Exam 9: Joint Product and By-Product Costing

Managers normally differentiate main products from by-products based on their sales values.

Separable costs are:

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 physical output method, the joint costs allocated to Alpha-1 were:

Joint costs are common to all joint products.

The physical output method of joint cost allocation is seldom used in practice because of its measurement difficulties.

A joint input costing $500 results in four distinct products at the point of split-off. Products J, K and L are main products, and product M is a by-product. Relevant data follows: Sales Value Separable Sales Value After Product at Split-Off Cost Further Processing J (main) \2 00 \1 00 \4 00 K (main) 300 200 600 L (main) 100 - - M (by-product) 20 10 40 If the revenue from product M is recognized at the time of sale, what amount will be recorded as the cost of product M inventory at the time of split-off?

Managers are most likely to select a method of by-product accounting depending upon

A joint input costing $500 results in four distinct products at the point of split-off. Products J, K and L are main products, and product M is a by-product. Relevant data follows: Sales Value Separable Sales Value After Product at Split-Off Cost Further Processing J (main) \2 00 \1 00 \4 00 K (main) 300 200 600 L (main) 100 - - M (by-product) 20 10 40 If the revenue from Product M is recognized at time of sale, at what cost will it be inventoried before further processing?

RKH Corporation produces three joint products. During a recent accounting period, joint costs totalled $365 and RKH had no beginning inventories. Additional data appear below: Volume (kilograms) 150 50 300 Sales value at the split-off point \ 375 \ 155 \ 600 Sales value after further processing \ 450 \ 200 \ 900 Separable costs \ 50 \ 35 \ 100 Which of the following methods will result in the greatest joint cost allocation to M1?

Recyclers, Inc. reprocesses paper and obtains 2 main products, a by-product and a waste. By-product revenues are treated as a reduction in joint costs. During the period 1,000 tons were processed at a cost of $12,000 for materials and processing, resulting in the following: Sales Value Separable Sales Value After Product Tons at Split-Off Costs Further Processing Main-1 200 \ 4,000 \ 2,000 \ 10,000 Main-2 400 5,000 6,000 12,000 By-product 300 2,000 -0- 2,000 Waste 100 -0- -0- -0- If the firm allocates joint costs to the main products using the sales value at split-off point method, how much will be allocated to Main-2?

When deciding whether to process a product beyond the split-off point:

Major Foods, Inc. produces a cereal from oat grain. The company buys unprocessed oats for $400 per ton. It costs $60 per ton to send the oats through a processor, which produces 1,900 kilograms of pure oats and 100 kilograms of oat shells. The oat shells are ground and packaged at a cost of $100 per hundred kilograms. They are sold to a poultry feed company for $3 per kilogram. The pure oats are cooked and packaged into 4-kilogram containers at a cost of $350. The packaged oats are sold for $2 per 4-kilogram container. If Major uses the net realizable value method, the joint costs allocated to the oats is:

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 gross profit for product R? Note: the sales values above are based on units produced.

Joint costs are allocated for: I. Financial statements II. Inventory valuation III. Government reporting, for example income tax reports or cost-based reimbursement reports

Joint cost allocations are inappropriate when: I. Deciding whether to process a product beyond the split-off point II. Preparing external financial reports III. Evaluating the performance of individual project managers

RKH Corporation produces three joint products. During a recent accounting period, joint costs totalled $365 and RKH had no beginning inventories. Additional data appear below: Volume (kilograms) 150 50 300 Sales value at the split-off point \ 375 \ 155 \ 600 Sales value after further processing \ 450 \ 200 \ 900 Separable costs \ 50 \ 35 \ 100 Using the constant gross margin NRV method, the total joint costs allocated to the three products will be:

By-products are products that:

A by-product can become a main product when:

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). Assume HGT allocates joint costs using the net realizable value method. Which of the following correctly orders the four product lines from greatest allocation to least allocation?

Managers choose from a variety of logical joint cost allocation methods, but the allocation process itself is always arbitrary.