Exam 15: Cost Allocation: Joint Products and Byproducts

Use the information below to answer the following question(s). Beverage Drink Company processes direct materials up to the splitoff point,where two products,A and B,are obtained.The following information was collected for the month of July: Direct materials processed: 2,500 litres (with 20 percent shrinkage) Cost of purchasing 2,500 litres of direct materials and processing it up to the splitoff point to yield a total of 2,000 litres of good products was $4,500.There were no inventory balances of A and B. Product A may be processed further to yield 1,375 litres of Product Z5 for an additional processing cost of $150.Product Z5 is sold for $25.00 per litre.There was no beginning inventory and ending inventory was 125 litres. Product B may be processed further to yield 375 litres of Product W3 for an additional processing cost of $275.Product W3 is sold for $30.00 per litre.There was no beginning inventory and ending inventory was 25 litres. -What is Product Z5's estimated net realizable value?

Byproducts are recognized in the general ledger either at the time of production or at the time of sale.

Wharf Fisheries processes many of its seafood items to the demands of its largest customers,most of which are large retail distributors.To keep the accounting system simple it has always assigned cost by the weight of the finished product.However,with increased competition it has had to watch its prices closely and in recent years several items have incurred zero profit margins.After several weeks of investigation,your consulting firm has found that while weight is important in processing of seafood,numerous items have very distinct processing steps and some items are processed through more steps than others. Required: Based on the findings of your consulting firm,what changes might you recommend to the company in the way of cost allocation among its products?

Use the information below to answer the following question(s). Raynor Manufacturing purchases trees from Tree Nursery and processes them up to the splitoff point,where two products (paper and pencil casings)are obtained.The products are then sold to an independent company that markets and distributes them to retail outlets.The following information was collected for the month of October. Trees processed: 50 trees (yield is 30,000 sheets of paper and 30,000 pencil casings and no scrap) Cost of purchasing 50 trees and processing them up to the splitoff point to yield 30,000 sheets of paper and 30,000 pencil casings is $1,500. Raynor Manufacturing's accounting department reported no beginning inventories;however,ending inventory amounts reflected 1,000 sheets of paper in stock. -What are the approximate joint costs assigned to the paper ending inventory if joint costs are allocated using the sales value at splitoff method?

Peachland Fruit Ltd.harvests blueberries.After harvest,the company sells some berries fresh,freezes others,and processes some into juice.During the summer the joint costs of processing the berry products were $620,000.Any separable costs for each product are negligible and are not traced.There were no beginning or ending inventories for the summer.Production and sales value information for the summer were as follows: Required: Determine the amount allocated to each product if the sales value at splitoff method is used and compute the cost per case for each product.

Which method of allocating costs would be used if the selling prices of all products at the splitoff point are unavailable?

All products yielded from joint product processing have some positive value to the firm.

For each of the following methods of allocating joint costs,give a positive or a negative aspect of selecting each one to allocate joint costs. a.sales value at splitoff b.estimated net realizable value method c.the constant gross margin method d.a physical measure such as volume

Framingham Ltd.produces three products out of a common process.The company currently uses the physical measures method to allocate joint costs to the three product lines: Leonid (L),Madagascar, (M)and Napoleon (N).The manager of the Napoleon product line is particularly disgruntled.He believes that his product line is allocated a disproportionate share of joint costs.In a recent managers' meeting,he argued that the company should consider using sales value as splitoff as the joint cost allocation method.He stated that his product is sold in a highly competitive market and increasing price is not an option. The manager of the Leonid product line disagreed strongly.He stated that all products are sold in a competitive market place and that allocating joint costs on physical measures was simple and easily verifiable.The manager of the Madagascar product line sat quietly through the meeting and she did not seem to favour one method over the other. As the assistant controller,you were asked by the controller to look into the concerns of the product line managers.The following additional information is available: Joint costs for the company are $950,000. Required: As the assistant controller,prepare a report to the controller.

BC Lumber Company prepares lumber for companies who manufacture furniture.The main product is finished lumber with a byproduct of wood shavings.The byproduct is sold to plywood manufacturers.For July,the manufacturing process incurred $332,000 in total costs.Eighty thousand board feet of lumber were produced and sold along with 6,800 pounds of shavings.The finished lumber sold for $6.00 per board foot and the shavings sold for $0.60 a pound.There were no beginning or ending inventories. Required: Prepare an income statement showing the byproduct (1)as a cost reduction during production,and (2)as a revenue item when sold.

Which of the following is FALSE concerning the physical measure method?

Use the information below to answer the following question(s). Cranbrook Chemical Ltd.manufactures two industrial compounds.In the month of May,15,000 litres of direct material costing $160,000 were processed at a cost of $400,000.The joint process yielded 16,000 containers of a compound known as Jarlon and 4,000 containers of a compound known as Kharton.The respective selling prices of Jarlon and Kharton are $38 and $58.Both products may be processed further.Jarlon may be processed into Jaxton at an incremental cost of $8 per jar of the final product while Kharton may be processed into Kraxton at an additional cost of $32 per jar of the final product.The volume of jars of the final product are: 12,000 and 3,000 for Jaxton and Kraxton respectively.The selling price of Jaxton is $48 per jar.The selling price of Kraxton is $102 per jar. -Using the NRV method,the amount of joint costs allocated to Kraxton is

Use the information below to answer the following question(s). Cranbrook Chemical Ltd.manufactures two industrial compounds.In the month of May,15,000 litres of direct material costing $160,000 were processed at a cost of $400,000.The joint process yielded 16,000 containers of a compound known as Jarlon and 4,000 containers of a compound known as Kharton.The respective selling prices of Jarlon and Kharton are $38 and $58.Both products may be processed further.Jarlon may be processed into Jaxton at an incremental cost of $8 per jar of the final product while Kharton may be processed into Kraxton at an additional cost of $32 per jar of the final product.The volume of jars of the final product are: 12,000 and 3,000 for Jaxton and Kraxton respectively.The selling price of Jaxton is $48 per jar.The selling price of Kraxton is $102 per jar. -Using the physical measures method,the joint costs allocated to Jarlon would be

Helen Company processes 30,000 litres of direct materials to produce two products,Zander and Ifso.Zander,a byproduct,sells for $5 per litre,and Ifso,the main product,sells for $70 per litre.The following information is for July: The manufacturing costs totalled $145,000;beginning inventory $3,000. Required: 1.Prepare a July income statement assuming that Helen Company recognizes the byproduct net realizable value when production is completed.The company uses FIFO for the inventory flow assumption. 2.Prepare the journal entry to record the byproduct sales.

An advantage of the physical-measure method is that obtaining physical measures for all products is an easy task.

In each of the following industries,identify possible joint (or severable)products at the splitoff point. a.Coal b.Petroleum c.Dairy d.Lamb e.Lumber f.Cocoa Beans g.Christmas Trees h.Salt i.Cowhide

The production method of accounting for byproducts recognizes byproducts in the financial statements at the time when production is completed.

List the reasons that the sales value at splitoff method of joint cost allocation should be used.

All of the following changes may indicate a change in product classification of a manufacturing process which has a splitoff point EXCEPT

The Arvid Corporation manufactures widgets,gizmos,and turnbols from a joint process.May production is 4,000 widgets;7,000 gizmos;and 8,000 turnbols.Respective per unit selling prices at splitoff are $15,$10,and $5.Joint costs up to the splitoff point are $75,000.If joint costs are allocated based upon the sales value at splitoff,what amount of joint costs will be allocated to the widgets?