CHAPTER 15
JOINT COSTS AND DECISION-MAKING
CHAPTER LEARNING OBJECTIVES
1.
2.
3.
4.
Outline the rationale for joint costing.
Explain the three methods of allocating joint costs.
Determine the factors in deciding whether to sell now or process further.
Describe the two methods of treating by-products and scrap.
Current count is:
Knowledge: 29
Comprehension: 25
Application: 52
Analysis: 25
Evaluation: 0
Synthesis: 0
Total: 131
Number and percentage of questions:
Easy: 30
Medium: 86
Hard: 15
Question types:
Multiple Choice: 105
Short Answer: 5
Brief Exercises: 11
Exercises: 8
Problems: 2
MULTIPLE-CHOICE QUESTIONS
1. A common cost
a. uses a common set of production costs, used in one common production process, to
produce one product.
b. uses a common set of production costs used in one common production process to
yield two products simultaneously.
c. uses a multiple set of production costs, used in one common production process to
yield more than one product simultaneously.
d. uses a common set of production costs used in one common production process to
yield more than one product simultaneously.
Ans: D, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management
2. Products with a substantial value produced simultaneously by the same process up to a
split-off point are called
a. by-products.
b. joint products.
c. separable products.
d. either by-products or joint products.
Ans: B, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management
3. The split-off point is
a. the point in the process the products become separate and identifiable.
b. the point in the process, the company determines which product to process further.
c. the point in the production process where no further processing is needed.
d. the point in the process the product is ready to sell.
Ans: A, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management
4. A secondary product recovered in producing a primary product during the joint process
that has future use is called
a. scrap.
b. waste.
c. a by-product.
d. a joint product.
Ans: C, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management
5. All of the following statements about joint costs are true except:
a. Allocation is not necessary when costs are incurred using a joint process.
b. Joint costs are the costs incurred jointly in the production of two or more products.
c. The costs cannot be directly assigned to any one product involved.
d. Joint costs are incurred when making multiple products.
Ans: A, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
6. The cost of fertilizing and harvesting sunflowers is an example of:
a. joint products.
b. by-products
c. joint costs.
d. cost allocation.
Ans: C, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
7. Molasses would be considered what type of unintended output from refining sugar?
a. Joint product.
b. Scrap.
c. Waste.
d. By-product.
Ans: D, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
8. Harvesting of corn produces corn husks. In a joint process, what type of unintended
output are corn husks?
a. Joint product.
b. Scrap.
c. Waste.
d. By-product.
Ans: B, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
9. In a joint process, waste would be considered all of the following except:
a. Waste is an unintended output.
b. Waste has economic value.
c. Waste is disposed of.
d. Waste is a by-product.
Ans: B, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
10. Once a company classifies an unintended output of the joint process as a by-product,
waste, or scrap,
a. the company will continue that classification until it no longer produces the product.
b. the company will evaluate the classifications yearly.
c. the classifications will remain fluid and can change as the usefulness of the products
changes.
d. the classifications will change based on the profitability of the product.
Ans: C, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management
11. The following costs are included in joint costs:
a. direct materials.
b. direct labor.
c. direct material and direct labor.
d. direct material, direct labor, and manufacturing overhead.
Ans: D, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management
12. Separable costs are also known as
a. by-products.
b. joint costs.
c. further processing costs.
d. common costs.
Ans: C, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management
13. Further processing costs are costs that
a. are incurred within the joint process.
b. are incurred to sell the product as is.
c. are incurred to create a by-product.
d. are incurred to process the product further.
Ans: D, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management
14. All of the following statements about joint products are true, except:
a. All joint products can be sold at the split-off point.
b. A product that is processed further should be sold for a higher price.
c. Management must make a decision at split-off to process further or sell the product.
d. There is no economic value attached to some products at the split-off point.
Ans: A, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
15. Xander incurs costs of $20,000 for direct materials, $15,000 for direct labor, and $10,000
for manufacturing overhead. The costs incurred resulted in a single process that resulted
in two products, Bugs, and Rugs. Bugs can be sold at split-off for $60,000 or be
processed further at a cost of $15,000. The new product, Dubs, can be sold for
$105,000. How much are Xander’s joint costs?
a. $30,000.
b. $35,000.
c. $45,000.
d. $60,000.
Ans: C, LO 1, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: $20,000 + $15,000 + $10,000 = $45,000.
DM + DL + MOH (Before split-off)
16. When manufacturing a wooden chair, sawdust would be an example of
a. Joint product.
b. Scrap.
c. Waste.
d. By-product.
Ans: D, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
17. Which of the following is a by-product?
a. whole milk.
b. lumber.
c. honey.
d. fertilizer.
Ans: D, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
18. Which of the following statements best describes a by-product?
a. A product that has a selling price similar to that of the main product.
b. A product that is created along with the main product and the sales value does not
cover its cost of production.
c. A product that is produced from material that would otherwise be scrapped.
d. A product that has a lower unit selling price than the main product.
Ans: C, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
19. Which of the following are identifiable as different individual products before split-off for
cost accumulate purposes?
Option
By-products
Joint products
A
No
No
B
Yes
No
C
Yes
Yes
D
No
Yes
a. A.
b. B.
c. C.
d. D.
Ans: A, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
20. Joint costs are
a. separable costs.
b. allocated on the basis of cause-and-effect relationships.
c. further processing costs.
d. allocated arbitrarily.
Ans: B, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management
21. The _____ method of allocating joint costs uses pounds of product produced.
a. sales value at split-off.
b. net realizable value.
c. physical quantities.
d. weighted average.
Ans: C, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management
22. The method of allocating joint costs that would assign the same amount of cost per unit to
two joint products that sell for $5 and $15, respectively, is the
a. sales value at split-off method.
b. net realizable value method.
c. physical quantities method.
d. direct allocation method.
Ans: C, LO 2, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
23. When there is no ready market price available for an individual product at the split-off
point, which method of allocation should be used?
a. sales value at split-off method.
b. net realizable value method.
c. physical quantities method.
d. direct allocation method.
Ans: B, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management
24. The sales value at split-off method allocates joint costs of production using the
a. prospective sales values of the process’s total production and the relative proportion
of each product’s sales value to the total.
b. relative proportion of each product’s sales value to the total.
c. final sales value less further processing costs after the split-off point.
d. prospective sales values of the process’s total production.
Ans: A, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management
25. Which allocation method recognizes that costs incurred after the split-off point are part of
the cost total on which profit is expected to be earned?
a. sales value at split-off method.
b. net realizable value method.
c. physical quantities method.
d. direct allocation method.
Ans: B, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management
26. Which of the following statements is true regarding the consideration of allocation costs at
split-off?
a. Allocating joint costs using the average costs is the quickest and most accurate
process.
b. The sales value at the split-off method is the only true way to allocate joint costs to
joint products.
c. There are three methods that can be used to allocate costs.
d. If there are two products equal in value at the split-off point, it would make the most
sense to use an even allocation of costs.
Ans: C, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management
27. The sales price at split-off is used to allocate
Option
Cost Beyond Split-Off
A
No
B
Yes
C
Yes
D
No
Joint Costs
No
No
Yes
Yes
a. A.
b. B.
c. C.
d. D.
Ans: D, LO 2, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
28. The net realizable value (NRV) of a product is the
a. final sales value less additional processing costs and allocated joint costs.
b. final sales value less additional processing costs.
c. sales at split-off less additional process costs.
d. sales at split-off less additional processing costs and allocated joint costs.
Ans: B, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management
29. If the sales price at the split-off point is available and reliable, the best method of
allocating joint product costs is the
a. sales value at split-off method.
b. net realizable value method.
c. physical quantities method.
d. direct allocation method.
Ans: A, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management
30. If the sales price at the split-off point is not available, but the net realizable value is
available and reliable, the best method of allocating joint product costs is the
a. sales value at split-off method.
b. net realizable value method.
c. physical quantities method.
d. direct allocation method.
Ans: B, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management
31. If the sales price at the split-off point and the net realizable value is not available, the best
method of allocating joint product costs is the
a. sales value at split-off method.
b. net realizable value method.
c. physical quantities method.
d. direct allocation method.
Ans: C, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management
32. If the necessary information is available, which method is preferred when allocating joint
costs?
a. sales value at split-off method.
b. net realizable value method.
c. physical quantities method.
d. direct allocation method.
Ans: A, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Measurement IMA: Cost Management
33. The sales value at split-off method is preferred. All the following are true regarding the
reasons, except:
a. Sales prices at the split-off point are objective.
b. The sales value at split-off method measures the true economic value of a company.
c. The sales value at split-off method measures benefits returned to the company.
d. The ROI (return on investment) is accurately measured and the point of being in
business.
Ans: B, LO 2, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
34. The biggest challenge of the physical quantities method is
a. the economic value returned to the company is accurately measured.
b. the significant variability in end prices.
c. no common denominator.
d. companies will fully expense joint costs in the periods they are incurred.
Ans: C, LO 2, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
35. If a company has no estimates to allocate joint product costs, a company will typically
a. use the sales value at split-off method.
b. use the net realizable value method.
c. use the physical quantities method.
d. fully expense the joint costs in the period they are incurred.
Ans: C, LO 2, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
36. Which of the following would not be considered a physical measure to allocate joint costs
using the physical quantities method?
a. feet of lumber.
b. dollars of labor.
c. ounces of gold.
d. tons of steel.
Ans: B, LO 2, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
37. Cisco Company manufactures three products, A, B & C. These three products are
created through a joint process that costs $26,000. The following data is provided for the
three products:
Product
A
B
C
Units Produced
6,000
10,000
8,000
Sales Value
at Split-off
$2,500
5,000
3,000
What is the amount of joint costs assigned to Product A using the sales-value-at-split-off
method? (Round the nearest whole dollar)
a. $1,010.
b. $6,190.
c. $6,500.
d. $14,857.
Ans: B, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: $2,500 ÷ ($2,500 + $5,000 + $3,000) x $26,000 = $6,190.
A sales value. ÷ (A sales value. + B Sales value. + C sales value.) x joint costs
38. Cisco Company manufactures three products, A, B & C. These three products are
created through a joint process that costs $26,000. The following data is provided for the
three products:
Product
A
B
C
Units Produced
6,000
10,000
8,000
Sales Value
at Split-off
$2,500
5,000
3,000
What is the amount of joint costs assigned to Product B using the sales-value-at-split-off
method? (Round the nearest whole dollar)
a. $2,019.
b. $10,833.
c. $12,381.
d. $24,762.
Ans: C, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: $5,000 ÷ ($2,500 + $5,000 + $3,000) x $26,000 = $12,381.
B sales value. ÷ (A sales value. + B Sales value. + C sales value.) x joint costs
39. Cisco Company manufactures three products, A, B & C. These three products are
created through a joint process that costs $26,000. The following data is provided for the
three products:
Product
A
B
C
Units Produced
6,000
10,000
8,000
Sales Value
at Split-off
$2,500
5,000
3,000
What is the amount of joint costs assigned to Product C using the sales-value-at-split-off
method? (Round the nearest whole dollar)
a. $1,212.
b. $7,429.
c. $8,667.
d. $19,810.
Ans: B, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: $3,000 ÷ ($2,500 + $5,000 + $3,000) x $26,000 = $7,429.
C sales value. ÷ (A sales value. + B Sales value. + C sales value.) x joint costs
40. Tober Inc. operates a lumber yard. Tober purchases the raw materials for $50,000 and
incurs additional processing costs of $35,000 to obtain three observable joint products.
Further processing and final sales values for the products are as follows:
Product
25 ft board
30 ft board
50 ft board
Further
Processing Costs
$10,000
12,000
18,000
Final
Sales Value
$50,000
55,000
62,000
What is the amount of joint costs assigned to the 25 ft board using the net realizable
value (NRV) method? (Round the nearest whole dollar)
a. $40,000.
b. $21,250.
c. $25,449.
d. $26,772.
Ans: D, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: ($50,000 - $10,000) + ($55,000 - $12,000) + ($62,000 – $18,000) = $127,000
($50,000 - $10,000) ÷ $127,000 x ($50,000 + $35,000) = $26,772.
(25 ft sales value – 25 ft costs) + (30 ft sales value – 30 ft costs) +(50 ft sales value – 50 ft costs) = total
NRV
(25 ft sales value – 25 ft costs) ÷ total NRV x (raw mat. + additional processing costs)
41. Tober Inc. operates a lumber yard. Tober purchases the raw materials for $50,000 and
incurs additional processing costs of $35,000 to obtain three observable joint products.
Further processing and final sales values for the products are as follows:
Product
25 ft board
30 ft board
50 ft board
Further
Processing Costs
$10,000
12,000
18,000
Final
Sales Value
$50,000
55,000
62,000
What is the amount of joint costs assigned to the 30 ft board using the net realizable
value (NRV) method? (Round the nearest whole dollar)
a. $43,000.
b. $25,500.
c. $27,994.
d. $28,780.
Ans: D, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: ($50,000 - $10,000) + ($55,000 - $12,000) + ($62,000 – $18,000) = $127,000
($55,000 - $12,000) ÷ $127,000 x ($50,000 + $35,000) = $28,780.
(25 ft sales value – 25 ft costs) + (30 ft sales value – 30 ft costs) +(50 ft sales value – 50 ft costs) = total
NRV
(30 ft sales value – 30 ft costs) ÷ total NRV x (raw mat. + additional processing costs)
42. Tober Inc. operates a lumber yard. Tober purchases the raw materials for $50,000 and
incurs additional processing costs of $35,000 to obtain three observable joint products.
Further processing and final sales values for the products are as follows:
Product
25 ft board
30 ft board
50 ft board
Further
Processing Costs
$10,000
12,000
18,000
Final
Sales Value
$50,000
55,000
62,000
What is the amount of joint costs assigned to the 50 ft board using the net realizable
value (NRV) method? (Round the nearest whole dollar)
a. $44,000.
b. $29,449.
c. $31,557.
d. $38,250.
Ans: B, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: ($50,000 - $10,000) + ($55,000 - $12,000) + ($62,000 – $18,000) = $127,000
($62,000 - $18,000) ÷ $127,000 x ($50,000 + $35,000) = $29,449.
(25 ft sales value – 25 ft costs) + (30 ft sales value – 30 ft costs) +(50 ft sales value – 50 ft costs) = total
NRV
(50 ft sales value – 50 ft costs) ÷ total NRV x (raw mat. + additional processing costs)
43. Tober Inc. operates a lumber yard. Tober purchases the raw materials for $50,000 and
incurs additional processing costs of $35,000 to obtain three observable joint products.
Further processing and final sales values for the products are as follows:
Product
25 ft board
30 ft board
50 ft board
Further
Processing Costs
$10,000
12,000
18,000
Final
Sales Value
$50,000
55,000
62,000
What is the gross margin for the 25 ft board using the net realizable value (NRV) method
to allocate joint costs? (Round the nearest whole dollar)
a. $40,000.
b. $50,000.
c. $13,228.
d. $26,772.
Ans: C, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: ($50,000 - $10,000) + ($55,000 - $12,000) + ($62,000 – $18,000) = $127,000
($50,000 - $10,000) ÷ $127,000 x ($50,000 + $35,000) = $26,772.
$50,000 - $10,000 - $26,772 = $13,228
(25 ft sales value – 25 ft costs) + (30 ft sales value – 30 ft costs) +(50 ft sales value – 50 ft costs) = total
NRV
(25 ft sales value – 25 ft costs) ÷ total NRV x (raw mat. + additional processing costs) = joint costs
Sales value – further processing costs– joint costs
44. Tober Inc. operates a lumber yard. Tober purchases the raw materials for $50,000 and
incurs additional processing costs of $35,000 to obtain three observable joint products.
Further processing and final sales values for the products are as follows:
Product
25 ft board
30 ft board
50 ft board
Further
Processing Costs
$10,000
12,000
18,000
Final
Sales Value
$50,000
55,000
62,000
What is the gross margin for the 30 ft board using the net realizable value (NRV) method
to allocate joint costs? (Round the nearest whole dollar)
a. $43,000.
b. $55,000.
c. $14,220.
d. $28,780.
Ans: C, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: ($50,000 - $10,000) + ($55,000 - $12,000) + ($62,000 – $18,000) = $127,000
($55,000 - $12,000) ÷ $127,000 x ($50,000 + $35,000) = $28,780.
$55,000 - $12,000 - $28,780 = $14,220
(25 ft sales value – 25 ft costs) + (30 ft sales value – 30 ft costs) +(50 ft sales value – 50 ft costs) = total
NRV
(30 ft sales value – 30 ft costs) ÷ total NRV x (raw mat. + additional processing costs)
Sales value – further processing costs– joint costs
45. Tober Inc. operates a lumber yard. Tober purchases the raw materials for $50,000 and
incurs additional processing costs of $35,000 to obtain three observable joint products.
Further processing and final sales values for the products are as follows:
Product
25 ft board
30 ft board
50 ft board
Further
Processing Costs
$10,000
12,000
18,000
Final
Sales Value
$50,000
55,000
62,000
What is the gross margin for the 50 ft board using the net realizable value (NRV) method
to allocate joint costs? (Round the nearest whole dollar)
a. $44,000.
b. $62,000.
c. $14,551.
d. $29,449.
Ans: C, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: ($50,000 - $10,000) + ($55,000 - $12,000) + ($62,000 – $18,000) = $127,000
($62,000 - $18,000) ÷ $127,000 x ($50,000 + $35,000) = $29,449.
$62,000 - $18,000 - $29,449 = $14,551
(25 ft sales value – 25 ft costs) + (30 ft sales value – 30 ft costs) +(50 ft sales value – 50 ft costs) = total
NRV
(50 ft sales value – 50 ft costs) ÷ total NRV x (raw mat. + additional processing costs)
Sales value – further processing costs– joint costs
46. Expo manufacturing produces four different drinks. The joint process incurs costs of
$250,000. The following information is related to the four products.
Weight
Selling Price
Product
Units Produced
per Unit
per Unit
Beatle
5,000
8 oz
$1.10
Grasshopper
3,750
12 oz
1.50
Locust
2,500
16 oz
1.95
Buggy
1,250
24 oz
2.50
Using the physical quantities methods of allocating joint costs, how much joint costs
would be allocated to Beatle? (Round the nearest whole dollar)
a. $33,333.
b. $39,007.
c. $70,362.
d. $100,000.
Ans: A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: 8 + 12 + 16 + 24 = 60 total oz
8 ÷ 60 x $250,000 = $33,333.
beat oz + grass oz + loc oz + bug oz = total oz
beat oz ÷ total oz x joint costs
47. Expo manufacturing produces four different drinks. The joint process incurs costs of
$250,000. The following information is related to the four products.
Weight
Selling Price
Product
Units Produced
per Unit
per Unit
Beatle
5,000
8 oz
$1.10
Grasshopper
3,750
12 oz
1.50
Locust
2,500
16 oz
1.95
Buggy
1,250
24 oz
2.50
Using the physical quantities methods of allocating joint costs, how much joint costs
would be allocated to Grasshopper? (Round the nearest whole dollar)
a. $50,000.
b. $53,191.
c. $63,966.
d. $75,000.
Ans: A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: 8 + 12 + 16 + 24 = 60 total oz
12 ÷ 60 x $250,000 = $50,000.
beat oz + grass oz + loc oz + bug oz = total oz
grass oz ÷ total oz x joint costs
48. Expo manufacturing produces four different drinks. The joint process incurs costs of
$250,000. The following information is related to the four products.
Weight
Selling Price
Product
Units Produced
per Unit
per Unit
Beatle
5,000
8 oz
$1.10
Grasshopper
3,750
12 oz
1.50
Locust
2,500
16 oz
1.95
Buggy
1,250
24 oz
2.50
Using the physical quantities methods of allocating joint costs, how much joint costs
would be allocated to Locust? (Round the nearest whole dollar)
a. $50,000.
b. $62,367.
c. $66,667.
d. $69,149.
Ans: C, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: 8 + 12 + 16 + 24 = 60 total oz
16 ÷ 60 x $250,000 = $66,667.
beat oz + grass oz + loc oz + bug oz = total oz
loc oz ÷ total oz x joint costs
49. Expo manufacturing produces four different drinks. The joint process incurs costs of
$250,000. The following information is related to the four products.
Weight
Selling Price
Product
Units Produced
per Unit
per Unit
Beatle
5,000
8 oz
$1.10
Grasshopper
3,750
12 oz
1.50
Locust
2,500
16 oz
1.95
Buggy
1,250
24 oz
2.50
Using the physical quantities methods of allocating joint costs, how much joint costs
would be allocated to Buggy? (Round the nearest whole dollar)
a. $25,000.
b. $53,305.
c. $88,652.
d. $100,000.
Ans: D, LO 2, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: 8 + 12 + 16 + 24 = 60 total oz
24 ÷ 60 x $250,000 = $100,000.
beat oz + grass oz + loc oz + bug oz = total oz
bug oz ÷ total oz x joint costs
50. Sky airlines produces two different aircrafts. The joint process incurs costs of $10 million.
Both aircrafts can be sold at split-off or processed further to increase the final sales value.
The following information is related to the two products. (all costs are recorded in
millions)
Product
B752
B797
Units
15
25
Weight per
Unit (lbs)
90,000
110,000
Final
Sales Value
$420
480
Further
Sales Value at
Processing Costs at Split-Off
$200
$230
260
310
If the sales price at split-off provided is reliable, what are the joint costs allocated to B752,
using the appropriate method of allocation?
a. $4.26 million.
b. $4.50 million.
c. $4.67 million.
d. $5 million.
Ans: A, LO 2, Bloom: AN, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: $230 + $310 = $540
$230 ÷ $540 x $10 = $4.26
B752sale at split-off + B797 sale at split-off = total sale at split-off
B752sale at split-off ÷ total sale at split-off x joint process costs
51. Sky airlines produces two different aircrafts. The joint process incurs costs of $10 million.
Both aircrafts can be sold at split-off or processed further to increase the final sales value.
The following information is related to the two products. (all costs are recorded in
millions)
Weight per
Final
Further
Sales Value at
Product
Units
Unit (lbs)
Sales Value
Processing Costs at Split-Off
B752
15
90,000
$420
$200
$230
B797
25
110,000
480
260
310
If the sales price at split-off provided is reliable, what is the gross margin for B752, using
the appropriate method of allocation?
a. $215 million.
b. $215.5 million.
c. $215.74 million.
d. $220 million.
Ans: C, LO 2, Bloom: AN, Difficulty: Medium, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: $230 + $310 = $540
$230 ÷ $540 x $10 = $4.26
$420 - $200 - $4.26 = $215.74
B752sale at split-off + B797 sale at split-off = total sale at split-off
B752sale at split-off ÷ total sale at split-off x joint process costs = B752 joint cost
B752 final sales– B752 further processing cost – B752 joint cost
52. Sky airlines produces two different aircrafts. The joint process incurs costs of $10 million.
Both aircrafts can be sold at split-off or processed further to increase the final sales value.
The following information is related to the two products. (all costs are recorded in
millions)
Product
B752
B797
Units
15
25
Weight per
Unit (lbs)
90,000
110,000
Final
Sales Value
$420
480
Further
Sales Value at
Processing Costs at Split-Off
$200
$230
260
310
If the sales price at split-off provided is reliable, what is the joint costs allocated to B797,
using the appropriate method of allocation?
a. $5 million.
b. $5.33 million.
c. $5.50 million.
d. $5.74 million.
Ans: D, LO 2, Bloom: AN, Difficulty: Hard, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: $230 + $310 = $540
$310 ÷ $540 x $10 = $5.74
B752sale at split-off + B797 sale at split-off = total sale at split-off
B797sale at split-off ÷ total sale at split-off x joint process costs
53. Sky airlines produces two different aircrafts. The joint process incurs costs of $10 million.
Both aircrafts can be sold at split-off or processed further to increase the final sales value.
The following information is related to the two products. (all costs are recorded in
millions)
Weight per
Final
Further
Sales Value at
Product
Units
Unit (lbs)
Sales Value
Processing Costs at Split-Off
B752
15
90,000
$420
$200
$230
B797
25
110,000
480
260
310
If the sales price at split-off provided is reliable, what is the gross margin for B797, using
the appropriate method of allocation?
a. $214.26 million.
b. $214.50 million.
c. $215 million.
d. $220 million.
Ans: A, LO 2, Bloom: AN, Difficulty: Hard, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: $230 + $310 = $540
$310 ÷ $540 x $10 = $5.74
$480 - $260 - $5.74 = $214.26
B752sale at split-off + B797 sale at split-off = total sale at split-off
B797sale at split-off ÷ total sale at split-off x joint process costs = B797 joint cost
B797 final sales– B797 further processing cost – B797 joint cost
54. Sky airlines produces two different aircrafts. The joint process incurs costs of $10 million.
Both aircrafts can be sold at split-off or processed further to increase the final sales value.
The following information is related to the two products. (all costs are recorded in
millions)
Weight per
Final
Further
Sales Value at
Product
Units
Unit (lbs)
Sales Value
Processing Costs at Split-Off
B752
15
90,000
$420
$200
$230
B797
25
110,000
480
260
310
If the sales price at split-off provided is not reliable, but the final sales value and further
processing costs are reliable, what is the joint costs allocated to B752 using the
appropriate method of allocation?
a. $4.26 million.
b. $4.50 million.
c. $4.67 million.
d. $5 million.
Ans: D, LO 2, Bloom: AN, Difficulty: Hard, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: ($420 - $200) + ($480 - $260) = $440
($420 - $200) ÷ $440 x $10 = $5
(B752 final sales– B752 further processing cost) + (B797 final sales– B797 further processing cost) = total
NRV
(B752 final sales– B752 further processing cost) ÷ total NRV x joint process costs
55. Sky airlines produces two different aircrafts. The joint process incurs costs of $10 million.
Both aircrafts can be sold at split-off or processed further to increase the final sales value.
The following information is related to the two products. (all costs are recorded in
millions)
Weight per
Final
Further
Sales Value at
Product
Units
Unit (lbs)
Sales Value
Processing Costs at Split-Off
B752
15
90,000
$420
$200
$230
B797
25
110,000
480
260
310
If the sales price at split-off provided is not reliable, but the final sales value and further
processing costs are reliable, what is the gross margin for B752 using the appropriate
method of allocation?
a. $215 million.
b. $215.5 million.
c. $215.74 million.
d. $220 million.
