Chapter 15
Joint Product &
By-Product Accounting
In the process of
of manufacturing one
one or more products,
products, a company may also
also produce other
other
products which may either be joint products
products or by-products depending
depending upon their importance to
the firm.
The problems encountered
encountered in the CPA examinations
examinations relative to joint
joint products and by-products
accounting are the following:
1. Allocation
Allocation of joint
joint (common
(common)) costs
costs at the point
point of split-off.
split-off.
2. Accou
Accounti
nting
ng for by-pro
by-produc
ducts.
ts.
ALLOCATION OF JOINT (COMMON) COSTS
The allocation of the joint costs among the individual products produce is to be made at the
split-off point, which is the point where the joint products are separated from each other.
The following methods are usually used in allocating joint costs:
1. Relati
Relative
ve marke
markett (sales
(sales)) value
value method
method.. The application of this method will depend on
whether the products are sold at the point of separation or whether additional costs are
incurred as a result of additional processing. The following procedures should be
remembered by the candidate:
a. Sale value at point of split-off. If the products are sold at the point of
separation, cost is allocated to each product based on the relative market value
at that point (split-off point).
b. Sale value after further processing. Joint cost is to be allocated on the basis of
each product’s net realizable value. Net realizable value is the difference
between the final sales value and the actual cost to complete and sell. (Further
processing cost).
2. Physical
Physical Measures
Measures (Units
(Units Produce
Produced)
d) Method.
Method. This method allocates joint costs to
products based on a physical measure of units. If the allocation is based on physical
quantities, each unit of each product is assigned at the same value regardless of the
nature or value of the product.
ACCOUNTING FOR BY-PRODUCTS
By-products are those products of limited sales value produced simultaneously with products of
greater sales value known as main or joint products.
The methods of accounting for by-products fall into the following categories:
1. By-pro
By-produc
ducts
ts are
are reco
recogni
gnized
zed when
when sold. Under this method no income is recorded from
them until they are sold. Net by-product income equals actual sales revenue less any
actual additional processing costs and marketing and administrative expenses. Net byproduct income may be shown in the income statement as:
a. Addition
Addition to
to income,
income, either
either as
as “other
“other sales”
sales” or
or “other
“other income
income”.
”.
b. A deductio
deduction
n from cost of goods
goods sold
sold of the main
main produc
product.
t.
produced. Under this category the cost of the by2. By-pro
By-produc
ducts
ts are
are reco
recogni
gnized
zed when
when produced.
product is computed by using the following methods:
a. Net realizable value method. Under this, the expected sales value of the byproduct produced is reduced by the expected additional processing cost and
marketing and administrative expenses. The resulting net realizable value of the
by-product is deducted from the total production costs of the main product.
b. Reversal cost method. The expected value of the by-product produced is
reduced by the expected additional processing costs and normal gross profit of
the by product (or by the marketing and administrative expenses and net
income). This method is called the reversal cost method because you have to
work backward from the gross revenue to arrive at the estimated joint cost of
the by-product at the point of split-off. The joint cost allocated to the production
production
of the by-product is deducted from the total production cost of the main
product, and charge to a by-product inventory account. Proceeds from the sale
of by-products are treated the same
same as sales of the main
main product.
PROBLEMS
1. Tomasa Inc. manufactures products X, Y and Z from a joint process. Joint product costs
were P60,000. Additional information is as follows:
Products
X
Y
Z
Sales Value and Additional
Costs if processed further
Final Sales Values
Additional Costs
P49,000
P9,000
42,000
7,000
30,000
5,000
Units Produced
6,000
4,000
2,000
What is the total costs allocated to product X?
Physical Measure Relative Sales Values
a. P30,000
P28,000
b. 29,000
27,000
c. 30,000
21,000
d. 39,000
33,000
2. Camille Company manufactures products W, X, Y and Z from a joint process. Additional
information is as follows:
Products
Units Produced
W
X
Y
Z
6,000
5,000
4,000
3,000
18,000
Value at
Split-off
P80,000
60,000
40,000
20,000
P200,000
If processed further
Additional
Sales
Costs
Value
P7,500
P90,000
6,000
70,000
4,000
50,000
2,500
30,000
P20,000
P240,000
Assuming that total joint costs of P160,000 were allocated using the relative-sales value
at split-off approach, what were the joint costs allocated to each product?
W
X
Y
Z
a.
P40,000
P40,000
P40,000
P40,000
b.
53,333
44,444
35,556
26,667
c.
60,000
46,667
33,333
20,000
d.
64,000
48,000
32,000
16,000
3. Solomon Inc. manufactures products F, G and H from a joint process. Additional
information is as follows:
Products
F
G
H
Total
Units produced
8,000
4,000
2,000
Joint cost
?
?
18,000
Sales value at split-off
P120,000
?
?
Additional costs if processed further
14,000
10,000
6,000
Sales value if processed further
140,000 60,000
50,000
Assuming that joint product costs are allocated using the relative sales-value at
approach, what were the joint costs allocated to product G?
a. P28,000
b. 30,000
c. 34,000
d. 51,000
14,000
120,000
200,000
30,000
250,000
split-off
4. A company produces two joint products, A and B. For the month of March, the joint
production costs were P120,000. Further processing costs beyond split-off point
required to make the products into marketable form and other related data follow:
A
B
Additional processing costs
P100,000 P140,000
Units after split-off
1,600
800
Unit selling price
200
400
The company uses the net realizable value method for allocating joint product costs. For
the month of March, the joint costs allocated to A amounted to
a. P66,000
b. 72,000
c. 60,000
d. 80,000
5. Kamagong Inc. produces two joint products, PEI and VEL. The joint production costs for
March 2013 were P15,000. During March 2013, further processing costs beyond the
split-off point, needed to convert the products into salable form were P8,000 and
P12,000 for 800 units of PL and 400 units VEL, respectively. PEL sells for P25 per unit and
VEL sells for P50 per unit. Assuming that Kamagong uses the net realizable value
method for allocating joint product costs, what were the joint costs all allocated to
product PEL for March 2013?
a. P5,000
b. 6,000
c. 9,000
d. 10,000
6. Dennis Mfg. Co. manufactures two joint products and it uses the net realizable value
method for allocating joint costs. Product A sells for P30 while Product B sells for P60.
Joint costs for June, 2013 were:
Materials
P30,000
Direct labor
15,000
Factory overhead
10,000
Further processing costs after the split-off point in order to finish the products into their
final form amounted to P24,000 for Product A and P36,000 for Product B. the total units
produced during the month were 2,000 for Product A and 1,000 for Product B.
The amount of joint costs allocated to Product A was:
a. P33,000
b. 27,500
c. 22,000
d. 32,000
7. Adan Inc. purchases its major raw material from Eva Co. and processes them up to splitoff point, where two products (AA and CC) are obtained. The products are then sold to
an independent company that markets and distributes them to retail outlets. For the
month just ended the following data were made available:
Raw material purchased
25,000
Units
Production
AA
15,000
Units
CC
15,000
Units
Sales
AA
14,500 units@P2
CC
15,000 units@P5
The cost of purchasing 25,000 units raw materials and processing them up to the splitoff point to yield equal number of production of AA and CC of 15,000 units each
amounted to P37,500. There were no beginning inventories but there were 500 units of
AA at the end of the month, using the sales value at split-off method the approximate
weighted cost proportions (may be rounded) of AA and CC were:
a. AA, 29% and CC, 71%
b. AA, 33% and CC, 67%
c. AA, 49% and CC, 51%
d. AA, 50% and CC, 50%
8. Kasoy Manufacturing Company manufactures two products, AA and BB. Initially, they
are processed from the same materials and then, after split-off, they are further
processed separately. Additional information is as follows:
AA
BB
Total
Final sales price
P9,000
P6,000 P15,000
Joint costs prior to split-off
?
?
6,600
Costs beyond split-off point
3,000
3,000
6,000
Using the relative-sales-value approach, what are the assigned joint costs of AA and BB
respectively?
a. P3,000 and P3,300
b. 3,960 and 2,640
c. 4,400 and 2,200
d. 4,560 and 2,040
9. Vivien Company manufactures products N, P and R from a joint process. The following
information is available:
N
P
R
Total
Units produced
12,000
?
?
24,000
Sales value at split-off point
?
?
P50,000 P200,000
Joint costs
P48,000
?
?
120,000
Sales value if processed further
110,000 P90,000
60,000
260,000
Additional costs if processed further
18,000
14,000
10,000
42,000
Assuming that joint product costs are allocated using the relative-sales-value at split-off
point approach, what was the sales at split-off for products N and P?
Product N Product P
a. P66,000
P84,000
b. 80,000
70,000
c. 98,000
84,000
d. 100,000
50,000
10. Cebu Inc. manufactures product P, Q and R from a joint process. Additional information
is as follows:
Products
P
Q
R
Total
Units produced
4,000
2,000
1,000
7,000
Joint cost
P36,000
?
?
P60,000
Sales value at split-off
?
?
P15,000
100,000
Additional costs if processed further
7,000
P5,000
3,000
15,000
Sales value if processed further
70,000
30,000
20,000
120,000
Assuming that joint costs are allocated using the relative sales value at split-off
approach, what was the sales value at split-off for Product P?
a. P58,333
b. 59,500
c. 60,000
d. 63,000
11. Korina Company manufactures products S and T from a joint process. The sales value at
split-off was P50000 for 6,000 units of Product S and P25,000 for 2,000 units of Product
T. Assuming that the portion of the total joint costs properly allocated to Product S u sing
the relative-sales-value at split-off approach was P30,000, what were the total joint
costs?
a. P40,000
b. 42,500
c. 45,000
d. 60,000
12. Sisa Company manufactures Product J and Product K from a joint process. For Product J,
4,000 units were produced having a sales value at split-off of P15,000. If Product J were
processed further, the additional costs would be P3,000 and the sales value would be
P20,000. For product K, 2,000 units were produced having a sales value at split-off of
P10,000. If Product K were processed further, the additional costs would be P1,000 and
the sales value would be P12,000. Using the relative sales value at split-off approach,
the portion of the total joint product costs allocated to Product J was P9,000. What
were the total joint product costs?
a. P14,400
b. 15,000
c. 18,400
d. 19,000
13. Stella Corporation manufactures products R and S from a joint process. Additional
information is as follows:
Products
R
S
Total
Units produced
4,000
6,000
10,000
Joint cost
P36,000 P54,000
P90,000
Sales value at split-off
?
?
?
Additional costs if processed further
3,000
26,000
29,000
Sales value if processed further
63,000
126,000
189,000
Additional margin if processed further
12,000
28,000
40,000
Assuming that joint costs are allocated on the basis of relative-sales-value at split-off,
what was the sales value at split-off for Product S?
a. P72,000
b. 82,000
c. 98,000
d. 100,000
14. Bacolod Company manufactures Products F, G and W from a joint process. Joint costs
are allocated on the basis of relative sales value at split-off. Additional information for
the June 2013 production activity is as follows:
Products
F
G
W
Total
Units produced
50,000
40,000
10,000
100,000
Joint cost
?
?
?
450,000
Sales value at split-off
P420,000 P270,000 P60,000 P750,000
Additional costs if processed further
88,000
30,000
12,000
130,000
Sales value if processed further
538,000
320,000
78,000
936,000
Assuming that the 10,000 units of Product W were processed further and sold for
P78,000, what was Bacolod gross profit on this sale?
a. P21,000
b. 28,500
c. 30,000
d. 66,000
15. Luzon Company manufactures three products, R, S and T, in a joint process. For every
ten kilos of raw materials input, the output is five kilos of R, three kilos of S, and two
kilos of T.
During August, 50,000 kilos of raw materials costing P120,000 were processed and
completed, with joint conversion costs of P200,000. Conversion costs are to be allocated
to the products on the basis of market values.
To make the products salable, further processing which does not require additional raw
materials was done at the following costs:
Product R
Product S
Product T
The unit selling prices are:
P30,000
20,000
30,000
Product R
Product S
Product T
What are the unit cost of Product R, S and T?
R
S
T
a.
P7.12
P8
10.20
b.
8
7.12
10.20
c.
10
8
10
d.
25.32
7.12
10
P10
12
15
16. It costs Visaya Corp. P1,400,000 to process a main material to produce three chemicals:
#111, #777 and #999. This joint cost is allocated to the product lines based on the
relative market values of the products produced. Additional data are summarized
below:
Units of
Additional
Unit Sales Price at
Production
Processing Cost
Split-off
#111
60,000
960,000
P20
#777
20,000
168,000
40
#999
20,000
520,000
100
The product costing line that will have the least per unit contribution margin (after
accounting for share in joint and additional processing costs) is:
a. #111 at P(3)
b. #777 at 17.60
c. #111 at 13
d. #111 at (10.48)
17. Mindanao producers manufactures three joint products, JKA, JKB and JKC and a byproduct JJD, all in a single process. Results for July were as follows:
Materials used
Coversion cost
Output:
10,000 kgs.
P28,000
P24,000
No. of Kilos
Product
Sales Value per Kilo
4,000
JKA
P11
3,000
JKB
10
1,000
JKC
26
2,000
JJD
1
The revenue from the by-product is credited to the sales account. Process costs are
apportioned on a relative sales value approach. What was the cost per kilogram of JKA
for the month?
a. P5.72
b. 5.50
c. 5.61
d. 5.20
18. Payaso Inc. produces chemicals Koo and Lam. The processing also yields a by-product,
Wiz, another chemical. The joint costs of processing is reduced by the net realizable
value of Wiz. For the month of March, the joint costs were registered at P3,840,000.
Below are additional data:
In Thousands
Product
Production
Market Value
Koo
2,000
P3,000
Lam
3,000
2,000
Wiz*
1,000
420
*An additional P180,000 were spent to complete the processing of Wiz.
Assuming that the company uses the net realizable value method for allocating joint
costs, the allocated costs to Koo would amount to:
a. P2,160,000
b. 1,800,000
c. 2,208,000
d. 2,700,000
19. Abel Corp. manufactures a product that yields the by-product, “Yum”. The only cost
associated with Yum are selling costs of P.10 for each unit sold. Abel accounts for sales
of Yum by deducting Yum’s separable costs from Yum’s sales, and then deducting this
net amount from the major product’s cost of goods sold. Yum’s sales were 100,000 units
at P1 each. If Abel changes its method of accounting for Yum’s sales by showing the net
amount as additional sales revenue, then Abel’s gross margin would:
a. Increase by P90,000
b. Increase by 100,000
c. Increase by 110,000
d. Be unaffected
20. Panday Company, which began operations in 2013, produces gasoline and a gasoline byproduct. The following information is available pertaining to 2013 sales and production:
Total production costs to split-off point
P120,000
Gasoline sales
270,000
By-product sales
30,000
Gasoline/Inventory
15,000
Additional by-product costs:
Marketing
10,000
Production
15,000
Panday accounts for the by-product at the time of production. What are Panday’s 2013
costs of sales for gasoline and the by-product?
a.
b.
c.
d.
Gasoline
P105,000
115,000
108,000
100,000
By-product
P25,000
0
37,000
0
21. Bataan Co. produces main products JJ and MM. the process also yields by-product BB.
Net realizable value of by-product BB is subtracted from joint production cost of JJ and
MM. the following information pertains to production in July 2013 at a joint cost of
P54,000.
Product
Units produced
Production
Market Value
JJ
1,000
P40,000
P0
MM
1,500
35,000
0
BB
500
7,000
3,000
If Bataan uses the net realizable value method for allocating joint cost, how much of the
joint cost should be allocated to product JJ?
a. P18,800
b. 20,000
c. 26,667
d. 27,342
22. Aguilar Sweets Factory manufactures a coconut candy, Coco, which is sold for P5 a box.
The manufacturing process also results in a by-product, Soloc. Without further
processing, Soloc sells for P1 per pack; with further processing, it sells for P3 per pack.
During the month of April, the total joint manufacturing costs up to the point of
separation consisted of the following charges to work in process:
Raw materials
P225,000
Direct labor
100,000
Factory overhead
45,000
During the month, the production for the two products was as follows; Coco, 591,000
boxes, Soloc, 45,000 packs.
The following additional costs are necessary for further processing to complete Soloc, in
order to obtain a selling price of P3 per pack, during the month of April:
Raw materials
P30,000
Direct labor
22,500
Factory overhead
7,500
Assuming that the by-product, Soloc, is further processed and then transferred to the
stockroom at net realizable value with a corresponding reduction of Coco’s
manufacturing costs, the journal entry would be:
a. By-product inventory – Soloc
45,000
Work in process – Coco
45,000
b. By-product – Soloc
135,000
Raw materials
30,000
Direct labor
22,500
Factory overhead
7,500
Work in process – Coco
75,000
c. By-product inventory – Soloc
6,750
Work in process – Coco
6,750
d. Work in process – Soloc
60,000
Raw materials
30,000
Direct labor
22,500
Factory overhead
7,500
23. A chemical company manufactures joint products PP and VV, and a by-product ZZ. Costs
are assigned to the joint products by the market value method, which considers further
processing costs in subsequent operations. For allocating cost to the by-product, the
market value, or reversal cost, method is used.
Total manufacturing costs for 10,000 units were P172,000 during the quarter.
Productions and costs data follow:
PP
VV
ZZ
Units produced
5,000
4,000
1,000
Sales price per unit
P50
P40
P5
Further process cost per unit
10
5
Selling & admin. expense per unit
2
Operating profit per unit
1
What is the gross profit from the sales of PP?
a. P70,000
b. 80,000
c. 100,000
d. 98,000
24. AMG Paper Mfg. Co., which started operations in 2013, manufactures paper from wood
pulp. The company grades its products and classified them into Products A, B and C. in
processing the chipped woods, a fatty soap is produced, extracted, and refined into a
by-product identified as Product X. The following information related to AMG’s
operations for 2013 are obtained from the company’s records:
Units (in Tons)
Sales Price
Products
Produced
Sold
On hand
Per Ton
A
152.5
66
86.5
P100
B
68.5
41.5
27
100
C
11
5
6
100
X
85
30
55
33
Sales, including Product X, totaled P12,240 while production costs amounted to
P24,884.50. Selling expenses, on the other hand, were P612.
The cost accountant, in order to find which accounting method best approximates
actual costs, computed the December 31, 2013 inventory (at the lower of cost or
market) based on the following alternative methods:
Method A – joint cost method of accounting, with costs apportioned on a unit
cost per ton basis.
Method B – recognize income in the period in which the by-product is produced,
with no selling expense assigned to the by-product.
The ending inventory on December 31, 2013 would be:
a.
b.
c.
d.
Method A
P13,698
13,115
11,105
11,105
Method B
P13,765
13,698
13,698
13,115
25. Cooper Company manufactures products MM, RR, SS and CC with product CC classified
as a by-product and sold at a lower price. Sales, including that for product CC, totaled
P49,200 while production costs amounted to P99,538. Selling expenses amounted to
P2,460. The following information concerning the company’s operations for 2013 are
obtained from the company’s records:
Sales Price
Units in Kilos
Products
Per Kilo
Produced
Sold
On Hand
MM
P100
610
264
346
RR
100
274
166
108
SS
100
44
20
24
CC
35
340
120
220
Compute the ending inventory (at lower of cost or market) at December 31, 2008 based
on the following methods:
Cost apportioned
Income recognition in the period
a unit cost per kilo basis
of by-product production
a.
P44,838
P53,275.15
b.
44,838
52,842.32
c.
54,793
56,159
d.
56,159
55,159.08
26. Makiling Sawmill, Inc., purchases logs from independent timber contractors and
processes the logs into two joint products, two-by-fours of Narra A and four-by-eight of
Yakal B. In processing the two products, sawdust emerges and classified as by-product.
The packaged sawdust can be sold for P10 per kilo. Packaging cost for the sawdust is
P0.50 per kilo and sales commission is 105 of sales price. The by-product net revenue
serves to reduce joint processing costs for joint products. Joint products are assigned
joint cost based on board feet. Data follows:
Joint processing costs
P100,000
Narra A
400,000
Yakal B
200,000
Sawdust produced (kilos)
2,000
What is the cost assigned to Narra A?
a. P61,000
b. 62,000
c. 63,000
d. 62,130
Use the following information in answering Numbers 26 to 30:
Manuel Tuason is the owner and operator of MT Bottling, a bulk soft-drink producer. A
single production process yields two bulk soft drinks: Rain Dew (the main product) and
Resi-Dew (the by-product). Both products are fully processed at the split off point, and
there are no separable costs.
For July 2013, the cost of the soft-drink operations is P120,000. Production and sales
data are as follows:
Production
Sales
Selling Price
(In Liters)
(In Liters)
Per Liter
Main product: Rain Dew
10,000
8,000
P20
By-product: Resi – Dew
2,000
1,400
2
There were no beginning inventories on July 1, 2013.
Assuming by-product is recognized when produced:
27. What is the gross margin for MT Bottling?
a. P67,200
b. 71,200
c. 71,200
d. 70,000
28. What are the inventory costs reported in the balance sheet on July 31, 2013, for Rain
Dew and Resi – Dew?
Rain Dew
Resi-Dew
a.
P23,200
P1,200
b.
23,200
4,000
c.
d.
22,300
25,200
1,200
4,000
Assuming the by-product is recognized at sale?
29. What is the gross margin for MT Bottling?
a. P66,800
b. 64,000
c. 60,000
d. 65,000
30. What are the inventory costs reported on July 31, 2013, for Rain Dew and Resi-Dew?
Rain Dew
Resi-Dew
a.
P24,000
P0
b.
23,200
1,200
c.
24,000
1,200
d.
23,200
0
Use the following data for Numbers 31-34:
JMG Company buys Article X for P.80 per unit. At the end of processing in Department 1
Article X split into Products D, E, and F. Product D is sold at split-off point with no further
processing. E and F require further processing before they can be sold. E is processed in
Department 2; and F is processed in Department 3. The following is a summary of costs
and other data for the fiscal year ended July 31, 2013:
Cost of Article X:
Direct materials
Direct labor
Factory overhead
Department 1
Department 2
Department 3
P144,000
21,000
15,000
P67,500
31,500
P97,500
73,500
Product D
Product E
Units sold
30,000
45,000
Units on hand, July 31, 2012
15,000
Sales
P45,000
P144,000
JMG uses the estimated net realizable method of allocating joint costs.
31. What is the sales value of Product D at split-off point?
a. P45,000
b. 30,000
c. 67,500
d. 22,500
32. What is the cost of Product E sold for the year ended July 31, 2013?
a. P147,000
b. 99,000
c. 144,000
Product F
67,500
22,500
P212,625
d. 135,000
33. What is the cost of the inventory of Product D on July 31, 2013?
a. P27,000
b. 18,000
c. 22,500
d. 54,000
34. What is the cost of the inventory of Product F on July 31, 2013?
a. P33,500
b. 65,250
c. 42,750
d. 90,000
Question 35 and 36 are based on the following data:
JGG Company produces three products: Product A, B and C from the same materials.
Joint costs for this production run are P32,500. Data for the three products are:
Sales price per
Disposal cost
kilo at split-off
per kilo at
Product
Kilos
point
split-off point
A
800
P6.50
P3.00
B
1,100
8.25
4.20
C
1,500
8.00
4.00
35. Using the sales value at split-off, what is the amount of joint cost allocated to Product
A?
a. P11,225
b. 10,525
c. 8,225
d. 9,525
36. Using the net realizable value at split -off, what is the allocated joint cost to Product C?
a. P15,605
b. 14,711
c. 15,750
d. 14,500
Use the following information in answering numbers 37 – 40:
The J&J Chemical Company produces a product knows as “VITAMIX” from which a byproducts results. This by-product can be sold at P4.14 per unit. The manufacturing costs
of the main product and by-product up to the point of separation for the three months
ended March 31, 2013 follows:
Materials
P50,000
Labor
40,000
Overhead
30,000
The units produced were 15,000 units for the main product and 900 units for the byproduct. During the period 12,000 units of the “VITAMIX” were sold at P16 per unit,
while the company was able to sell 600 units of the by-product. Selling and
administrative expenses related to the main product amounted to P18,000. Disposal
cost per unit of the by-product is P1.75.
37. If the by-product is recorded at net realizable value, what is the unit of cost “VITAMIX”,
if the net realizable value of the by-product is deducted from the manufacturing costs of
“VITAMIX”?
a. P7
b. 7.85
c. 8.75
d. 8.50
38. If the by-product is recognized when sold, what is the cost of the inventory of
“VITAMIX”?
a. P24,000
b. 25,000
c. 24,500
d. 25,500
39. If the net realizable value of the by-product is deducted from the cost of goods sold of
“VITAMIX”, what is the gross profit?
a. P90,500
b. 95,700
c. 97,500
d. 87,500
40. If the net realizable value of the by-product is treated as other income, what is the net
profit?
a. P79,500
b. 75,900
c. 89,600
d. 85,700
ANSWERS
1.
2.
3.
4.
5.
D
D
B
A
C
6.
7.
8.
9.
10.
A
A
C
B
C
11.
12.
13.
14.
15.
C
B
A
C
A
16.
17.
18.
19.
20.
C
A
B
D
D
21.
22.
23.
24.
25.
C
B
C
D
B
26.
27.
28.
29.
30.
B
A
A
A
A
31. C
32. D
33. B
34. B
35. A
36.
37.
38.
39.
40.
B
B
A
C
A
SOLUTIONS AND EXPLANATIONS
1. Physical measures (units produced):
Allocated joint cost (6,000/12,000 x P60,000)
Add: Additional processing cost
Total costs allocated to Product X
Relative sales value at split-off:
Allocated joint cost (P40,000/P100,000) x P60,000
Add: Additional processing cost
Total costs allocated to Product X
P30,000
9,000
P39,000
P24,000
9,000
P33,000
Note: Sales value at split-off is equal to final sales value less additional processing costs.
The ratio is shown below:
Product X (P49,000 – P9,000)
P40,000
- 40/100
Product Y (42,000 – 7,000)
35,000
- 35/100
Product Z (30,000 – 5,000)
25,000
- 25/100
P100,000
2. Since the sales values at split-off are already known, you should not have attempted to
compute the relative sales value by subtracting the additional processing costs from the
final sales values. This approach is only used when sales values at the split-off point are
not available.
Although the question required the correct allocated joint cost for products W, X, Y and
Z, you only needed to compute the correct allocated cost for onr product to select the
proper choice.
The easiest approach would have been as follows:
Allocation to Product Z:
20,000
x 160,000 = P16,000
200,000
3. The problem indicates that 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 Product F has 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 sales value at split-off. The
joint costs allocated to product G is 120,000 x 25% = P30,000.
4. First compute the sales value at split-off ratio as follows:
Final
Add’l
Sales Value
Sales Value
Processing Cost
At split-off
Ratio
Product A (1,600 x P200)
P320,000
P100,000
P220,000 220/400
Product B (800 x P400)
320,000
140,000
180,000 180/400
P400,000
The allocated joint cost to A can now be computed as shown below:
220
x P120,000 = P66,000
400
5. The net realizable values for products PEL and VEL are:
PEL
VEL
Sales value –
(800 x P25)
P20,000
(400 x P50)
P20,000
Costs to convert into a salable form
8,000
12,000
Net realizable value
P12,000
P8,000
Product PEL represents 60% (P12,000 ÷ P20,000) of the total net realizable value and
thus should be assigned 60% of the joint costs. Thus, the joint costs allocated to product
PEL would be (P12,000 ÷ P20,000) x 15,000 = P9,000.
6.
A 2,000 x P30
B 1,000 x 60
Total
=
=
Final
Sales
Value
P60,000
60,000
Further
Process
Costs
- P24,000 =
- 36,000 =
Joint costs allocated to Product A:
36/60 x P55,000 = P33,000
7. Product AA (15,000 costs x P2)
Product BB (15,000 units x P5)
Total
The ratio therefore are:
AA = 30/105 or 29%
BB = 75/105 or 71%
8. The computation is:
Sales Value
at Point of
Split-off
P36,000
24,000
P60,000
P30,000
75,000
P105,000
Product
AA
BB
Sales
Value
P9,000
6,000
P15,000
Additional
Processing
Cost
P3,000
3,000
P6,000
Sales
Value
at Split-off
P6,000
3,000
P9,000
9. Apply the following formula:
Joint
Sales value at spilt-off
costs = Total sales value
allocated
P48,000
Sales
Value
(N)
=
=
Sales value at (N)
P200,000
Joint
% of
Cost
total
66 2/3 P4,400
2,200
33 1/3
100% P6,600
X total joint costs
X P120,000
P200,000 x P48,000
P120,000
= P80,000
Since the answer (b) is the only one which assigns P80,000 sales value to product N, we
can stop here. Obtaining the sales value of product P is a simple operation:
Sales Value (P) = Total sales value – sales value (N) – sales value (R)
= P200,000 – P80,000 – P50,000
= P70,000
10. Plug given amounts into the basic relative sales value method Joint Cost allocation
formula applicable to product P:
Joint
Sales value at spilt-off
costs = Total sales value
X total joint costs
Allocated
P36,000
=
P36,000 x P100,000
P60,000
= P60,000
11. Since Product S represents 66 2/3% (50,000/75,000) of the total, the total joint cost can
be determined as follows:
P30,000
Or P30,000 x 3/2 = P45,000
66 2/3%
12. The portion of the total joint product costs allocated to Product J was P9,000. Using the
relative sales 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:
P90,000
= P15,000
60
13. Sales value if processed further (Product S)
P126,000
Less: Additional costs if processed further
P26,000
Additional margin if processed further
28,000
54,000
Sales value at split-off
P72,000
14. 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
Product 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:
Ultimate sales price
Allocation of joint costs
P36,000
Further processing costs
12,000
Gross profit
15. First compute the total production cost as shown below:
R
Units produced:
5/10 x 50,000
3/10 x 50,000
=
25,000
2/10 x 50,000
Materials:
P120,000 x 5/10
120,000 x 3/10
=
P60,000
120,000 x 2/10
Joint conversion:
P200,000 x 22/50
200,000 x 16/50
=
88,000
200,000 x 12/50
Further processing
=
30,000
Total cost of production
P178,000
P78,000
(48,000)
P30,000
S
T
15,000
10,000
P36,000
P24,000
64,000
48,000
20,000
P120,000
30,000
P102,000
NOTE: The materials cost is allocated to the three joint products on the basis of relative
production units; the total joint conversion cost is allocated on the basis of relative sales
values at split-off point, as follows:
R
S
T
Final sales values:
25,000 x P10
15,000 x 12
P250,000 P180,000 P150,000
10,000 x 15
Less: Further processing costs
Sales values at split-off point
Fractional share of conversion costs
30,000
P220,000
22/50
20,000
30,000
P160,000 P120,000
16/50
12/50
The unit cost can now be computed as follows:
Product R (P178,000 ÷ 25,000)
P7.12
Product S (120,000 ÷ 15,000)
P8.00
Product T (102,000 ÷ 10,000)
P10.20
16. First allocate the joint cost among the three products:
Products Sales Value
Ratio
Allocated Joint Cost
#111
P1,200,000 1,200/4,000
P420,000
#777
800,000
800/4,000
280,000
#999
2,000,000 2,000/4,000
700,000
P4,000,000
P1,400,000
#111
#777
Final sales value
P2,160,000
P968,000
Less: Allocated Joint Cost
420,000
280,000
Addt’l. Processing Cost
960,000
168,000
Total
1,380,000
448,000
Contribution margin
P780,000
P500,000
Units produced
60,000
20,000
Contribution margin/unit
P
13
P
26
Sales value at split-off + additional processing cost.
#999
P2,520,000
700,000
520,000
1,220,000
P1,300,000
20,000
P
65
17.
Product
JKA
JKB
JKC
Sales
Value
P44,000
30,000
26,000
P100,000
Ratio
44%
30%
26%
Allocated
Joint Cost
P22,880
15,600
13,520
P52,000
18. Joint Cost
Less: Cost of By Product – Wiz
Sales Value (1,000 x P420)
Less: Addt’l. processing cost
Joint cost to be allocated to Koo and Lam
The allocation is as follows:
Market Value
Koo –
P6,000,000
Lam –
6,000,000
P12,000,000
Ratio
50%
50%
÷
No. of
Kilos
4,000
3,000
1,000
=
Unit
Cost
P5.72
5.20
13.52
P3,840,000
420,000
180,000
Allocated JC
P1,800,000
1,800,000
P3,600,000
240,000
P3,600,000
19. 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.
Present Method
Proposed Method
Sales
P300,000
P300,000 + P90,000*
CGS
P200,000 – P90,000
P200,000
Gross Margin
P190,000
P190,000
*100,000 units x (P1 selling price – P0.10 selling cost)
Note that the change in accounting treatment has no effect on gross margin.
20. The requirement is to find the cost of sales for both gasoline and the gasoline byproduct. The value of the by-products may be recognized at two points in time: (1) at
the time of production, or (2) at the time of sale. Under the production method (as
given in the problem), the net realizable value of the by-products produced is deducted
from the cost of the major products produced. The net realizable value of the byproduct is as follows:
Sales value of by-product
Less: Separable costs
Net realizable value
P30,000
25,000
5,000
(10,000 + 15,0000)
Therefore, cost of sales for gasoline is calculated as follows:
Total production (joint) costs
Less: Net realizable value of by-product
Net Production Cost
Less: Costs in 12/31/13 inventory
Cost of Sales
P120,000
5,000
115,000
15,000
P100,000
Therefore, total cost of gasoline sales is P100,000, and no cost of sales is reported for
the by-product.
21. The requirement is to determine how to allocate joint cost using the net realizable va lue
(NRV) method when a by-product is involved. NRV is the predicted selling price in the
ordinary course of business less reasonably predictable costs of completion and
disposal. The joint cost of P54,000 is reduced by the NRV of the by-product (P4,000) to
get the allocable joint cost (P50,000). The computation is:
Products Sales Value at Split-off
Weighting
Joint Costs Allocated
JJ
P40,000
40,000/75,000 x 50,000
P26,667
MM
35,000
35,000/75,000 x 50,000
23,333
P75,000
P50,000
Therefore, P26,667 of the joint cost should be allocated to product JJ.
22. The entry in answer choice “b” is the result of the following procedures related to the
by-product sales:
a) Reduce the manufacturing costs of Coco by the estimated realizable value of byproduct sales:
Work in process – Saloc
P75,000
Work in process – Coco
Computation:
Sales price of Saloc (45,000 x P3)
Less: Further processing cost
Net realizable value of Saloc
b) Record further processing costs of Saloc:
Work in process – Saloc
P60,000
Raw materials
Direct labor
Factory overhead
c) Record cost of By-Product transferred to stockroom:
By-product – Saloc
135,000
Work in process – Saloc
23. First compute the allocable joint cost to PP and VV.
Joint cost
Less: Cost of by-product ZZ:
Sales price (1,000 x P5)
Less: Operating expense (1,000 x P2)
Operating profit (1000 x P1)
Allocable Joint Cost
P75,000
P135,000
60,000
P 75,000
30,000
22,500
7,500
135,000
P172,000
P5,000
2,000
1,000
3,000
2,000
P170,000
Allocated as follows:
PP: 5,000 x (P50-P10)
VV: 4,000 x (40-5)
Total
Sales Value at Split-off
P200,000
140,000
P340,000
Ratio
200/340
140/340
The gross profit from sales of PP can now be computed:
Sales (5,000 x P50)
Less: Allocated joint cost
100,000
Further processing cost (5,000 x P10)
50,000
Gross profit
Allocated Joint Costs
P100,000
70,000
P170,000
P250,000
150,000
P100,000
24.
