Joint Cost and By Product Costing Prac 2 2020 PDF

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JOINT COST AND BY-PRODUCT COSTINGMULTIPLE CHOICE QUESTIONSPROB. 1 (Adapted)The allocation of joint costs to individual products is useful primarily for purposes of a. Determining whether to produce one of the joint products b. Inventory costing c. Determining the best market price d. Evaluating whet...

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JOINT COST AND BY-PRODUCT COSTING MULTIPLE CHOICE QUESTIONS PROB. 1 (Adapted) The allocation of joint costs to individual products is useful primarily for purposes of a. Determining whether to produce one of the joint products b. Inventory costing c. Determining the best market price d. Evaluating whether an output is a main product or a by-product PROB. 2 (Adapted) The method used for the allocation of joint costs to products is important a. Only in the minds of accountants b. Because profits will be affected when ending inventories change from the beginning of the period c. Because its validity for justifying prices before regulatory authorities is unquestioned d. Because profit margins differ when the relative sales value method is used PROB. 3 (Adapted) Relative sales value at split-off is used to allocate: Cost beyond Split-off a. Yes b. No c. No d. Yes

Joint costs No Yes No Yes

PROB. 4 (Adapted) In a joint production process, a by-product is also described as a. A simultaneously produced product of relatively low value b. A form of main product with controllable proportions c. Products of low value recovered at the end of a production process d. A product with no value contribution to help offset production costs PROB. 5 (Adapted) A company produces three main products and one by-product. The by-product’s relative market value is quite low compared to that of the main products. The preferable accounting for the by-product’s net realizable value is as a. An addition to the revenues of the other products allocated to their respective net realizable values b. Revenue in the period in which it is sold c. A reduction in the joint cost to be allocated to the three main products

d. A separate net realizable value upon which to allocate some of the joint costs PROB. 6 (Adapted) The following is acceptable regarding the allocation of joint product cost to a by-product

a. b. c. d.

None Allocated Not acceptable Acceptable Acceptable Not acceptable

Some Portion Allocated Not acceptable Acceptable Not acceptable Acceptable

PROB. 7 (Adapted) If a company obtains two salable products from the refining of one ore, the refining process should be accounted for as a(an) a. Mixed cost process b. Joint process c. Extractive process d. Reduction process PROB.8 (Adapted) Which of the following components of production are allocable as joint costs when a single manufacturing process produces several salable products? a. Direct materials, direct labor, and overhead b. Direct materials and direct labor only c. Direct labor and overhead only d. Overhead and direct materials only PROB. 9 (Adapted) Joint costs are most frequently allocated based upon relative a. Profitability b. Conversion costs c. Prime costs d. Sales value PROB. 10 (Adapted) A company produces three products from a joint process. The products can be sold at split-off or process further. In deciding whether to sell at split-off or process further, management should a. Allocate the joint cost to the products based on relative sales value prior to making the decision b. Allocate the joint cost to the products based on a physical quantity measure prior to making the decision c. Subtract the joint cost from the total sales value of the product before determining relative sales value and making the decision

d. Ignore the joint cost in making the decision PROB. 11 (Adapted) For purposes of allocating joint costs to joint production using the relative sales values at split-off method, the costs beyond split-off a. Are allocated in the same manner as the joint costs b. Are deducted from the relative sales value at split-off c. Are deduction from the sales value at the point of sale d. Do not affect the allocation of the joint costs PROB. 12 (Adapted) Idaho Corp. manufactures liquid chemicals A and B from a joint process. Joint costs are allocated on the basis of relative market value at split-off. It costs P4,560 to process 500 gallons of Product A and 1,000 gallons of Product B to the split-off point. The market value at split-off is P10 per gallon for Product A and P14 for Product B. Product B requires an additional process beyond split-off at a cost of P2 per gallon before it can be sold. What is Idaho’s cost to produce 1,000 gallons of Product B? a. 5,040 b. 4,360 c. 4,860 d. 5,360 PROB. 13 (Adapted) Lane Co. produces main products Kul and Wu. The process also yields by-product Zef. Net realizable value of by-product Zef is subtracted from joint production cost of Kul and Wu. The following information pertains to production in July at a joint cost of P54,000.