Ans: A, LO 2, Bloom: AN, Difficulty: Hard, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: ($420 - $200) + ($480 - $260) = $440
($420 - $200) ÷ $440 x $10 = $5
$420 - $200 - $5 = $215
(B752 final sales– B752 further processing cost) + (B797 final sales– B797 further processing cost) = total
NRV
(B752 final sales– B752 further processing cost) ÷ total NRV x joint process costs = B752 joint process cost
B752 final sales– B752 further processing cost - B752 joint process cost
56. Sky airlines produces two different aircrafts. The joint process incurs costs of $10 million.
Both aircrafts can be sold at split-off or processed further to increase the final sales value.
The following information is related to the two products. (all costs are recorded in
millions)
Weight per
Final
Further
Sales Value at
Product
Units
Unit (lbs)
Sales Value
Processing Costs at Split-Off
B752
15
90,000
$420
$200
$230
B797
25
110,000
480
260
310
If the sales price at split-off provided is not reliable, but the final sales value and further
processing costs are reliable, what is the joint costs allocated to B797 using the
appropriate method of allocation?
a. $5 million.
b. $5.33 million.
c. $5.50 million.
d. $5.74 million.
Ans: A, LO 2, Bloom: AN, Difficulty: Hard, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: ($420 - $200) + ($480 - $260) = $440
($480 - $260) ÷ $440 x $10 = $5
(B752 final sales– B752 further processing cost) + (B797 final sales– B797 further processing cost) = total
NRV
(B797 final sales– B797 further processing cost) ÷ total NRV x joint process costs
57. Sky airlines produces two different aircrafts. The joint process incurs costs of $10 million.
Both aircrafts can be sold at split-off or processed further to increase the final sales value.
The following information is related to the two products. (all costs are recorded in
millions)
Weight per
Final
Further
Sales Value at
Product
Units
Unit (lbs)
Sales Value
Processing Costs at Split-Off
B752
15
90,000
$420
$200
$230
B797
25
110,000
480
260
310
If the sales price at split-off provided is not reliable, but the final sales value and further
processing costs are reliable, what is the gross margin for B797 using the appropriate
method of allocation?
a. $214.26 million.
b. $214.50 million.
c. $215 million.
d. $220 million.
Ans: C, LO 2, Bloom: AN, Difficulty: Hard, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: ($420 - $200) + ($480 - $260) = $440
($480 - $260) ÷ $440 x $10 = $5
$480 - $260 - $5 = $215
(B752 final sales– B752 further processing cost) + (B797 final sales– B797 further processing cost) = total
NRV
(B797 final sales– B797 further processing cost) ÷ total NRV x joint process costs = B797 joint process cost
B797 final sales– B797 further processing cost - B797 joint process cost
58. Sky airlines produces two different aircrafts. The joint process incurs costs of $10 million.
Both aircrafts can be sold at split-off or processed further to increase the final sales value.
The following information is related to the two products. (all costs are recorded in
millions)
Weight per
Final
Further
Sales Value at
Product
Units
Unit (lbs)
Sales Value
Processing Costs at Split-Off
B752
15
90,000
$420
$200
$230
B797
25
110,000
480
260
310
If the sales price at split-off and the final sales values provided are not reliable, what is
the joint costs allocated to B752 using the appropriate method of allocation?
a. $4.26 million.
b. $4.50 million.
c. $4.67 million.
d. $5 million.
Ans: B, LO 2, Bloom: AN, Difficulty: Hard, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: 90,000 + 110,000 = 200,000
90,000 ÷ 200,000 x 10 = 4.5
B752 lbs + B797 lbs = total lbs
B752 lbs ÷ total lbs x joint cost = B752 joint cost
59. Sky airlines produces two different aircrafts. The joint process incurs costs of $10 million.
Both aircrafts can be sold at split-off or processed further to increase the final sales value.
The following information is related to the two products. (all costs are recorded in
millions)
Weight per
Final
Further
Sales Value at
Product
Units
Unit (lbs)
Sales Value
Processing Costs at Split-Off
B752
15
90,000
$420
$200
$230
B797
25
110,000
480
260
310
If the sales price at split-off and the final sales values provided are not reliable, what is
the gross margin for B752 using the appropriate method of allocation
a. $215 million.
b. $215.5 million.
c. $215.74 million.
d. $220 million.
Ans: B, LO 2, Bloom: AN, Difficulty: Hard, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: 90,000 + 110,000 = 200,000
90,000 ÷ 200,000 x 10 = 4.5
$420 - $200 - $4.5 = $215.5
B752 lbs + B797 lbs = total lbs
B752 lbs ÷ total lbs x joint cost = B752 joint cost
B752 final sales– B752 further processing cost - B752 joint process cost
60. Sky airlines produces two different aircrafts. The joint process incurs costs of $10 million.
Both aircrafts can be sold at split-off or processed further to increase the final sales value.
The following information is related to the two products. (all costs are recorded in
millions)
Weight per
Final
Further
Sales Value at
Product
Units
Unit (lbs)
Sales Value
Processing Costs at Split-Off
B752
15
90,000
$420
$200
$230
B797
25
110,000
480
260
310
If the sales price at split-off and the final sales values provided are not reliable, what is
the joint costs allocated to B797 using the appropriate method of allocation?
a. $5 million.
b. $5.33 million.
c. $5.50 million.
d. $5.74 million.
Ans: C, LO 2, Bloom: AN, Difficulty: Hard, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: 90,000 + 110,000 = 200,000
110,000 ÷ 200,000 x 10 = 5.5
B752 lbs + B797 lbs = total lbs
B797 lbs ÷ total lbs x joint cost = B797 joint cost
61. Sky airlines produces two different aircrafts. The joint process incurs costs of $10 million.
Both aircrafts can be sold at split-off or processed further to increase the final sales value.
The following information is related to the two products. (all costs are recorded in
millions)
Weight per
Final
Further
Sales Value at
Product
Units
Unit (lbs)
Sales Value
Processing Costs at Split-Off
B752
15
90,000
$420
$200
$230
B797
25
110,000
480
260
310
If the sales price at split-off and the final sales values provided are not reliable, what is
the gross margin for B797 using the appropriate method of allocation
a. $214.26 million.
b. $214.50 million.
c. $215 million.
d. $220 million.
Ans: B, LO 2, Bloom: AN, Difficulty: Hard, AACSB: None, AICPA: FN, Measurement IMA: Cost
Management
Solution: 90,000 + 110,000 = 200,000
110,000 ÷ 200,000 x 10 = 5.5
$480 - $260 - $5.5 = $214.5
B752 lbs + B797 lbs = total lbs
B797 lbs ÷ total lbs x joint cost = B797 joint cost
B797 final sales– B797 further processing cost - B797 joint process cost
62. When deciding the point at which a product should be sold to maximize profits in a joint
product costing and analysis, which one of the following costs is relevant?
a. Separable costs after the split-off point.
b. Sales salaries for the period when the units were produced.
c. Joint costs to the split-off point.
d. Purchase costs of the materials required for the joint products.
Ans: A, LO 3, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
63. When considering whether to sell or process a product further, joint costs
a. are essential the decision-making process.
b. are considered sunk costs.
c. will change depending on which decision is made.
d. are considered opportunity costs.
Ans: B, LO 3, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
64. Another term for joint costs is
a. future costs.
b. opportunity costs.
c. incremental costs
d. sunk costs.
Ans: D, LO 3, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
65. Joint costs are only relevant
a. when deciding whether to sell or process further.
b. when considering the opportunity costs.
c. at the split-off point.
d. when producing the final product(s).
Ans: C, LO 3, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
66. When deciding whether to sell or process further, companies will use
a. joint costs.
b. separable costs.
c. the net realizable value.
d. the incremental costs.
Ans: C, LO 3, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
67. Which of the following statements is false regarding an incremental analysis?
a. If the sales value at split-off is greater than the NRV, sell after further processing.
b. If the sales value at split-off is less than the NRV, sell after further processing.
c. If the sales value at split-off is greater than the NRV, sell it without further processing.
d. The sales value at split-off and the NRV need to be analyzed to determine whether to
sell or process further.
Ans: A, LO 3, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
68. When a company is deciding whether to sell at split-off or process further, all the following
assumptions are made except:
a. The marketplace has been assessed, and there is sufficient demand to meet the
company’s target income.
b. The decision is aligned with the organizational objectives.
c. The company has the capacity and capability to process the product further.
d. The decision will lead the company towards minimizing profits.
Ans: D, LO 3, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
69. FlyDucks is deciding whether to sell its current model as is or process it further to create
an enhanced model. The unit cost of the current model is $24 and would sell for $52.
The company would incur further processing costs of $17 per unit and would sell for $68.
What should FlyDucks do?
a. Process further, the company will make an additional $23 per unit.
b. Process further, the company will make an additional $11 per unit.
c. Sell the current model, the company will show an increased profit of $1 per unit.
d. Sell the current model, the company will show an increased profit of $16 per unit.
Ans: C, LO 3, Bloom: AN, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
Solution: $52 - $24 = $28; $68 - $24 - $17 = $27; $28 - $27 = $1 (sell current model)
(current model selling price – cost of current model) – (enhanced model selling price – enhanced model
additional cost) = sell current model
70. Coyote Company spent $8,000 to produce its new device. This new device can be sold
as-is for $10,000 or processed further at an additional cost of $3,000 and will then be sold
for $14,000. Which amounts are relevant to the decision about the new device?
a. $8,000, $10,000, $3,000 and $14,000.
b. $10,000, $3,000 and $14,000.
c. $8,000, $3,000 and $14,000.
d. $8,000, $10,000, and $14,000.
Ans: B, LO 3, Bloom: AN, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
71. Stars Unlimited produces four products through a joint process that incurs costs of
$150,000. Information for these products is as follows:
Product
Units
Produced
Sales Value at
at Split-Off
Gemini
Taurus
Leo
Virgo
3,000
5,000
4,000
6,000
$10,000
30,000
20,000
40,000
If Processed Further
Final
Further
Sales Value
Processing Costs
$15,000
35,000
25,000
45,000
$2,500
3,000
4,000
6,000
Which, if any, products should be processed further?
a. All products should be processed further.
b. Gemini and Taurus should be processed further.
c. Gemini, Virgo, and Leo should be processed further.
d. Gemini, Taurus, and Leo should be processed further.
Ans: D, LO 3, Bloom: AN, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
Solution: Gemini - $15,000 - $10,000 - $2,500 = $2,500 increase (process further)
Taurus - $35,000 - $30,000 - $3,000 = $2,000 increase (process further)
Leo - $25,000 - $20,000 - $4,000 = $1,000 increase (process further)
Virgo - $45,000 - $40,000 - $6,000 = $1,000 decrease (sell as is)
final sales value – sales at split-off – further processing costs = increase (decrease)
72. Stars Unlimited produces four products through a joint process that incurs costs of
$150,000. Information for these products is as follows:
Product
Units
Produced
Sales Value at
at Split-Off
Gemini
Taurus
Leo
Virgo
3,000
5,000
4,000
6,000
$10,000
30,000
20,000
40,000
If Processed Further
Final
Further
Sales Value
Processing Costs
$15,000
35,000
25,000
45,000
$2,500
3,000
4,000
6,000
If Gemini is processed further, profits will
a. increase by $2,500.
b. decrease by $2,500.
c. increase by $12,500.
d. increase by $10,000.
Ans: A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
Solution: $15,000 - $10,000 - $2,500 = $2,500 increase
final sales value – sales at split-off – further processing costs = increase (decrease)
73. Stars Unlimited produces four products through a joint process that incurs costs of
$150,000. Information for these products is as follows:
Product
Units
Produced
Sales Value at
at Split-Off
Gemini
Taurus
Leo
Virgo
3,000
5,000
4,000
6,000
$10,000
30,000
20,000
40,000
If Processed Further
Final
Further
Sales Value
Processing Costs
$15,000
35,000
25,000
45,000
$2,500
3,000
4,000
6,000
If Taurus is processed further, profits will
a. increase by $2,000.
b. decrease by $2,000.
c. increase by $32,000.
d. increase by $30,000.
Ans: A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
Solution: $35,000 - $30,000 - $3,000 = $2,000 increase
final sales value – sales at split-off – further processing costs = increase (decrease)
74. Stars Unlimited produces four products through a joint process that incurs costs of
$150,000. Information for these products is as follows:
Product
Units
Produced
Sales Value at
at Split-Off
Gemini
Taurus
Leo
Virgo
3,000
5,000
4,000
6,000
$10,000
30,000
20,000
40,000
If Leo is processed further, profits will
a. increase by $1,000.
b. decrease by $1,000.
c. increase by $21,000.
d. increase by $20,000.
If Processed Further
Final
Further
Sales Value
Processing Costs
$15,000
35,000
25,000
45,000
$2,500
3,000
4,000
6,000
Ans: A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
Solution: $25,000 - $20,000 - $4,000 = $1,000 increase
final sales value – sales at split-off – further processing costs = increase (decrease)
75. Stars Unlimited produces four products through a joint process that incurs costs of
$150,000. Information for these products is as follows:
Product
Units
Produced
Sales Value at
at Split-Off
Gemini
Taurus
Leo
Virgo
3,000
5,000
4,000
6,000
$10,000
30,000
20,000
40,000
If Processed Further
Final
Further
Sales Value
Processing Costs
$15,000
35,000
25,000
45,000
$2,500
3,000
4,000
6,000
If Virgo is processed further, profits will
a. increase by $1,000.
b. decrease by $1,000.
c. increase by $39,000.
d. increase by $40,000.
Ans: B, LO 3, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
Solution: $45,000 - $40,000 - $6,000 = $1,000 decrease
final sales value – sales at split-off – further processing costs = increase (decrease)
76. The Sweete Shoppe produces a variety of sweet treats. Several treats can be sold at
split-off or further processed to produce a different type of treat. The following three
treats are all produced in a joint processing operation at a cost of $63,000. The costs are
allocated based on pounds produced. Information for these treats is as follows:
Product
Pounds (lb)
Produced
Price per lb at
at Split-Off
Berry Delight
Chocolate Wonder
Caramel Chip
63,000
113,000
38,000
$8.00
10.00
5.00
If Processed Further
Final price
Further
per unit
Processing Costs
$10.00
10.50
5.60
$88,000
43,000
33,000
Which, if any, products should be processed further?
a. Berry Delight only.
b. Berry Delight and Chocolate Wonder.
c. Caramel Chip only.
d. Berry Delight and Caramel Chip.
Ans: B, LO 3, Bloom: AN, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
Solution: Berry Delight – ($10 - $8) x 63,000 - $88,000 = $38,000 increase (process further)
Chocolate Wonder – ($10.50 - $10) x 113,000 - $43,000 = $13,500 increase (process further)
Caramel Chip – ($5.60 – 5) x 38,000 - $33,000 = $10,200 decrease (sell as is)
(final price per unit – price per unit at split-off) x lbs produced – further processing costs = increase
(decrease)
77. The Sweete Shoppe produces a variety of sweet treats. Several treats can be sold at
split-off or further processed to produce a different type of treat. The following three
treats are all produced in a joint processing operation at a cost of $63,000. The costs are
allocated based on pounds produced. Information for these treats is as follows:
Product
Pounds (lb)
Produced
Price per lb at
at Split-Off
Berry Delight
Chocolate Wonder
Caramel Chip
63,000
113,000
38,000
$8.00
10.00
5.00
If Processed Further
Final price
Further
per unit
Processing Costs
$10.00
10.50
5.60
$88,000
43,000
33,000
The net increase or decrease in profits of processing all the treats further is
a. an increase of $41,300.
b. a decrease of $41,300.
c. an increase of $21,700.
d. a decrease of $21,700.
Ans: A, LO 3, Bloom: AN, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
Solution: Berry Delight – ($10 - $8) x 63,000 - $88,000 = $38,000 increase
Chocolate Wonder – ($10.50 - $10) x 113,000 - $43,000 = $13,500 increase
Caramel Chip – ($5.60 – 5) x 38,000 - $33,000 = $10,200 decrease
$38,000 + $13,500 - $10,200 = $41,300 increase
(final price per unit – price per unit at split-off) x lbs produced – further processing costs = increase
(decrease)
Berry delight increase + chocolate wonder increase – caramel chip decrease = net increase (decrease)
78. The Sweete Shoppe produces a variety of sweet treats. Several treats can be sold at
split-off or further processed to produce a different type of treat. The following three
treats are all produced in a joint processing operation at a cost of $63,000. The costs are
allocated based on pounds produced. Information for these treats is as follows:
Product
Pounds (lb)
Produced
Price per lb at
at Split-Off
Berry Delight
Chocolate Wonder
Caramel Chip
63,000
113,000
38,000
$8.00
10.00
5.00
If Processed Further
Final price
Further
per unit
Processing Costs
$10.00
10.50
5.60
$88,000
43,000
33,000
Assuming the company correctly identifies which product(s) to process further, what will
be the company’s increase in profits by further processing the identified product(s)?
a. $41,300.
b. $51,500.
c. $19,453.
d. $39,220.
Ans: B, LO 3, Bloom: AN, Difficulty: Hard, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
Solution: Berry Delight – ($10 - $8) x 63,000 - $88,000 = $38,000 increase
Chocolate Wonder – ($10.50 - $10) x 113,000 - $43,000 = $13,500 increase
$38,000 + $13,500 = $51,500 increase
(final price per unit – price per unit at split-off) x lbs produced – further processing costs = increase
(decrease)
Berry delight increase + chocolate wonder increase = net increase
79. The Sweete Shoppe produces a variety of sweet treats. Several treats can be sold at
split-off or further processed to produce a different type of treat. The following three
treats are all produced in a joint processing operation at a cost of $63,000. The costs are
allocated based on pounds produced. Information for these treats is as follows:
Product
Pounds (lb)
Produced
Price per lb at
at Split-Off
Berry Delight
Chocolate Wonder
Caramel Chip
63,000
113,000
38,000
$8.00
10.00
5.00
If Processed Further
Final price
Further
per unit
Processing Costs
$10.00
10.50
5.60
$88,000
43,000
33,000
The net increase or decrease in profits of processing Berry Delight further is
a. an increase of $38,000.
b. a decrease of $38,000.
c. an increase of $19,453.
d. a decrease of $19,453.
Ans: A, LO 3, Bloom: AN, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
Solution: Berry Delight – ($10 - $8) x 63,000 - $88,000 = $38,000 increase
(final price per unit – price per unit at split-off) x lbs produced – further processing costs = increase
(decrease)
80. The Sweete Shoppe produces a variety of sweet treats. Several treats can be sold at
split-off or further processed to produce a different type of treat. The following three
treats are all produced in a joint processing operation at a cost of $63,000. The costs are
allocated based on pounds produced. Information for these treats is as follows:
Product
Pounds (lb)
Produced
Price per lb at
at Split-Off
Berry Delight
Chocolate Wonder
Caramel Chip
63,000
113,000
38,000
$8.00
10.00
5.00
If Processed Further
Final price
Further
per unit
Processing Costs
$10.00
10.50
5.60
$88,000
43,000
33,000
The net increase or decrease in profits of processing Chocolate Wonder further is
a. an increase of $19,766.
b. a decrease of $19,766.
c. an increase of $13,500.
d. a decrease of $13,500.
Ans: C, LO 3, Bloom: AN, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
Solution: Chocolate Wonder – ($10.50 - $10) x 113,000 - $43,000 = $13,500 increase
(final price per unit – price per unit at split-off) x lbs produced – further processing costs = increase
(decrease)
81. The Sweete Shoppe produces a variety of sweet treats. Several treats can be sold at
split-off or further processed to produce a different type of treat. The following three
treats are all produced in a joint processing operation at a cost of $63,000. The costs are
allocated based on pounds produced. Information for these treats is as follows:
Product
Pounds (lb)
Produced
Price per lb at
at Split-Off
Berry Delight
Chocolate Wonder
Caramel Chip
63,000
113,000
38,000
$8.00
10.00
5.00
If Processed Further
Final price
Further
per unit
Processing Costs
$10.00
10.50
5.60
$88,000
43,000
33,000
The net increase or decrease in profits of processing Caramel Chip further is
a. an increase of $21,387.
b. a decrease of $21,387.
c. an increase of $10,200.
d. a decrease of $10,200.
Ans: D, LO 3, Bloom: AN, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
Solution: Caramel Chip – ($5.60 – 5) x 38,000 - $33,000 = $10,200 decrease
(final price per unit – price per unit at split-off) x lbs produced – further processing costs = increase
(decrease)
82. The Sweete Shoppe produces a variety of sweet treats. Several treats can be sold at
split-off or further processed to produce a different type of treat. The following three
treats are all produced in a joint processing operation at a cost of $63,000. The costs are
allocated based on pounds produced. Information for these treats is as follows:
Product
Pounds (lb)
Produced
Price per lb at
at Split-Off
Berry Delight
Chocolate Wonder
Caramel Chip
63,000
113,000
38,000
$8.00
10.00
5.00
If Processed Further
Final price
Further
per unit
Processing Costs
$10.00
10.50
5.60
$88,000
43,000
33,000
The joint processing costs for these treats
a. should be allocated to the treats to determine whether they should be sold at split-off
or processed further.
b. should be ignored in determining whether they should be sold at split-off or
processed further.
c. should be ignored in making all product decisions.
d. are never included in the product costs and can mislead management in the decisionmaking process.
Ans: B, LO 3, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
83. All the following statements are true regarding the allocation of joint costs except:
a. Joint costs are allocated to products to help managers effectively control their costs.
b. Joint costs are allocated to products to identify the total cost of production in
producing various products.
c. Joint costs are allocated to products to be sure each manager is only responsible for
their share of the costs.
d. Joint costs are allocated to products to help identify if the product should be
processed further or sold as-is.
Ans: D, LO 3, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
84. When a company produces a by-product along with its primary product, as part of a joint
process, the following method(s) may be used to account for the by-product transaction:
a. The production method only
b. The sales method only.
c. The production and sales methods, either method is sufficient.
d. The production and sales methods, in conjunction with one another.
Ans: C, LO 4, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
85. The production method of accounting for the costs of a by-product
a. treats the by-product as nonexistent until the by-product is sold.
b. recognizes only the NRV of the by-product.
c. recognizes by-products as soon as they are produced.
d. recognizes the by-product once it has been determined to be processed further.
Ans: C, LO 4, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
86. The sales method of accounting for the costs of a by-product
a. treats the by-product as nonexistent until the by-product is sold.
b. recognizes only the NRV of the by-product.
c. recognizes by-products as soon as they are produced.
d. recognizes the by-product once it has been determined to be processed further.
Ans: A, LO 4, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
87. Using the production method to account for by-products, by-products are accounted for
a. in Work-in-Process Inventory (WIP) and then in Finished Good Inventory.
b. only in Work-in-Process Inventory (WIP).
c. only in Finished Good Inventory.
d. are only expensed to Cost of Goods Sold.
Ans: C, LO 4, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
88. Using the production method to account for by-products, joint costs
a. are allocated to the by-products along with the primary joint products.
b. are not allocated to the by-products.
c. are allocated to the by-product based on its NRV.
d. are only expensed to Cost of Goods Sold.
Ans: C, LO 4, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
89. Coconuts N More produces two joint products, Coconut Milk and Coconut Meat. The
company uses the leftover Coconut Skin as a by-product. All three are produced from
joint costs of $75,000: direct materials amounting to $50,000 and another $25,000 for
direct labor and manufacturing overhead. Beginning inventory for all three products is
zero. Information for production of the product is as follows:
Product
Coconut Milk
Coconut Meat
Coconut Skin
Units Produced
in lbs
21,000
12,200
2,250
Units Sold
in lbs
19,500
10,300
2,000
Sales price
per lb
$1.30
6.20
1.00
How much in joint costs should be allocated to the by-product, using the production
method?
a. $2,000.
b. $1,604.
c. $0.
d. $2,250.
Ans: D, LO 4, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
Solution: 2,250 lbs x $1 = $2,250 (NRV)
Coconut skin units produced in tons x Coconut skin sales per lb = NRV
90. Coconuts N More produces two joint products, Coconut Milk and Coconut Meat. The
company uses the leftover Coconut Skin as a by-product. All three are produced from
joint costs of $75,000: direct materials amounting to $50,000 and another $25,000 for
direct labor and manufacturing overhead. Beginning inventory for all three products is
zero. Information for production of the product is as follows:
Product
Coconut Milk
Coconut Meat
Coconut Skin
Units Produced
in lbs
21,000
12,200
2,250
Units Sold
in lbs
19,500
10,300
2,000
Sales price
per lb
$1.30
6.20
1.00
The correct journal entry to transfer the joint production costs from WIP to FG, using the
production method is
a. FG Inventory – Coconut Milk
FG Inventory – Coconut Meat
FG Inventory – Coconut Skin
WIP Inventory
b. FG Inventory – Coconut Milk
FG Inventory – Coconut Meat
FG Inventory – Coconut Skin
WIP Inventory
19,465
53,931
1,604
c. FG Inventory – Coconut Skin
WIP Inventory
d. FG Inventory – Coconut Milk
FG Inventory – Coconut Meat
WIP Inventory
2,250
75,000
19,294
53,456
2,250
75,000
2,250
19,890
55,110
75,000
Ans: B, LO 4, Bloom: AN, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
Solution: 2,250 lbs x $1 = $2,250 (NRV)
$75,000 - $2,250 = $72,750 (remaining joint costs)
Coconut milk – 21,000 x 1.30 = $27,300 (sales value at split off)
Coconut meat – 12,200 x 6.20 = $75,640 (sales value at split off)
$27,300 + $75,640 = $102,940 (total sales value at split off of primary products)
$27,300 ÷ $102,940 x $72,750 = $19,294
$75,640 ÷ $102,940 x $72,750 = $53,456
lbs of coconut skin x coconut skin sales price per unit = NRV of coconut skin
Total joint costs – NRV of coconut skin = remaining joint costs
Coconut milk – units produced x sales price per unit = coconut milk sales value at split off
Coconut meat – units produced x sales price per unit = coconut meat sales value at split off
coconut milk sales value at split off + coconut meat sales value at split off = total sales value at split off of
primary products
coconut milk sales value at split off ÷ total sales value at split off of primary products x remaining joint costs
= coconut milk allocated joint costs
coconut meat sales value at split off ÷ total sales value at split off of primary products x remaining joint costs
= coconut meat allocated joint costs
91. Coconuts N More produces two joint products, Coconut Milk and Coconut Meat. The
company uses the leftover Coconut Skin as a by-product. All three are produced from
joint costs of $75,000: direct materials amounting to $50,000 and another $25,000 for
direct labor and manufacturing overhead. Beginning inventory for all three products is
zero. Information for production of the product is as follows:
Product
Coconut Milk
Coconut Meat
Coconut Skin
Units Produced
in lbs
21,000
12,200
2,250
Units Sold
in lbs
19,500
10,300
2,000
Sales price
per lb
$1.30
6.20
1.00
How much in total sales would be recorded for the products sold under the production
method?
a. $89,210.
b. $91,210.
c. $102,940.
d. $105,190.
Ans: A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
Solution: (19,500 x $1.30) + (10,300 x $6.20) = $89,210
(Coconut milk units sold x Coconut milk sales price per lb) + (Coconut meat units sold x Coconut meat sales
price per lb)
92. Coconuts N More produces two joint products, Coconut Milk and Coconut Meat. The
company uses the leftover Coconut Skin as a by-product. All three are produced from
joint costs of $75,000: direct materials amounting to $50,000 and another $25,000 for
direct labor and manufacturing overhead. Beginning inventory for all three products is
zero. Information for production of the product is as follows:
Product
Coconut Milk
Coconut Meat
Coconut Skin
Units Produced
in lbs
21,000
12,200
2,250
Units Sold
in lbs
19,500
10,300
2,000
Sales price
per lb
$1.30
6.20
1.00
How much in total cost of goods sold would be recorded for the products sold under the
production method?
a. $89,210.
b. $64,996.
c. $65,297.
d. $63,047.
Ans: D, LO 4, Bloom: AP, Difficulty: Hard, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
Solution: 2,250 lbs x $1 = $2,250 (NRV)
$75,000 - $2,250 = $72,750 (remaining joint costs)
Coconut milk – 21,000 x 1.30 = $27,300 (sales value at split off)
Coconut meat – 12,200 x 6.20 = $75,640 (sales value at split off)
$27,300 + $75,640 = $102,940 (total sales value at split off of primary products)
$27,300 ÷ $102,940 x $72,750 = $19,294 (Coconut Milk - allocated joint costs)
$75,640 ÷ $102,940 x $72,750 = $53,456(Coconut Meat - allocated joint costs)
$19,294 ÷ 21,000 x 19,500 = $17,915 (Coconut Milk - cogs)
$53,456 ÷ 12,200 x 10,300 = $45,131(Coconut Meat - cogs)
$17,915 + $45,131 = $63,047 (total cogs)
lbs of coconut skin x coconut skin sales price per unit = NRV of coconut skin
Total joint costs – NRV of coconut skin = remaining joint costs
Coconut milk – units produced x sales price per unit = coconut milk sales value at split off
Coconut meat – units produced x sales price per unit = coconut meat sales value at split off
coconut milk sales value at split off + coconut meat sales value at split off = total sales value at split off of
primary products
coconut milk sales value at split off ÷ total sales value at split off of primary products x remaining joint costs
= coconut milk allocated joint costs
coconut meat sales value at split off ÷ total sales value at split off of primary products x remaining joint costs
= coconut meat allocated joint costs
Coconut Milk - allocated joint costs ÷ coconut milk units produced x coconut milk units sold = coconut milk
cogs
Coconut Meat- allocated joint costs ÷ coconut meat units produced x coconut meat units sold = coconut
meat cogs
coconut milk cogs + coconut meat cogs = total cogs
93. Coconuts N More produces two joint products, Coconut Milk and Coconut Meat. The
company uses the leftover Coconut Skin as a by-product. All three are produced from
joint costs of $75,000: direct materials amounting to $50,000 and another $25,000 for
direct labor and manufacturing overhead. Beginning inventory for all three products is
zero. Information for production of the product is as follows:
Product
Coconut Milk
Coconut Meat
Coconut Skin
Units Produced
in lbs
21,000
12,200
2,250
Units Sold
in lbs
19,500
10,300
2,000
Sales price
per lb
$1.30
6.20
1.00
How much in sales and cost of goods sold will be assigned to the Coconut Skin,
respectively, using the production method?
a. $0, $0.
b. $2,000, $2,250.
c. $2,250, $2,000.
d. $2,000, $0.
Ans: A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
Solution: $0, $0 – by-products are not assigned to sales or COGS
94. Coconuts N More produces two joint products, Coconut Milk and Coconut Meat. The
company uses the leftover Coconut Skin as a by-product. All three are produced from
joint costs of $75,000: direct materials amounting to $50,000 and another $25,000 for
direct labor and manufacturing overhead. Beginning inventory for all three products is
zero. Information for production of the product is as follows:
Product
Coconut Milk
Coconut Meat
Coconut Skin
Units Produced
in lbs
21,000
12,200
2,250
Units Sold
in lbs
19,500
10,300
2,000
Sales price
per lb
$1.30
6.20
1.00
The journal entry to sell the coconut milk, using the production method, will include a
credit to
a. Cash or Accounts receivable.
b. WIP - Inventory.
c. FG - Inventory.
d. Sales.
Ans: C, LO 4, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
95. The income statement is ____________ impacted by the sale of a by-product, using the
production method.
a. positively.
b. negatively.
c. not.
d. substantially.
Ans: A, LO 4, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
96. Using the production method, scrap is
a. transferred from finished goods to cost of goods sold.
b. expensed as incurred.
c. treated in the same manner as the by-product.
d. treated in the same manner as the primary product.
Ans: C, LO 4, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
97. Coconuts N More produces two joint products, Coconut Milk and Coconut Meat. The
company uses the leftover Coconut Skin as a by-product. All three are produced from
joint costs of $75,000: direct materials amounting to $50,000 and another $25,000 for
direct labor and manufacturing overhead. Beginning inventory for all three products is
zero. Information for production of the product is as follows:
Product
Coconut Milk
Coconut Meat
Coconut Skin
Units Produced
in lbs
21,000
12,200
2,250
Units Sold
in lbs
19,500
10,300
2,000
Sales price
per lb
$1.30
6.20
1.00
How much in joint costs should be allocated to the by-product, using the sales method?
a. $2,000.
b. $1,604.
c. $0.
d. $2,250.
Ans: C, LO 4, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
Solution: $0, all joint costs are allocated to the primary products
98. Coconuts N More produces two joint products, Coconut Milk and Coconut Meat. The
company uses the leftover Coconut Skin as a by-product. All three are produced from
joint costs of $75,000: direct materials amounting to $50,000 and another $25,000 for
direct labor and manufacturing overhead. Beginning inventory for all three products is
zero. Information for production of the product is as follows:
Product
Coconut Milk
Coconut Meat
Coconut Skin
Units Produced
in lbs
21,000
12,200
2,250
Units Sold
in lbs
19,500
10,300
2,000
Sales price
per lb
$1.30
6.20
1.00
The correct journal entry to transfer the joint production costs from WIP to FG, using the
sales method is
c. FG Inventory – Coconut Milk
19,465
FG Inventory – Coconut Meat
53,931
FG Inventory – Coconut Skin
1,604
WIP Inventory
75,000
d. FG Inventory – Coconut Milk
19,294
FG Inventory – Coconut Meat
53,456
FG Inventory – Coconut Skin
2,250
WIP Inventory
75,000
c. FG Inventory – Coconut Skin
WIP Inventory
d. FG Inventory – Coconut Milk
FG Inventory – Coconut Meat
WIP Inventory
2,250
2,250
19,890
55,110
75,000
Ans: D, LO 4, Bloom: AN, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
Solution: Coconut milk – 21,000 x 1.30 = $27,300 (sales value at split off)
Coconut meat – 12,200 x 6.20 = $75,640 (sales value at split off)
$27,300 + $75,640 = $102,940 (total sales value at split off of primary products)
$27,300 ÷ $102,940 x $75,000 = $19,890
$75,640 ÷ $102,940 x $75,000 = $55,110
Coconut milk – units produced x sales price per unit = coconut milk sales value at split-off
Coconut meat – units produced x sales price per unit = coconut meat sales value at split-off
coconut milk sales value at split-off + coconut meat sales value at split off = total sales value at split off of
primary products
coconut milk sales value at split off ÷ total sales value at split off of primary products x joint costs = coconut
milk allocated joint costs
coconut meat sales value at split off ÷ total sales value at split off of primary products x joint costs = coconut
meat allocated joint costs
99. Coconuts N More produces two joint products, Coconut Milk and Coconut Meat. The
company uses the leftover Coconut Skin as a by-product. All three are produced from
joint costs of $75,000: direct materials amounting to $50,000 and another $25,000 for
direct labor and manufacturing overhead. Beginning inventory for all three products is
zero. Information for production of the product is as follows:
Product
Coconut Milk
Coconut Meat
Coconut Skin
Units Produced
in lbs
21,000
12,200
2,250
Units Sold
in lbs
19,500
10,300
2,000
Sales price
per lb
$1.30
6.20
1.00
How much in total sales would be recorded for the products sold under the sales
method?
a. $89,210.
b. $91,210.
c. $102,940.
d. $105,190.