Method A
Unit cost (total production cost
divided by total units produced):
Prod. A
Prod. B
Prod. C
Prod. X
P24,884.50/317
P78.50
P78.50
Unit “market”:
Unit selling price
P100
P100
Unit selling expense:
P612/P12,240 = 5%
5
5
Unit realizable value
P
95
P
95
Prod. A, B & C = 119.5 x P78.50
By-product X = 55 x 31.35
Dec. 31, 2013 inventory at lower of cost or market
P78.50
P78.50
P100
P100
5
1.65
P
95 P 31.35
P9,380.75
1,724.25
P11,105
Method B
Prod. A
Prod. B
Unit cost (total production cost
less sales value of X produced,
divided by total units of
A, B & C produced):
P22,079.50/232
P95.16
P95.16
Unit “market”:
Unit selling price
P100
P100
Unit selling expense:
P612/P11,250 = 5.44%
5.44
5.44
Unit realizable value
P 94.56 P 94.56
Prod. A, B & C = 119.5 x P94.56
By-product X = 55 x 33
Dec. 31, 2013 inventory at lower of cost or market
Prod. C
P95.16
P100
5.44
P 94.56
P11,300
1,815
P13,115
25. Unit cost, if joint production costs is apportioned on a
“unit cost per kilo” basis: P99,538/1,268 kilos
Percent of selling expense to selling price: P2,460/49,200
P78.50
5%
December 31, 2011 inventory at “lower of cost or market”:
MM: 346 kilos @ P78.50
RR:
108 kilos @ 78.50
SS:
24 kilos @ 78.50
Total 478 kilos @ 78.50
CC
220 kilos @ 33.25 (net of 5% selling expense)
Total: 698 kilos
P37,523
7,315
P44,838
Unit cost, if the company recognizes income in the period in which the by-product is
produced with no selling expense assigned to the by-product:
Total production costs
Less: By-product sales value: 340 kilos @P35
Joint costs of MM, RR & SS
P99,538
11,900
P87,638
P87,638/928 kilos
P94.44
December 31, 2013 inventory at “lower cost or market”:
MM, RR & SS: 478 kilos @ P94.44
P45,142.32
By-product
220 kilos @ 35.00
7,700.00
Total
638 kilos
P52,842.32
26. Sales revenue of by-product – Sawdust (P10 x 2,000 kilos)
P20,000
Selling expenses
Packaging costs (P.50 x 2,000)
P1,000
Sales commission (10% x 20,000)
2,000
3,000
Net revenue
P17,000
Joint processing costs
P100,000
Less net revenue from sale of by-product
17,000
Joint costs to be allocated to Main products
P93,000
Allocation to Narra A (P93,000 x 400/600)
27. Sales revenue:
Main product (8,000 x P20)
Cost of goods sold:
Total manufacturing costs
P120,000
Less by product revenue (2,000 x 2)
4,000
Net manufacturing costs
P116,000
Less Main product inventory:
(2,000/10,000 x P116,000)
23,200
Gross margin
28. Rain Dew (per no. 27)
P23,200
Resi – Dew (2,000 – 1,400) x P2
P 1,200
29. Sales revenue:
Main product (8,000 x P20)
By product (1,400 x P2)
Total revenues
Cost of goods sold:
Total manufacturing costs
P120,000
Less Main product inventory:
(2,000/10,000 x P120,000)
24,000
Gross margin
30. Rain Dew (per no. 29)
P24,000
Resi – Dew
P
0
31. The answer is (c). the computation is as follows:
Units produced (30,000 + 15,000)
Selling price per unit (45,000 ÷ 15,000)
Sales value at split-off
45,000
P 1.50
P67,500
P62,000
P160,000
92,800
P67,200
P160,000
2,800
P162,800
96,000
P66,800
Before answering numbers 32-34, prepare a schedule of allocating joint cost of
P180,000 (total cost in Department 1) among the joint products as follows:
Product
Final
Additional
Estimated
%
Allocated
Sales value
Processing cost Net realizable
Joint cost
D
P67,500
P67,500 30%
P54,000
E
144,000
P99,000
45,000 20%
36,000
F
283,500
171,000
112,500 50%
90,000
P225,000
32. The answer is (d) computed as follows:
Allocated joint cost
P36,000
Additional processing cost
99,000
Total costs of product E
P135,000
33. The correct choice is P18,000 (P54,000 x 15/45)
34. The answer is P65,250, computed as follows:
Allocated joint cost
P90,000
Additional processing costs
171,000
Total cost
P261,000
Cost of ending inventory (P261,000 x 22,500/90,000)
P62,250
35. The answer is (a), computed as follows:
Product
Units
Unit
Sales value at
produced
Sale price
split-off
A
800
P6.50
P5,200
B
1,100
8.25
9,075
C
1,500
8.00
12,000
Total
P26,275
Allocated joint cost of product A (P9,075/P26,275 x P32,500)
P11,225
36. The answer is (b). The computation is:
Product
Units
Unit
Sales value at
produced
Sale price
split-off
A
800
P3.50
P2,800
B
1,100
4.05
4,455
C
1,500
4.00
6,000
Total
P13,255
Allocated joint cost of product C (P6,000/P13,255 x P32,500)
P14,711
37. The correct choice is (b).
Sales value of by-product (900 x P4.25)
P3,825
Disposal cost (900 x P1.75)
(1,575)
Net realizable value
P2,250
Manufacturing costs
P120,000
Net realizable value of by-product
( 2,250)
Cost of “VITAMIX”
P117,750
Unit cost (P117,750/15,000 units)
P 7.85
38. The answer is P24,000 (P120,000 x 3,000/15,000).
39. The correct answer is (c). the computation is as follows:
Sales (12,000 units x P16)
Cost of goods sold:
Main product (P12,000 x 12,000/15,000)
P96,000
By-product (600 x P2.50)
( 1,500)
Gross profit
40. The answer is (a) as computed below:
Sales
P192,000
Cost of goods sold
( 96,000)
Gross profit
96,000
Expenses
( 18,000)
Operating income
78,000
Other income (by-product)
1,500
Net income
P79,500
P192,000
94,500
P97,500