 × 0.12) Documentaries ($24,000,000 × 0.75) Total Games $ 34,040,000

Revenues

News $ 30,720,000

Documentaries $ 189,320,000

Separate costs

(31,040,000)

(16,320,000)

(110,720,000)

Allocated costs

(3,120,000)

(2,880,000)

(18,000,000)

Net profit

c.

$3,120,000 2,880,000 18,000,000 $24,000,000

$

(120,000)

$ 11,520,000

$ 60,600,000

As the manager of the Games Group, I would be very concerned about the effects of allocating joint cost using the method in (b). The result of the allocation is to make the Games Group appear to be unprofitable. Points (some of which could be rebutted) students might make in their presentations include: (1) The allocation of joint cost is totally arbitrary; there is no cause and effect relationship represented in the allocations in (b). (2) The Games Group appears to have a different degree of facilities utilization than the News and Documentaries, given the high relationship of its separate costs to the separate costs of the other two groups. The allocations in (b) fail to consider this fact. (3) The Games Group could be a start-up division and, as such, may be incurring substantially higher costs and may not have begun to reach its revenue potential.

LO.3 (Approximated net realizable value method) The Scent of Money makes three products that can be sold at split-off or processed further and then sold. The joint cost for April 2010 is $1,080,000. Product Perfume Eau de toilette Body Splash

Bottles of Output 20,000 32,000 28,000

Sales Price at Split-Off 7.00 5.00 5.00

Separate Cost after Split-Off 2.50 1.50 2.00

Final Sales Price 16.50 13.00 12.00

The number of ounces in a bottle of each product is: perfume, 1; eau de toilette, 2; and body splash, 3. Assume that all products are processed further after split-off. a. Allocate the joint cost based on the number of bottles, weight, and approximated net realizable values at split-off. (Round to the nearest whole percentage.)

b. c.

Assume that all products are processed further and completed. At the end of the period, the inventories are as follows: perfume, 600 bottles; eau de toilette, 1,600 bottles; and body splash, 1,680 bottles. Determine the values of the inventories based on answers obtained in (a). (Round per-unit costs to the nearest cent.) Do you see any problems with the allocation based on approximated net realizable value?

18. a.

Units of output allocation: Total bottles = 20,000 + 32,000 + 28,000 = 80,000 Perfume [(20,000 ÷ 80,000) × $1,080,000] Eau de Toilette [(32,000 ÷ 80,000) × $1,080,000] Body Splash [(28,000 ÷ 80,000) × $1,080,000] Total

$ 270,000 432,000 378,000 $1,080,000

Weight-based allocation: Total weight = (20,000 × 1) + (32,000 × 2) + (28,000 × 3) = 168,000 Perfume = 20,000 ÷ 168,000 = 12% Eau de Toilette = 64,000 ÷ 168,000 = 38% Body Splash = 84,000 ÷ 168,000 = 50% Perfume ($1,080,000 × 0.12) Eau de Toilette ($1,080,000 × 0.38) Body Splash ($1,080,000 × 0.50) Total Approximated NRV computation: Perfume [20,000 × ($16.50 – $2.50)] Eau de Toilette [32,000 × ($13.00 – $1.50)] Body Splash [28,000 × ($12.00 – $2.00)] Total Approximated NRV allocation: Perfume ($1,080,000 × 0.3) Eau de Toilette ($1,080,000 × 0.4) Body Splash ($1,080,000 × 0.3) Total b.

$ 129,600 410,400 540,000 $1,080,000 $280,000 368,000 280,000 $928,000

30% 40% 30% 100%

$ 324,000 432,000 324,000 $1,080,000

Cost assigned to inventory = Allocated joint cost + Separate costs Units of output allocation: Perfume [$270,000 + ($2.50 × 20,000)] $ 320,000 Eau de Toilette [$432,000 + ($1.50 × 32,000)] 480,000 Body Splash [$378,000 + ($2.00 × 28,000)] 434,000 Total $1,234,000 Ending inventory valuation based on units of output: Perfume [$320,000 × (600 ÷ 20,000)] Eau de Toilette [$480,000 × (1,600 ÷ 32,000)] Body Splash [$434,000 × (1,680 ÷ 28,000)] Total

$9,600 24,000 26,040 $59,640

Ending inventory valuation based on weight: Perfume ($129,600 + $50,000) = $179,600 total cost $179,600 ÷ 20,000 ounces = $8.98 per ounce 600 bottles  1 ounce  $8.98 = Eau de Toilette ($410,400 + $48,000) = $458,400 total cost $458,400 ÷ 64,000 ounces = $7.16 per ounce 1,600 bottles × 2 ounces  $7.16 = Body Splash ($540,000 + $56,000) = $596,000 total cost $596,000 ÷ 84,000 ounces = $7.10 per ounce

$5,388

22,912

1,680  3 ounces  $7.10 = Total

35,784 $64,084

Ending inventory valuation based on approximated NRV: Perfume ($324,000 + $50,000) = $374,000 total cost $374,000 ÷ 20,000 ounces = $18.70 per ounce 600 bottles  1 ounce  $18.70 = Eau de Toilette ($432,000 + $48,000) = $480,000 total cost $480,000 ÷ 64,000 ounces = $7.50 per ounce 1,600 bottles  2 ounces  $7.50 = Body Splash ($324,000 + $56,000) = $380,000 total cost $380,000 ÷ 84,000 = $4.52 per ounce 1,680  3 ounces  $4.52 = Total c.

