Exam 9: Joint Product and By-Product Costing

In the beef production industry, bones sold for dogs can generally be considered a by-product.

The joint cost allocation method affects the:

The Great Foods Company processes milk into skim milk and butter. This year 70,000 litres of milk will be processed, costing $40,000. If processed to the split-off point, this will yield 40,000 litres of skim milk and 10,000 kilograms of butter. Skim milk is sold to distributors for $1 per litre and butter is sold for $0.75 per kilogram. Great Foods has the option of processing the two products further. Skim milk can be processed into canned, sweetened and condensed skim milk and sold for $0.80 per can. One litre of skim milk makes 2 cans of condensed milk. To process 40,000 litres of skim milk it will cost $18,000. Butter can be processed into cake frosting and sold in containers for $2 each. One kilogram of butter goes into each container of frosting. The cost of processing 10,000 kilograms of butter into frosting costs $15,000. What is the per-unit joint cost allocated to skim milk and butter if the sales value at split-off method is used?

When choosing a cost allocation method:

The physical output method of joint product cost allocation is:

Which of the following joint cost allocation methods is used in many industries because they have units of similar size with similar net realizable values?

The physical output method is appropriate when products are sold in units of similar size and their net realizable values are similar.

The revenue from by-products may be recognized I. At the time of production II. At the time of sale III. Without having joint costs allocated to them

HGT Corporation produces four products from a common production process. Selected data from HGT's accounting system for the four products appears below: Joint costs for the accounting period totalled $5,000. Each product line has a different product manager who is evaluated based on product line profitability. Therefore each manager is motivated to reduce his / her total product line costs as much as possible. The managers have been given information about potential joint cost allocations using the following three methods: physical output, sales at split-off point, and net realizable value. The managers are comparing the joint cost allocations under each method so that they can give the accountant input about their preferred method(s). Which product line(s) would receive the least amount of joint cost under the sales value at the split-off point method?

The constant gross margin NRV method of allocating joint costs results in all joint products having equal gross profit percentages (gross profit / sales).

Joint processes can result in: I. Products II. Services III. Intangible assets

Heston, Inc. produces 2 main products and a by-product. During the current month it had no beginning inventories. During the current month it incurred $185,000 of joint costs, which are allocated to main products using the physical output method. Additional information follows: Units Units Unit Sales Product Produced Sold Price Able (main) 8,000 6,000 \ 15 Baker (main) 12,000 8,000 22 Delta (by-product) 5,000 4,500 2 If Heston subtracts the NRV of by-product sales from joint costs at the time of by-product sales, what is the total value of the ending inventory?

Managers should choose a joint cost allocation method to avoid giving the impression that one or more products are sold at a loss when they actually contribute to profitability.

Jordan, Inc. produces 2 products from a joint process costing $24,000. The results from the most recent period follow: Sales Value Separable Sales Value After Product Tons at Split-Off Costs Further Processing Alpha-1 800 \ 10,000 \ 12,000 \ 24,000 Alpha-2 400 8,000 4,000 20,000 Waste 200 -- --- -- If Jordan uses the sales value at split-off point method to allocate joint costs, the cost per ton for Alpha-1 would be:

Joint product cost allocation information can be used for financial reporting and for short-term decisions such as whether to process the product further.

Joint costs are always incurred before the split-off point.

By-products can only be recognized at the time of sale.

J-M Company uses a joint process costing $15,000 to produce three main products. The company had no beginning inventory. Its current period operation data follow: Units Sales Value Separable Sales Value After Units Product Produced at Split-Off Costs Further Processing Sold S 500 \ 5,000 \ 500 \ 7,000 400 T 450 6,000 650 9,000 300 R 300 9,000 700 10,000 250 If J-M uses the net realizable value method and performs further processing after the split-off point, what is the carrying value of the ending inventory for product S? Note: the sales values above are based on units produced.

A joint input costing $500 results in four distinct products at the point of split-off. Relevant data follows: Sales Value Separable Sales Value After Product at Split-Off Cost Further Processina \ 200 \ 100 \ 400 300 200 600 100 50 140 20 10 40 If one unit of L is further processed as shown above, it can be processed again at an additional cost of $160 to obtain product XX. If the firm is to be no worse off from producing product XX, then XX must sell for at least:

Costs incurred beyond the split-off point that are traceable to individual products are: