QUIZ #9
Chapter 16 Joint Cost Allocation and By product
Feedback: Objective 4: Using NRV method in joint
cost allocation may be appropriate when
additional processing is often required to make
the product sellable.
Feedback: Objective 3: The different cost
allocation methods are used to determine
the approximate cost of goods sold and
inventory value.
Feedback:
NRV of: X = (20,000 lbs x $20) - $150,000 = $250,000;
Y = (30,000 lbs x $22) - $110,000 = $550,000;
Z = (10,000 lbs x $30) - $100,000 = $200,000
$550,000 ÷ $1,000,000 = 0.55.
0.55 x $120,000 = P66,000.
The sales value at the splitoff point
does not require information on
subsequent decisions.
Subtract the NRV of the byproduct from the joint
cost to get the cost to be allocated to X and Y.
$120,000 – [(10,000 gal x $3) - $10,000] = $100,000.
Allocate the $100,000 to X and Y based on their
NRV percentages.
NRV of:
X = (20,000 lbs x $30) - $150,000 = $450,000;
Y = (30,000 lbs x $22) - $110,000 = $550,000.
For X $100,000 x 0.45 = $45,000.
The unit cost will be ($150,000 + $45,000) ÷ 20,000 =
P9.75 per gallon.
The portion of the total joint product costs
allocated to Product J was P9,000.
Using the relative slaes value at split-off approach,
this means that 60% of the total joint costs have
been allocated to Product J (15,000 / 25,000
=.60).
Therefore, total joint product costs are calculated
as follows:
P9,000 divided by .60 = P15,000
The requirement is to determine the effect on gross
margin by reporting the sale of a by-product as
additional sales revenue instead of a deduction from
the major product's cost of goods sold. The solutions
approach is to determine what is currently being done,
then calculate the effect of the accounting change. To
facilitate understanding, assume that peso amounts for
sales and cost of goods sold (CGS) are P300,000 and
P200,000, respectively.
* 100,000 units x (P1 selling price — P0.10 selling cost)
Note that the change in accounting treatment has no
effect on gross margin.
Product
AA (15,000 units x P2)
Php 30,000
CC (15,000 units x P5)
75,000
Php 105,000
The ratio therefore are
AA= 30/105 or 29%
BB = 75/105 or 71%
The byproduct is not recognized until it is sold
under the sales method for accounting for
byproducts.
The problem indicates that the relative sales value
at split-off is used to allocate joint costs. Product H
has been allocated 15% (P18,000 / P120,000) of
the total joint costs.
Therefore, Product H has 15% of the total sales
value at split-off of P30,000 (15% x P200,000).
Since the Product F has a sales value at split-off of
P120,000, Product |G's sales value at split-off is
P50,000 (P200,000 -P30,000 - P120,000).
The product G sales value just computed
represents 25% (50,000 / 200,000) of the total sales
value at split-off.
The joint costs allocated to Product G is 120,000 x
25% = P30,000.
Feedback: The decision to sell a product at the
split-off point or further process the product is
made by comparing the sales value of the
product at the split-off point with the NRV at the
split-off point.
Sales value = P5 x 75,000 lbs = P60,000 vs. NRV =
(P6 x 15,000) - P20,000 = P70,000. So, an additional
P5,000 will be made if B is further processed.
If any of the joint process outputs are processed
further, additional joint costs after split-off will be
incurred. Any costs after split-off are assigned to
the separate products for which those costs are
incurred, and therefore, not allocated to joint
products in a manner similar to joint costs.
Decision to sell or process further is based on
whether costs of further processing exceeds
additional revenue and whether the product can
or cannot be sold as it is.
Feedback: Joint cost includes all costs incurred up
to the slit off point for direct material, direct labor,
and overhead. Joint cost is allocated, at split off
point, to the joint products only. Allocation is
necessary because of the cost principle.Joint cost
is necessary and reasonable cost of producing
the joint products and, therefore, should be
attached to them.
Steniel Paper
Steniel Paper CONTINUATION
Steniel Paper CONTINUATION
True - Cost allocation for joint products on the basis of
assigned weights is also called the survey method.
False - All products yielded from joint product processing
have some positive value to the firm.
- CORRECT. Some product from a joint product process
actually cost the firm additional money to dispose of.
False - The sales-value at splitoff method of joint cost
allocation involves computation of the relative amounts of
the sales value of the amount of each joint product sold
during the period.
- INCORRECT. The sales-value at splitoff method involves
computation of the relative amounts of the sales value of
the amount of each joint product PRODUCED during the
period.
False - The constant gross-margin percentage NRV method
allocates joint costs to joint products in such a way that the
gross margin on each joint product is the same as it was in
the previous year.
- CORRECT. The constant gross-margin percentage
NRV method allocates joint costs to joint products in such a
way that the overall gross margin percentage is identical for
the individual products.
False - Joint processing costs are always relevant for pricing
decisions of the final product.
- INCORRECT. Joint costs are not relevant in pricing
decisions.
Feedback : Refer to Guerrero revised 2006 ed. No 22 p
523 answer key
The use of net realizable value (or offset) approach of
accounting the by-product requires that the net
realizable value (selling price of by-product minus further
processing and disposal costs) be treated as a reduction
in the joint cost of manufacturing the primary products.
On the other hand, the net realizable value at split-off
allocation of joint costs assigns the joint cost based on
the joint products' proportional net realizable values at
the point of split-off. Net realizable value is equal to
product sales revenue minus any costs necessary to
prepare and dispose of the product.
Based on the foregoing information, the revenue from
sales of by-product is treated as a reduction of joint
costs, thus the amount of joint costs to be allocated to
main products is P252,000 (P262,000 - 10,000). Also note,
the basis of allocation is the sales value at split-off of the
main products, thus the above computation.
Feedback : Refer to Guerrero revised 2006 ed. No 23 p
524 answer key.
Since the inventory of the by product was
recorded at net realizable value when produced
in 2023, and likewise, when the units of the byproduct were sold in 2024 the proceeds equaled
the inventory cost plus disposal costs, thus, no
profit will be recognized in 2024.
See problem 7-6 page 331 Chapter 7 joint cost Punzalan
The cost incurred for materials, labor and overhead
during a joint process are referred to as the joint cost of
the production process.
Although joint cost allocations are necessary to
determine
financial
statement
valuations,
such
allocations should not be used in internal decision
making.
Since joint costs are production costs incurred prior to
split-off point, the joint cost allocation is not relevant to
decision making. Once the split-off point is reached, the
joint cost has already been incurred and is a sunk cost
that cannot be changed no matter future course of
action is taken.
The distinction between joint products and byproducts rests solely on its physical proportions in
production.
Under the production method, where the by product is
accounted at the time of production, the net realizable
value of the by-product produced is deducted from the
cost of the main products produced. Therefore, no cost
of sales is reported for the by-product, and the total joint
production costs will be reduced by the net realizable
value of the by product, thereby reducing the cost of
sales of the main product.
Feedback: Objective 1: A good reason for cost
allocation is to measure income and assets for
external reporting.
The gross profit on this sale is the ultimate sales price less
the cost of goods sold. In a joint processing situation, the
cost of the goods sold includes both the allocation of
joint costs up to the split-off point and all further
processing costs. The allocation of joint costs incurred
prior to split-off is based on relative sales value at the
split-off point.
For W, relative sales value is its sales value at split-off
divided by total sales value at split-off or P60,000/
P750,000 = 8%.
The allocation of joint costs is then 8% of total joint costs,
or (8%) (P450,000) = P36,000.
The gross profit is computed as follows:
Under the relative sales value approach, the joint
production cost of P52,000 (P24,000 + 28,000) is
allocated based on the relative market values of the
products. One of the accepted methods for costing by
products is to show the revenue from sales of by product
as additional sales revenue.
In this regard, joint production cost is not allocated to
the by-product.
Feedback: Objective 1: Income first option: (2000
× 47.50) + (3000 × 39) + (5000 × 2.50) = 224,500.
Second option: same as above except for P:
(3000 × .90) × 57 = 153,900.
Both options are profitable. However, the second
option increases the profit even more.
Feedback: Objective 2:
3000 × .90 × 57) – (3000 × 39) = 36,900;
36,900 – 31,500 = P5,400.
Feedback: Output of zeron (20,000 lbs.) ÷ total input
(100,000) = .20. Then, P50,000 x .20 = P10,000 allocated to
zeron.
Feedback: 1st subtract the NRV of the byproduct
from the joint costs (P50,000 - P20,000) = P30,000.
Then, allocate the P30,000 to the main products
based on their NRV percentages. For the zeron,
P200,000 ÷ P320,000 = 0.625 x P30,000 = P18,750.
Feedback: 1st subtract the NRV of the byproduct
from the joint costs (P50,000 - P20,000) = P30,000.
Then, allocate the P30,000 to the main products
based on their physical quantity percentages. For
the zeron, 40,000 lbs. ÷ 80,000 = 0.50 x P30,000 =
P15,000.
Feedback: NRV of:
Simplex = P225,000;
Duplex = P90,000;
Triplex = P85,000.
(P90,000 ÷ P400,000) x P80,000 = P18,000
Feedback:
Total quantity = 100,000 lbs.
Allocation to Duplex: (20,000 lbs ÷ 100,000 lbs) x
P80,000 = P16,000
Feedback: Objective 6:
(3,400 × 62) + (4400 × 23) + (2200 × 18) = $351,600;
M as a % of total = 28.90%; 178,400 × 28.78% =
51,344.
Feedback: Objective 4:
2200 / (3400 + 4400 + 2200) = 22%; 178,400 × 22% =
P39,248.
Feedback: Objective 4: (4,400 × 23) – 31,200 =
P70,000.
Feedback: Objective 4: (2,200 × 18) – 9,600 =
P30,000.
Feedback: Objective 6:
[(3,400 × 62) – 40,800] + [(4400 × 23) – 31,200] +
[(2200 × 18) – 9,600] = $270,000;
62.96% + 25.93% + 11.11%= 100%;
M: 29.34% × 178,400 = $46,259;
46,259 + 31,200 = $77,459;
(4400 × 23) – 77,459 = P23,741.
Feedback: Objective 4: (3,400 × 62) – (34% ×
178,400) = P150,144.
Feedback: Objective 4:
Accounts receivable
Sales
39,600
39600
Feedback: Objective 1: (3,400 × 62) + (4400 × 23)
+ (2200 × 18) – (178,400 + 81,600] = P91,600.
Coke per no 65
Pop (2,000 -1,400) x P2
23,200
1,200
QUIZ #10
Chapter 17 Process Costing & Chapter 18 Spoilage
Determination of EUP is the 4th step, and the last step is
the allocation of cost to the transferred-in finished goods
during the period and determining the ending WIP
Similar rates of conversion because set standards should
be meet
The underlined words made the student false.
Weighted Average Method prior and current period.
FIFO Method current period.
Work back.
Total units to account for less WIP, beg = Units started
49,000 – 15,000 = 34,000 units
WIP, beg
Physical
Units
15,000
Started
34,000
Units to Account for
49,000
Completed and
Transferred Out
Started &Completed
24,000
24,000
WIP BEG
WIP, end
Units accounted for
15,000
10,000
49,000
6,000
7,500
EUP
Conversion
37,500
WIP, beg
Started
Units to Account for
Physical Units Conversio
n
10,000
80,000
90,000
Completed and Transferred
Out
Started &Completed
65,000
65,000
WIP BEG
WIP, end
Units accounted for
10,000
15,000
90,000
3,000
6,000
EUP
74,000
Physical Units Materials
WIP, beg
Started
Units to Account for
10,000
80,000
90,000
Completed and
Transferred Out
Started &Completed
WIP BEG
WIP, end
Units accounted for
EUP
65,000
65,000
10,000
15,000
90,000
0
15,000
80,000
Physical Units
Conversi
on
WIP, beg
10,000
Started
80,000
Units to Account
for
90,000
Completed and
TO
WIP, end
75,000
75,000
15,000
6,000
Units accounted
for
90,000
EUP
81,000
Physical Units
Materials
WIP, beg
10,000
Started
80,000
Units to Account
for
90,000
Completed and
TO
WIP, end
75,000
75,000
15,000
15,000
Units accounted
for
90,000
EUP
90,000
Assign the costs to inventories is also considered as an
answer to this question
Horngren: assign the costs to inventories.
Raiborn: calculate the cost per equivalent unit.
None because normal defective unit costs were already
included in the standard unit cost
Transferred In
DM
CC (9.75+4)
620 x 12.50
620 x 8
620 x (9.75+4) x 45%
7,750
4,960
3,836.25
16,546.25
32850 x (800/1200) = 21,900
12,000 + (4,800*65%) + (1200-800)
= 15,520 EUP
21900 x ((4800*.65)/15520)
=4,402.58
300-(7500*.03)
Units
7,500 Started & Completed
75 Abnormal Spoilage
550 WIP end (80%)
8,125 EUP
7,500
75
550
8,125
CC
7,500
75
440
8,015
3,340
1,219.50
Cost per EUP
x EUP completed
total cost
0.41108
7,500
3,083
0.15215
7,500
1,141
total cost
4,224.22
Current Cost
DM
Answer will be corrected should be A instead of D.
300-(7500*.03)
Units
7,500
75
550
8,125
DM
Started & Completed
Abnormal Spoilage
WIP end (80%)
EUP
7,500
75
550
8,125
CC
7,500
75
440
8,015
Current Cost
3,340
1,219.50
0.41108
75
31
0.15215
75
11
Cost per EUP
x EUP completed
total cost
total cost
42.24
Physical
Units
WIP, beg
Material Labor
s
7500
Started
64,000
Units to Account
for
71,500
Completed and
TO
WIP, end
66,500
66,500
66,500
5,000
5,000
3,000
Units accounted
for
EUP
71,500
71,500
69,500
Physical
Units
Material
s
Labor
59,000
59,000
59,000
WIP BEG
7,500
0
3,000
WIP, end
Units accounted for
5,000
71,500
5,000
3,000
64,000
65,000
WIP, beg
7,500
Started
64,000
Units to Account for
71,500
Completed and
Transferred Out
Started
&Completed
EUP
Saleable
Unsaleable (abnormal spoilage)
Total units
(5,000 ÷ 5,300) x 99,000 = 93,396.23
5,000
300
5,300
Physical
Units
Materials
Conver
sion
54,000
54,000
38,000
0
26,600
WIP, end
26,000
26,000
5,200
Units accounted for
118,000
80,000
85,800
WIP, beg
38,000
Started
80,000
Units to Account for
118,000
Completed and
Transferred Out
Started &Completed 54,000
WIP BEG
EUP
WIP, end (DM) = 26,000 x 1.875 = 48,750
Production
Costs
DM
CC
COST ADDED
150,000
343,200
DIVIDE BY EUP
80,000
1.875
85,800
4
106,400
317,250
66,200
69,550
0
101,250
22,200
48,750
106,400
216,000
44,000
20,800
559,400
172,200
387,200
EUP PER UNIT
Step 4
WIP, beg
Cost added
Total cost to
account for
66,200
493,200
559,400
Step 5
Assignment of
costs
CTO
Beg
Started
Beg inventory
WIP, end
Total costs
accounted for
WIP, end (Conversion) = 5,200 x 4 = 20,800
Production
Costs
DM
CC
COST ADDED
150,000
343,200
DIVIDE BY EUP
80,000
1.875
85,800
4
106,400
317,250
66,200
69,550
0
101,250
22,200
48,750
106,400
216,000
44,000
559,400
172,200
387,200
EUP PER UNIT
Step 4
WIP, beg
Cost added
Total cost to
account for
66,200
493,200
559,400
Step 5
Assignment of
costs
CTO
Beg
Started
Beg inventory
WIP, end
Total costs
accounted for
20,800
Production
Costs
DM
CC
COST ADDED
150,000
343,200
DIVIDE BY EUP
EUP PER UNIT
80,000
1.875
85,800
4
0
101,250
22,200
106,400
216,000
44,000
123,450
366,400
48,750
20,800
172,200
387,200
Step 4
WIP, beg
Cost added
Total cost to
account for
Step 5
66,200
493,200
559,400
Assignment of
costs
CTO
Beg
Started
Beg, inventory
106,400
317,250
66,200
Total
489,850
Completed
and
Transferred out
WIP, end
69,550
Total costs
accounted for
559,400
FIFO
(9000-4000)
Units
4,000 WIP beg(3/8)
5,000 Started & Completed
4,000 WIP end (1/2)
4,000 WIP end (3/4)
17,000 EUP
2,500
5,000
2,000
3,000
12,500
Weighted
4,000
5,000
2,000
3,000
14,000
Units
(1200-200)
200
200 WIP beg(100%,25%)
1,000 Started & Completed
200 WIP end (100%,50%)
1,400 EUP
Weighted Average
DM
CC
200
200
1,000
1,000
200
100
1,400
1,300
FIFO
Units
(1200-200)
200
200 WIP beg(100%,25%)
1,000 Started & Completed
200 WIP end (100%,50%)
1,400 EUP
DM
CC
1,000
200
1,200
150
1,000
100
1,250
Physical Units
WIP, beg
15,000
Started
150,000
Units to Account
for
165,000
Materials
Conver
sion
Completed and
Transferred Out
Started
&Completed
WIP BEG
105,000
105,000
105,000
15,000
0
9,000
WIP, end
45,000
45,000
13,500
Units accounted
for
165,000
150,000
127,500
EUP
Physical
Units
WIP, beg
80,000
Started
600,000
Units to Account for
680,000
Conversi
on
Completed and Transferred
Out
Started &Completed
480,000
480,000
WIP BEG
80,000
24,000
WIP, end
120,000
96,000
Units accounted for
680,000
EUP
600,000
Physical
Units
WIP, beg
12,000
Started
30,000
Units to Account for
42,000
Conversion
Completed and Transferred Out
Started &Completed
16,000
16,000
WIP BEG
12,000
9,000
WIP, end
14,000
8,000
Units accounted for
42,000
EUP
33,000
DM
Beg Inv
1,000
Transfers from extracting
2,000
Units added to Mixing
6,000
Total EUP for DM
9,000
CC
Transfer to packaging
Ending Inv (1,200 x 50%)
Total EUP for CC
7,800
600
8,400
(85,000-40,000)
45,000
Units
40,000 WIP beg
45,000 Started & Completed
45,000 WIP end (100% as to DM)
130,000 EUP
DM
40,000
45,000
45,000
130,000
Physical Units
Materials
WIP, beg
15,000
Started
40,000
Units to Account for
55,000
Completed and TO
42,500
42,500
WIP, end
12,500
12,500
Units accounted for
55,000
EUP
Cost, beg
55,000
5,500
Cost Added
18,000
Total Costs
23,500
Divided by EUP
55,000
EUP per unit
0.43
(200,000-50,000)
50,000+270,000-200,000
Units
50,000 WIP beg (1-0.80) 20%
150,000 Started & Completed
120,000 WIP end (50%)
EUP
CC
10,000
150,000
60,000
220,000
Current Cost RM
572,000
Cost per EUP for CC
x EUP in WIP end for CC
RM in ending WIP
3
60,000
156,000
CC
4,000
150,000
WIP, beg
Physical
Units
6,000
Transferred
In
Materials
Conversion
Started
14,000
Units to
Account for
20,000
Completed
and TO
WIP, end
12,000
12,000
12,000
12,000
8,000
8,000
8,000
6,000
Units
accounted for
20,000
EUP
20,000
20,000
18,000
Cost, beg
Cost Added
12,000
29,000
2,500
5,500
1,000
5,000
Total Costs
Divided by EUP
41,000
20,000
8,000
20,000
6,000
18,000
2.05
0.40
0.33
EUP per unit
Total cost per EUP 2.05+0.40+0.33 = 2.78
DM
WIP beg
Started & Completed
WIP end
EUP
WIP, beg. RM
Current Cost RM
Total RM
EUP per RM
x EUP in WIP end for RM
RM in ending WIP
4,000
16,000
5,000
25,000
456,000
2,284,000
2,740,000
110
5,000
548,000
CC
4,000
16,000 (20,000-4,000)
(4000+21,000-20,000)
To be excluded in the quiz items.