$11,220

24,000

22,781 $58,001

Relative to all of the products, once the joint cost is assigned and a cost per ounce is computed, Scent of Money does not appear to be selling its products at high enough prices. Per-unit product losses of $2.20 are being generated on the sale of each bottle of perfume, $2.00 per bottle of eau de toilette, and $1.56 per bottle of body splash.

LO.3 (Sell or process further) Win novia Mills processes cotton in a joint process that yields two joint products: fabric and yarn. May’s joint cost is $120,000, and the sales values at split-off are $360,000 for fabric and $300,000 for yarn. If the products are processed beyond split-off, the final sales value will be $540,000 for fabric and $420,000 for yarn. Additional costs of processing are expected to be $120,000 for fabric and $102,000 for yarn. a. Should the products be processed further? Show+ computations. b. Were any revenues and/or costs irrelevant to the decision? If so, what were they and why were they irrelevant? 21. a. Final revenues Revenues at split-off Incremental revenues Incremental costs Net benefit (cost) of further processing

Fabric $ 540,000 (360,000) $ 180,000 (120,000) $ 60,000

Yarn $ 420,000 (300,000) $ 120,000 (102,000) $ 18,000

Both products should be processed further. b. The irrelevant item is the $120,000 joint cost.

LO.3 (Physical and sales value allocations) FINS produces three products from its fish farm: fish, fish oil, and fish meal. During July 2010, FINS produced the following average quantities of each product from each pound (16 ounces) of fish processed: Product Obtained from Each Pound of Fish Fish 8 ounces Fish oil 4 Fish meal 2 Total 14 ounces Of each pound of fish processed, 2 ounces are waste. In July, FINS processed 37.5 tons of fish (1 ton equals 2,000 pounds). Joint cost amounted to $142,800. On average, each pound of product has the following selling prices: fish, $4.50; fish oil, $6.50; and fish meal, $2. a. b. c.

Allocate the joint cost using weight as the basis. (Round to nearest whole percentage.) Allocate the joint cost using sales value as the basis. (Round to nearest whole percentage.) Discuss the advantages and disadvantages of the answers to parts (a) and (b).

22. Two ounces of each 16 ounces (or 12.5 percent) are lost to waste, leaving 87.5 percent of total lbs. available. a.

Joint Products Fish Oil Meal

Unit Weight 0.500 0.250 0.125 0.875

Total Pounds 75,000 75,000 75,000

Joint Products Fish Oil Meal

Lbs. of Product 37,500 18,750 9,375

Selling Price per Lb. $4.50 6.50 2.00

Lbs. of Product 37,500 18,750 9,375 65,625

Percent 57 29 14 100

Allocated Joint Cost $ 81,396 41,412 19,992 $142,800

b. Total $168,750 121,875 18,750 $309,375

Allocated Joint Cost $ 78,540 55,692 8,568 $142,800

Percent 55 39 6 100

Yh6nc. Although an unchanging measure, the physical measure of pounds treats all products as equally valuable. Because of inflation and market price variability, sales value is a changing measure; however, this method is a better way of matching joint cost to the benefits from the production process because of the substantial differences in per pound prices among the three products.

LO.3 (Processing beyond split-off) Washington Cannery makes three products from a single joint process. For 2010, the cannery processed all three products beyond split-off. The following data were generated for the year: Joint Product Candied apples Apple jelly Apple jam

Incremental Separate $26,000 32,000 15,000

Cost Total Revenue $690,000 775,000 271,000

Analysis of 2010 market data reveals that candied apples, apple jelly, and apple jam could have been sold at split-off for $670,000, $730,000, and $260,000, respectively. a. Based on hindsight, evaluate management’s production decisions in 2010. b. How much additional profit could the company have generated in 2010 if it had made optimal decisions at split-off? 19. a. Product Candied apples Apple jelly Apple jam

Final Revenues

Split-Off Sales Value

Increm. Revenue

Increm. Costs

$690,000

$670,000

$20,000

$26,000

775,000

730,000

45,000

32,000

271,000

260,000

11,000

15,000

Increm. Profit $(6,000) 13,000 (4,000)

Management should not have further processed candied apples and apple jam because the incremental costs from further processing were greater than the incremental revenues. These products should have been sold at the split-off point. b.

Additional profit

$10,000

LO.3 (Sell or process further) In a joint process, Sylvia’s Styles produces precut fabrics for three products: dresses, jackets, and blouses. Joint cost is allocated on the basis of relative sales value at split-off. The company can choose to process each of the products further rather than sell the fabric at split-off. Information related to these products follows. Dresses

Jackets

Blouses

Total

Number of units produced Joint cost allocated Sales values at split-off point Additional costs of processing further Sales values after all processing a. b. c. d. a.

10,000 $174,000 ? $26,000 $300,000

16,000 ? ? $20,000 $268,000

6,000 ? $80,000 $78,000 $210,000

32,000 $360,000 $600,000 $124,000 $778,000

What amount of joint cost should be allocated to jackets and blouses? What are the sales values at the split-off point for dresses and jackets? Should any of the products be processed beyond the split-off point? Show computations. If 12,000 jackets are processed further and sold at the regular selling price, what is the gross profit on the sale? Sales value of blouses = Joint cost of blouse Total sales value Total allocated joint cost $80,000 ÷ $600,000 = X ÷ 360,000 $600,000X = ($80,000) ($360,000) $600,000X = $2,880,000,000,000 X = $48,000 for blouses Total joint cost Joint ...