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Exam 9: Joint Product and By-Product Costing

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Question 61

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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: $\begin{array}{lrrrr}&&\text { Sales Value }&\text {Separable }&\text {Sales Value After }\\\text { Product } &\text { Tons } &\text { at Split-Off } &\text { Costs }& \text { Further Processing }\\\text { Main-1 } & 200 & \$ 4,000 & \$ 2,000 & \$ 10,000 \\\text { Main-2 } & 400 & 5,000 & 6,000 & 12,000 \\\text { By-product } & 300 & 2,000 & -0- & 2,000 \\\text { Waste } & 100 & -0- & -0- & -0-\end{array}$ If the firm allocates joint costs to the main products using the physical output method, how much will be allocated to Main-1?

A) $2,000
B) $2,400
C) $2,222
D) $3,333

E) B) and C)
F) None of the above

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Question 62

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When the products emerging from a joint process are similar in size and in relative value per unit, the most appealing joint cost allocation method is:

A) Relative sales value
B) Net realizable value
C) Physical output method
D) Reciprocal method

E) A) and B)
F) A) and C)

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Question 63

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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 condensed milk and frosting if the sales value at split-off method is used?

Which of the following is a joint cost allocation method?

Which of the following joint cost allocation methods should be used for decision-making? I. Physical output method II. Net realizable value method III. Sales value at split-off point method

Jagger, Inc. production begins in Department A with 1,000 kilograms of material, of which 40% goes to Department B, 50% to Department C, and the rest evaporates. From Department C, 72% goes to Department D, 24% to Department E, and the remainder is scrapped. There are no intermediate markets. By-product sales are treated as miscellaneous income. The following occurred during the month: $\begin{array} { l r c l } \text { Department } & { \text { Costs } } & \text { Sales } & \text { Product Type } \\\text { A } & \$ 20,000 & - - - & \\\text { B } & 5,000 & \$ 10,000 & \text { By-product } \\\text { C } & 30,000 & - - & \\\text { D } & 20,000 & 60,000 & \text { Main-1 } \\\text { E } & 10,000 & 30,000 & \text { Main-2 }\end{array}$ If Jagger uses the net realizable value method, the total cost of Main-2 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: $\begin{array}{lccccc}&\text { Units }&\text {Sales Value}&\text {Separable }&\text {Sales Value After }&\text {Units }\\\text { Product}&\text { Produced }&\text {at Split-Off }&\text {Costs }&\text {Further Processing }&\text {Sold }\\\hline S & 500 & \$ 5,000 & \$ 500 & \$ 7,000 & 400 \\T & 450 & 6,000 & 650 & 9,000 & 300 \\R & 300 & 9,000 & 700 & 10,000 & 250\end{array}$ If J-M uses the physical output method and performs further processing after the split-off point, what is the ending inventory value for product R? Note: the sales values above are based on units produced.

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: $\begin{array}{lrrr}& \underline{\text { M1 }}& \underline{ \text { M2 } }& \underline{\text { M 3}}\\\text { Volume (kilograms) } & 150 & 50 & 300\\\text { Sales value at the split-off point } & \$ 375 & \$ 155 & \$ 600 \\\text { Sales value after further processing } & \$ 450 & \$ 200 & \$ 900 \\\text { Separable costs } & \$ 50 & \$ 35 & \$ 100\end{array}$ Which of the following methods will result in the greatest joint cost allocation to M2?

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

Balley, Inc. produces three milk products (all are main products) from a joint process costing $200,000. Data from the current period's operation follow: $\begin{array}{lcccc}&\text { Units } & \text { Unit Sales Price } & \text { Separable } & \text { Total Revenue After }\\&\text { Produced} & \text { at Split-Off } & \text { Costs }& \text { Further Processing }\\\text { Regular } & 5,000 & \$ 5 & \$ 10,000 & \$ 40,000 \\\text { Fat-free } & 15,000 & 7 & 16,000 & 120,000 \\2 \% & 30,000 & 8 & 5,000 & 250,000\end{array}$ If Balley produces and sells the best mix, what is the total gross margin?

An allocation method is a logical method:

DRY Corporation recently disposed of a by-product at a net cost of $500. Provided that amount is considered material, the $500 should be accounted for as:

The value of a by-product can be recognized at the time: I. Of production II. Of its sale III. Joint products are sold

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: M1 M2 M3 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 separable costs allocated to the three products will be:

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 condensed milk and frosting if the constant gross margin net realizable value method is used?

A company can increase or decrease its total gross margin by using different joint cost allocation methods.

Which of the following would be considered joint products?

Different joint cost allocation methods cause products to show different contribution margins.

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 physical output method. Which of the following correctly orders the four product lines from greatest allocation to least allocation?

When by-product value is recognized at the time of sale, the journal entry can include a credit to: I. Sales revenue II. Other income III. Cost of goods sold IV. Work in process