CHAPTER 16
COST ALLOCATION: JOINT PRODUCTS AND BYPRODUCTS
16-20 (40 min.) Alternative methods of joint-cost allocation, ending inventories.
Total production for the year was:
X
Y
Z
Ending
Inventories
180
60
25
Sold
120
340
475
Total
Production
300
400
500
A diagram of the situation is in Solution Exhibit 16-20.
1.
a. Net realizable value (NRV) method:
X
Final sales value of total production,
300 × $1,500; 400 × $1,000; 500 × $700
Deduct separable costs
Net realizable value at splitoff point
Weighting, $450; $400; $150 ÷ $1,000
Joint costs allocated,
0.45, 0.40, 0.15 × $400,000
Y
Z
Total
$450,000
––
$450,000
$400,000
––
$400,000
$350,000
200,000
$150,000
$1,200,000
200,000
$1,000,000
0.45
0.40
0.15
$180,000
$160,000
$ 60,000
X
180
300
60%
Y
60
400
15%
$ 400,000
Ending Inventory Percentages:
Ending inventory
Total production
Ending inventory percentage
Z
25
500
5%
Income Statement
X
Revenues,
120 × $1,500; 340 × $1,000; 475 × $700
Cost of goods sold:
Joint costs allocated
Separable costs
Production costs
Deduct ending inventory,
60%; 15%; 5% of production costs
Cost of goods sold
Gross margin
Gross-margin percentage
Y
Z
Total
$180,000
$340,000
$332,500
$852,500
180,000
––
180,000
160,000
––
160,000
60,000
200,000
260,000
400,000
200,000
600,000
108,000
72,000
$108,000
24,000
136,000
$204,000
13,000
247,000
$ 85,500
145,000
455,000
$397,500
60%
60%
25.71%
16-1
b.
Constant gross-margin percentage NRV method:
Step 1:
Final sales value of prodn., (300 × $1,500) + (400 × $1,000) + (500 × $700)
Deduct joint and separable costs, $400,000 + $200,000
Gross margin
Gross-margin percentage, $600,000 ÷ $1,200,000
$1,200,000
600,000
$ 600,000
50%
Step 2:
X
Final sales value of total production,
300 × $1,500; 400 × $1,000; 500 × $700
Deduct gross margin, using overall
gross-margin percentage of sales, 50%
Total production costs
Step 3: Deduct separable costs
Joint costs allocated
Y
Z
Total
$450,000
$400,000
$350,000
$1,200,000
225,000
225,000
200,000
200,000
175,000
175,000
600,000
600,000
—
$225,000
—
$200,000
200,000
200,000
$(25,000) $ 400,000
The negative joint-cost allocation to Product Z illustrates one “unusual” feature of the
constant gross-margin percentage NRV method: some products may receive negative cost
allocations so that all individual products have the same gross-margin percentage.
Income Statement
Revenues, 120 × $1,500;
340 × $1,000; 475 × $700
Cost of goods sold:
Joint costs allocated
Separable costs
Production costs
Deduct ending inventory,
60%; 15%; 5% of production costs
Cost of goods sold
Gross margin
Gross-margin percentage
X
Y
Z
Total
$180,000
$340,000
$332,500
$852,500
225,000
225,000
200,000
200,000
(25,000)
200,000
175,000
400,000
200,000
600,000
135,000
90,000
$ 90,000
50%
30,000
170,000
$170,000
50%
8,750
166,250
$166,250
50%
173,750
426,250
$426,250
50%
16-2
Summary
a.
NRV method:
Inventories on balance sheet
Cost of goods sold on income statement
b.
Y
Z
Total
$108,000
72,000
$ 24,000
136,000
$ 13,000
247,000
$145,000
455,000
$600,000
$135,000
90,000
$ 30,000
170,000
$ 8,750
166,250
$173,750
426,250
$600,000
Constant gross-margin
percentage NRV method
Inventories on balance sheet
Cost of goods sold on income statement
2.
X
Gross-margin percentages:
X
60%
50%
NRV method
Constant gross-margin percentage NRV
Y
60%
50%
Z
25.71%
50.00%
SOLUTION EXHIBIT 16-20
Joint Costs
Separable Costs
Product X:
300 tons at
$1,500 per ton
Joint
Processing
Costs
$400,000
Product Y:
400 tons at
$1,000 per ton
Processing
$200,000
Splitoff
Point
16-3
Product Z:
500 tons at
$700 per ton
16-23 (20 min.) Joint cost allocation: sell immediately or process further.
1.
a. Sales value at splitoff method:
Cookies/
Soymeal
Soyola/
Soy Oil
Total
$500
0.556
$400
0.444
$900
$278
$222
$500
Cookies
Soyola
Total
$1,200
300
$ 900
0.75
$500
200
$300
0.25
$1,700
500
$1,200
$ 375
$125
$ 500
Sales value of total production at splitoff,
500lbs × $1; 100 gallons × $4
Weighting, $500; $400 ÷ $900
Joint costs allocated,
0.556; 0.444 × $500
b. Net realizable value method:
Final sales value of total production,
600lbs × $2; 400qts × $1.25
Deduct separable costs
Net realizable value
Weighting, $900; $300 ÷ $1,200
Joint costs allocated,
0.75; 0.25 × $500
2.
Revenue if sold at splitoff
Process further NRV
Profit (Loss) from processing further
Cookies/Soy Meal
$500a
900 c
$400
Soyola/Soy Oil
$ 400 b
300 d
$(100)
a
500 lbs × $1 = $500
100 gal × $4 = $400
c
600 lbs × $2 – $300 = $900
d
400 qts × $1.25 – $200 = $300
b
ISP should process the soy meal into cookies because it increases profit by $400 (900-500).
However, they should sell the soy oil as is, without processing it into the form of Soyola, because
profit will be $100 (400-300) higher if they do. Since the total joint cost is the same under both
allocation methods, it is not a relevant cost to the decision to sell at splitoff or process further.
16-4
16-24 (30 min.) Accounting for a main product and a byproduct.
1.
Production
Method
Sales
Method
Revenues
Main product
Byproduct
Total revenues
$640,000a
––__
640,000
$640,000
28,000d
668,000
Cost of goods sold
Total manufacturing costs
Deduct value of byproduct production
Net manufacturing costs
Deduct main product inventory
Cost of goods sold
Gross margin
480,000
40,000b
440,000
88,000c
352,000
$288,000
480,000
0
480,000
96,000e
384,000
$284,000
a
32,000 × $20.00
8,000 × $5.00
c
(8,000/40,000) × $440,000 = $88,000
d
b
2.
a
e
5,600 × $5.00
(8,000/40,000) × $480,000 = $96,000
Production
Method
$88,000
12,000a
Main Product
Byproduct
Ending inventory shown at unrealized selling price.
BI + Production – Sales = EI
0 + 8,000 – 5,600 = 2,400 pounds
Ending inventory = 2,400 pounds × $5 per pound = $12,000
16-5
Sales
Method
$96,000
0