Product Kul Wu Zef

Units Produced 1,000 1,500 500

Market Value P40,000 35,000 7,000

Additional cost after split-off P 0 0 3,000

If Lane uses the net realizable value method for allocating joint cost, how much of the joint cost should be allocated to product Kul? a. 18,800 b. 20,000 c. 26,667 d. 27,342 PROB. 14 (Adapted) A company processes raw material into Products F1, F2 and F3. Each ton of raw materials produces five units of F1, two units of F2, and three units of F3. Joint processing costs to the split-off point are P15 per ton. Further processing results in the following per unit figures:

Additional processing cost per unit Selling price per unit

F1 P28 30

F2 P30 35

F3 P25 35

If joint cost are allocated by the net realizable value of finished product, what proportion of joint costs should be allocated to F1? a. 20% b. 30% c. 33 1/3% d. 50% PROB. 15 (RPCPA) Dennis Manufacturing Co. manufactures two joint products. Product A sells at P30, while Product B sells at P60. The company uses the net realizable value method for allocating joint costs. For the month of June, the production activities were as follows: Joint product costs: Raw materials Direct labor Factory overhead

30,000 15,000 10,000

Further processing costs after the split-off in order to finish the products into their final form were P24,000 for Product A and P36,000 for Product B. Total number of units produced during the month were 2,000 for Product A and 1,000 for Product B. The joint cost allocated to A was: a. 22,000 b. 33,000 c. 27,500 d. Answer not given PROB. 16 (RPCPA) Lego Plastic, Inc. has two joint products, Abba and Adda, and uses the net realizable value method of allocating joint cots. The total joint costs for May amounted to P300,000. During the month, additional processing costs after split-off were P160,000 for Abba and P240,000 for Adda. Lego produced 16,000 units of Abba and 8,000 units of Adda during the month. The sales value of Abba is P500 per unit and for Adda is P1,000 per unit. The portion of Joint costs allocated to Adda during the month is: a. 175,000 b. 180,000 c. 225,000 d. 150,000 PROB. 17 (AICPA)

Mig Co., which began operations in 2020, produces gasoline and a gasoline by-product. The following information is available pertaining in 2020 sales and production: Total production costs to split-off point Gasoline sales By-product sales Gasoline inventory, 12/31/20 Additional by-product costs: Marketing 10,000 Production 15,000

120,000 270,000 30,000 15,000

Mig accounts for the by-product at the time of production. What are Mig’s 2020 cost of sales for gasoline and the by-product?

a. b. c. d.

Gasoline 105,000 115,000 108,000 100,000

By-product 25,000 0 37,000 0

PROB. 18 (AICPA) The following information pertains to a by-product called Moy: Sales in 2020 Selling price per unit Selling costs per unit Processing costs

5,000 units P6.00 2.00 0

Inventory of Moy was recorded at net realizable value when produced in 2019. No units of Moy were produced in 2020. What amount should be recognized as profit on Moy’s 2020 sales? a. 0 b. 10,000 c. 20,000 d. 30,000 PROB. 19 (AICPA) Lite Co. manufactures Products X and Y from a joint process that also yield a by-product, Z. Revenue from sales of Z is treated as a reduction of joint costs. Additional information is as follows:

X Units produced 20,000 Joint costs ? Sales value at split-off 300,000

PRODUCTS Y Z 20,000 10,000 ? ? 150,000 10,000

Total 50,000 262,000 460,000

Joint costs were allocated using the sales value at split-off approach. The joint costs allocated to Product X were a. 75,000 b. 100,000 c. 150,000 d. 168,000 PROB. 20 (Adapted) High Tets Chemicals, Inc. produces Product Love and Potion from a process and incident to their production recovers a by-product. No One. The net realizable value of the by-product, No. One is treated as reduction of the joint production costs. For the month of October, the joint costs of processing amounted to P1,152,000. Additional information is shown below: Product Love Potion No. One

Production 550,000 825,000 275,000

Market value P900,000 600,000 126,000

An additional processing costs of P54,000 was spent to complete the processing of No. One. Using the net realizable value method for allocating joint production costs, what would be the amount of joint costs allocated to Product Love? a. 540,000 b. 648,000 c. 662,400 d. 810,000 PROB. 21 (RPCPA) Joie Co. manufactures two joint products (Ralin and Stalin). Joie produces 12,000 units of Ralin with an after split-off sales value of P45,000. However, if Ralin were to be processed further, additional cost of P6,000 will be incurred but the sale value will increase to P60,000. Joie produced 6,000 units of Stalin with an after split-off sales value of P30,000. However, if Stalin were to be further processed, additional cost of P3,000 will be incurred but the sales value will go up to P36,000. Under the relative sales value at split-off approach, the allocation to Ralin from total product cost is P27,000. What is the total product cost? a. 75,000 b. 45,000 c. 27,000 d. 67,500 PROB. 22 (RPCPA) A chemical company which uses a joint process manufactures products O, P and M, which are all derived from one input. The company allocates joint costs to the products in proportion to the relative physical

volume of output. The company may either sell the products at the point of split-off or process further in order to maximize profits. The following date were obtained for February:

