Exam 15: Cost Allocation: Joint Products and Byproducts

Sweet Sugar Company processes sugar beets into three products.During April the joint costs of processing were $240,000.Production and sales value information for the month were as follows: Sales Value at Required: Determine the amount of joint cost allocated to each product if the sales value at splitoff method is used.

The sales value at splitoff method allocates joint costs according to each product's value,at the splitoff point,of the total production in the accounting period of each product.

Which method allocates joint costs on the basis of each product's relative sales value at the splitoff point?

North York Statue Company makes miniature Mountie statues from cast iron.Sales total 40,000 units a year and the company is operating at full capacity.The statues are finished either rough or polished,with an average demand of 60 percent rough and 40 percent polished.Iron ingots,the direct material,costs $6 per kilogram.Processing costs are $200 to convert 20 kilograms into 40 statues;polishing adds $3 per statue.Rough statues are sold for $15 each and polished statues can be sold for $18 or engraved for an additional cost of $5.Engraved statues can then be sold for $30. Required: Determine if the engraving process is cost effective.

The net realizable value method can be used for products for which there may not be any market price available at splitoff.

Scrap frequently has a zero sales value.

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 are the expected final sales values of production if Product Z5 and Product W3 are produced?

Answer the following question(s)using the information below: The Morton Company processes unprocessed goat milk up to the splitoff point where two products,condensed goat milk and skim goat milk result.The following information was collected for the month of October: Direct Materials processed: 65,000 litres (shrinkage was 10%) The costs of purchasing the 65,000 litres of unprocessed goat milk and processing it up to the splitoff point to yield a total of 58,500 litres of salable product was $72,240.There were no inventory balances of either product. Condensed goat milk may be processed further to yield 19,500 litres (the remainder is shrinkage)of a medicinal milk product,Xyla,for an additional processing cost of $3 per usable litre.Xyla can be sold for $18 per litre. Skim goat milk can be processed further to yield 28,100 litres of skim goat ice cream,for an additional processing cost per usable litre of $2.50.The product can be sold for $9 per litre. There are no beginning and ending inventory balances. -What is the estimated net realizable value of the skim goat ice cream at the splitoff point?

A company can alter its total gross margin through its selection of joint cost allocation methods.

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 is the approximate cost assigned to the pencil casings if joint costs are allocated using the sales value at splitoff method?

Which of the following statements is TRUE in regard to the cause-and-effect relationship between allocated joint costs and individual products?

The costs of production that yield multiple products simultaneously are known as joint costs.

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 sales value at splitoff method,the joint costs allocated to Kharton would be

Net realizable value generally means expected sales value plus expected separable costs.

Which of the following is TRUE regarding the costs of toxic waste disposal,reclamation,and remediation that result from joint production processing?

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. -Assuming Cranbrook uses the sales value at splitoff method and 2,000 containers of Jarlon and 75 containers of Kharton are unsold at the end of the period,Cranbrook would report ending inventory of

Recognition of byproducts in the financial statements at the time of sale usually occurs when the dollar amounts of the byproducts are immaterial.

The products of a joint production process that have low total sales values compared with the total sales value of the main product are called joint products.

The selection of a joint cost allocation method assists managers in which of the following decisions?

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 Kharton would be