O P M

No of units produced 2,000 3,000 1,500

If processed further Sales price/unit Sales price Additional cost at split-off per unit per unit P4.00 P5.00 P0.80 2.25 4.00 1.50 3.00 3.75 0.90

Joint production costs were P15,000. Additional processing on products O and P were performed, while product M was sold at the point of split-off. The gross profit of the company derived from the production process for the month of February was: a. 4,250 b. 5,175 c. 5,400 d. 6,525 e. Answer not given PROB 23 (Adapted) Sheltex Corp. processes materials and recovers Product Shell and Caltex. The cost of buying 600,000 gallons of direct materials, and processing these up to split-off point will yield 300,000 gallons of Shell and 270,000 gallons, net of 30,000 gallons evaporation, at a total production costs of P17,100,000. The selling price of Shell is P500 per gallon and P400 per gallon for Caltex. Records show that on May 1, there were 24,000 gallons of Shell and 15,000 gallons of Caltex; and at the end of May, there were 36,000 gallons of Shell and 39,000 gallons of Caltex. Using the quantitative unit method of allocating joint production costs, what would be the allocated cost for Product Shell and Caltex, respectively? a. 8,100,000 9,000,000 b. 8,550,000 8,550,000 c. 8,700,000 8,400,000 d. 9,000,000 8,100,000 PROB. 24 (Adapted) Chine Manufacturing Corp. produces three products from the same process and incurs joint processing costs of P60,000. The following information is available for the month:

M C T

Further Gallons Processing cost 25,000 3.00 20,000 5.75 5,000 1.50

Final SP/gal. 7.00 10.00 8.00

SP/gal. @ split-off 3.60 5.00 2.00

Disposal Cost/gallon @Split-off Process further 2.00 1.00 2.25 2.00 1.00 0.50

a. What amount of the joint processing cost is allocated to the three products using the physical measure allocation? M C T a. 25,000 20,000 15,000

b. 30,000 15,000 15,000 c. 30,000 24,000 6,000 d. 20,000 20,000 20,000 b. What amount of the joint processing cost is allocated to the three products using the sales value at split-off? M C T a. 24,000 33,000 3,000 b. 27,000 30,000 3,000 c. 30,000 18,000 12,000 d. 20,000 20,000 20,000 c. What amount of the joint processing cost is allocated to the three products using the net realizable value at split-off? M C T a. 24,000 33,000 3,000 b. 27,000 30,000 3,000 c. 30,000 18,000 12,000 d. 20,000 20,000 20,000 d. What amount of the joint processing cost is allocated to the three products using the approximated net realizable value at split-off? M C T a. 24,000 33,000 3,000 b. 27,000 30,000 3,000 c. 30,000 18,000 12,000 d. 20,000 20,000 20,000 PROB 25 (RPCPA) Fortune Producers manufactures three joint products, JKA, JKB, and JKC, and by-product, JJD, all in single process. Results for the month of July were as follows: Materials used, 10,000 kgs. Conversion cost

Product JKA JKB JKC JJD

P24,000 28,000

OUTPUT Kilos Sales value/kilo 4,000 P11.00 3,000 10.00 1,000 26.00 2,000 1.00

The revenue from the by-product is credited to the sales account. Process costs are apportioned on a relative sales value approach. What was the cost per kilo of JKA for the month? a. 5.72

b. 5.61 c. 5.50 d. 5.20 PROB. 26 (AICPA) Atlas Foods produces the following three supplemental food products simultaneously through a refining process costing P93,000. Alfa - 10,000 pound of Alfa, a popular but relatively rare grain supplement having a caloric value of 4,400 calories per pounds. Betters - 5,000 pounds of Betters, a flavoring materials high in carbohydrates with a caloric value of 11,200 calories per pound. Morefeeds - 1,000 pounds of Morefeeds, used as a cattle feed supplement with a caloric value of 1,000 calories per pound. The joint products, Alfa, and Betters have a final selling price of P4 per pound and P10 per pound, respectively, after additional processing costs of P2 per pound of each product are incurred after the splitoff point. Morefeeds, a by-product, is sold at the split-off point for P3 per pound. a. Assuming Atlas Foods inventories Morefeeds, the by-product, the joint cost to be allocated to Alfa, using the net realizable value method is a. 3,000 b. 30,000 c. 31,000 d. 60,000 e. 62,000 b. Assuming Atlas Foods inventories Morefeed, the by-product, the joint cost to be allocated to Alfa, using the physical quantity method is a. 3,000 b. 30,000 c. 31,000 d. 60,000 e. 62,000 c. Assuming Atlas Foods inventories Morefeed, the by-product, the joint cost to be allocated to Betters using the weighted quantity method based on caloric value per pound is a. 39,208 b. 39,600 c. 40,920 d. 50,400 e. 52,080 d. Assuming Atlas Foods inventories Morefeed, the by-product, the joint cost to be allocated to Alfa using the gross market value method is

a. b. c. d. e.

36,000 40,000 41,333 50,000 51,666

e. Assuming Atlas Foods does not inventory Morefeed, the by-product, the joint cost to be allocated to Betters using the net realizable value method is a. 30,000 b. 31,000 c. 52,080 d. 60,000 e. 62,000 PROB. 27 (AICPA) Eagle Corp. manufactures a product that gives rise to a by-product called Pag-asa. The only costs associated with Pag-asa are selling costs P1.00 for each unit sold. Eagle accounts for Pag-asa sales first by deducting its separable costs from such sales and then by deducting this net amount from costs of sales of the major product. During the year, 1,000 units of Pag-asa were sold for P4.00 each. a. If Eagle changes its method of accounting for Pag-asa sales by recording the net amount as additional sales revenue, what is the gross margin? a. Unaffected b. Increase by P3,000 c. Decrease by P3,000 d. Increase by P4,000 b. If Eagle changes its method of accounting for Pag-asa sales by recording the net amount as other income, what is the gross margin? a. Unaffected b. Increase by P3,000 c. Decrease by P3,000 d. Decrease by P4,000 c. If Eagle records the net realizable value of Pag-asa as inventory as it is produced, what is the per unit value? a. 1.00 b. 2.00 c. 3.00 d. 4.00 PROB. 28 (AICPA) The managers of Rochester Manufacturing are discussing ways to allocate the cost of service departments such as: Quality Control and Maintenance to the production departments. To aid them in this discussion, the controller has provided the following information:

Budgeted Quality Control Overhead costs before allocation 350,000 Machine hours Direct labor hours Hrs. of services: Quality control Maintenance 10,000

Maintenance

Machining

Assembly

200,000

400,000 50,000

300,000 25,000

7,000

21,000 18,000

7,000 12,000

a. If Rochester Manufacturing uses the direct method of allocating service departments, the total service costs allocated to the assembly department would be a. 80,000 b. 87,500 c. 120,000 d. 167,500 e. 467,500 b. If Rochester Manufacturing uses the step-down method of allocating service costs beginning with quality control, the maintenance costs allocated to the assembly department would be a. 70,000 b. 108,000 c. 162,000 d. 200,000 e. 210,000

SOLUTIONS AND EXPLANATIONS PROB. 1 Suggested answer (b) Inventory costing Joint cost includes all costs incurred up to the split off point for direct material, direct labor, and overhead. Joint cost allocated, at split off point, to the joint products only. Allocation is necessary because of the cost principle. Joint costs is a necessary and reasonable cost of producing the joint products and, therefore, should be attached to them. PROB. 2 Suggested answer (b) Assignment of costs to these various products is required for inventory costing, for income determination, and for financial statement purposes. By product and joint product costing also furnishes management with data that ca be useful in planning maximum profit potentials and evaluating actual profit performance. PROB. 3 Suggested answer (b) No Yes The total production cost of multiple products involves both joint costs and separable cost/cost beyond split-off. Joint production cost requires allocation or assignment to the individual products; while separable costs are identifiable with the individual product and generally need no allocation. PROB. 4 Suggested answer (a) A simultaneously produced product of relatively low value. The term by-product is generally used to denote a product of relatively small total value that is produced simultaneously with a product of greater total value. While, the product with greater value and usually produced in greater quantities than the by-product is commonly called the main product. PROB. 5 Suggested answer (c) A reduction in the joint cost to be allocated to the three main products. Under net realizable value method of accounting by-product, the net realizable value of by-product is shown as reduction from the joint cost of main products. PROB. 6 Suggested answer (b) Acceptable Acceptable The accepted methods for costing by-product fall into two categories. In the first category, a joint production cost is not allocated to the by-product; while in the second category, some portion of the joint production cost is allocated to the by-product. PROB. 7 Suggested answer (b) joint process A single process in which one product cannot be manufactured without producing others is known as a joint process. PROB. 8 Suggested answer (a) direct materials, direct labor, and overhead Joint costs includes all cost incurred up to the split-off point for direct materials, direct labor, and overhead.

PROB. 9 Suggested answer (d) sales value Generally, joint costs may be allocated based on the f...