Ans: A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
Solution: (19,500 x $1.30) + (10,300 x $6.20) = $89,210
(Coconut milk units sold x Coconut milk sales price per lb) + (Coconut meat units sold x Coconut meat sales
price per lb)
100. Coconuts N More produces two joint products, Coconut Milk and Coconut Meat. The
company uses the leftover Coconut Skin as a by-product. All three are produced from
joint costs of $75,000: direct materials amounting to $50,000 and another $25,000 for
direct labor and manufacturing overhead. Beginning inventory for all three products is
zero. Information for production of the product is as follows:
Product
Coconut Milk
Coconut Meat
Coconut Skin
Units Produced
in lbs
21,000
12,200
2,250
Units Sold
in lbs
19,500
10,300
2,000
Sales price
per lb
$1.30
6.20
1.00
How much in total cost of goods sold would be recorded for the products sold, under the
sales method?
a. $89,210.
b. $64,996.
c. $65,297.
d. $63,047.
Ans: B, LO 4, Bloom: AP, Difficulty: Hard, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
Solution: Coconut milk – 21,000 x 1.30 = $27,300 (sales value at split off)
Coconut meat – 12,200 x 6.20 = $75,640 (sales value at split off)
$27,300 + $75,640 = $102,940 (total sales value at split off of primary products)
$27,300 ÷ $102,940 x $75,000 = $19,890 (Coconut Milk - allocated joint costs)
$75,640 ÷ $102,940 x $75,000 = $55,110 (Coconut Meat - allocated joint costs)
$19,890 ÷ 21,000 x 19,500 = $18,469 (Coconut Milk - cogs)
$55,110 ÷ 12,200 x 10,300 = $46,527(Coconut Meat - cogs)
$18,469 + $46,527 = $64,996 (total cogs)
Coconut milk – units produced x sales price per unit = coconut milk sales value at split off
Coconut meat – units produced x sales price per unit = coconut meat sales value at split off
coconut milk sales value at split off + coconut meat sales value at split off = total sales value at split off of
primary products
coconut milk sales value at split off ÷ total sales value at split off of primary products x joint costs = coconut
milk allocated joint costs
coconut meat sales value at split off ÷ total sales value at split off of primary products x joint costs = coconut
meat allocated joint costs
Coconut Milk - allocated joint costs ÷ coconut milk units produced x coconut milk units sold = coconut milk
cogs
Coconut Meat- allocated joint costs ÷ coconut meat units produced x coconut meat units sold = coconut
meat cogs
coconut milk cogs + coconut meat cogs = total cogs
101. Coconuts N More produces two joint products, Coconut Milk and Coconut Meat. The
company uses the leftover Coconut Skin as a by-product. All three are produced from
joint costs of $75,000: direct materials amounting to $50,000 and another $25,000 for
direct labor and manufacturing overhead. Beginning inventory for all three products is
zero. Information for production of the product is as follows:
Product
Coconut Milk
Coconut Meat
Coconut Skin
Units Produced
in lbs
21,000
12,200
2,250
Units Sold
in lbs
19,500
10,300
2,000
Sales price
per lb
$1.30
6.20
1.00
How much in sales and cost of goods sold will be assigned to the Coconut Skin,
respectively, using the sales method?
a. $0, $0.
b. $2,000, $2,250.
c. $2,250, $0.
d. $2,000, $0.
Ans: D, LO 4, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
Solution: Sales – 2,000 X $1.00 = $2,000, $0 – by-products are not assigned to sales or COGS
Lbs sold x price per lb
102. Coconuts N More produces two joint products, Coconut Milk and Coconut Meat. The
company uses the leftover Coconut Skin as a by-product. All three are produced from
joint costs of $75,000: direct materials amounting to $50,000 and another $25,000 for
direct labor and manufacturing overhead. Beginning inventory for all three products is
zero. Information for production of the product is as follows:
Product
Coconut Milk
Coconut Meat
Coconut Skin
Units Produced
in lbs
21,000
12,200
2,250
Units Sold
in lbs
19,500
10,300
2,000
Sales price
per lb
$1.30
6.20
1.00
The journal entry to sell the coconut milk, using the sales method, will include a credit to
a. Cash or Accounts receivable.
b. WIP - Inventory.
c. FG - Inventory.
d. Sales.
Ans: D, LO 4, Bloom: AP, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
103. The income statement is ____________ impacted by the sale of a by-product, using the
sales method.
a. positively.
b. negatively.
c. not.
d. substantially.
Ans: A, LO 4, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
104. Using the sales method, scrap is
a. transferred from finished goods to cost of goods sold.
b. expensed as incurred.
c. treated in the same manner as the by-product.
d. treated in the same manner as the primary product.
Ans: C, LO 4, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
105. Which of the following statements is true, in regard to the production method versus the
sales method?
a. The sales method is preferred because it recognizes the sale of the by-product and
scrap at the point of sale.
b. The production method is preferred because it recognizes the sale of the by-product
and scrap at the point of production.
c. Either method can be chosen because the overall effect of the by-product and scrap
transactions should be incidental to a company’s primary business.
d. Either method can be chosen because the overall effect of the by-product and scrap
transactions is material to the decision-making process.
Ans: C, LO 4, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FN, Decision Modeling IMA: Cost
Management
SHORT ANSWER
106. A joint process is used to turn milk into butter, cream, and cheese. The cream is further
processed into heaving whipping cream and half & half. The butter and cheese are sold
as-is. In addition to these products, buttermilk is also produced as an unintended output.
What name(s) would you call these products? Describe the difference between these
types of products.
Ans: N/A, LO 1, Bloom: AP, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and
Interpretation, IMA: Cost Management.
Answer:
Butter, cream, and cheese would be the joint products.
Butter, heavy whipping cream, half & half, and cheese would be considered the final
products.
Buttermilk is considered a by-product.
Joint products are the primary products and can be sold or processed further to become
final products. These products are the reason a company is in business and are considered
the main component of sales revenue.
By-products are the unintended output of creating the primary products but still have a future
use or economic value. These products can be sold, but the sale of them is usually not
material to the income statement.
107. There are three methods of allocating joint costs. List each method and discuss when the
allocation methods should be chosen.
Ans: N/A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and
Interpretation, IMA: Cost Management.
Answer:
Sales Value at Split-Off Method. Allocates joint costs using the future sales value of the
process’s total production of joint products and the relative proportion of each product’s
sales value to the total. This method should be selected when the sales prices at the splitoff point are available and reliable.
Net Realizable Value (NRV) Method. The NRV method allocates joint costs based on the
product’s share of the total NRV. NRV is calculated by taking the final sales value less
further processing costs. The NRV method should be chosen when the sales price at the
split-off point is unavailable or unreliable, but the NRV information is available and reliable.
Physical Quantities Method. This method allocates joint costs based on the product’s share
of a reasonable measurement basis for the joint products. For example, it could be based
on volume, weight, length, or height. This method should only be used if the sales prices at
the split-off point and the NRV information are unavailable or unreliable.
108. Dairy Cream Company uses a joint process to create heavy cream and light cream. When
first produced, there was no market for the two products, so both were processed further
into final products. However, the company has now realized there is a market for both the
heavy and light cream immediately after they are produced. What information should Dairy
Cream consider when deciding whether to sell the products as is or continue to process
them further?
Ans: N/A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost
Management.
Answer:
Dairy Cream Company should consider the NRV (Sales value of final product less further
processing costs) and the sales value at split-off. If the sales value at split-off is greater
than the NRV, the product should be sold as-is. Otherwise, the products should be
processed further.
Each product should be separately analyzed. The company should also be sure they have
adequate capacity and capability, there is sufficient demand for the product(s), and the
decision will maximize its profits.
109. NE Crossing Company produces two main products and a by-product during a joint
process. The company uses the sales method to account for by-products, and the sales
value at the split-off method is used to assign joint costs to the joint products. Describe the
process of assigning joint costs and what happens when the product is sold.
Ans: N/A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost
Management.
Answer:
When a company uses the sales method to account for by-products, joint costs are not
assigned to the by-product, and all costs are assigned to the two main products. When the
by-product is later sold, the company will record the sale by debiting cash and crediting
Sales. As a result, there will be no cost recognized on the by-product, and the sale of the
product will not affect inventory.
110. NE Crossing Company produces two main products and a by-product during a joint
process. The company uses the production method to account for by-products, and the
sales value at the split-off method is used to assign joint costs to the joint products.
Describe the process of assigning joint costs and what happens when the product is sold.
Ans: N/A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost
Management.
Answer:
When a company uses the production method to account for by-products, joint costs are
assigned to the by-product equal to its net realizable value (NRV.) If there are no further
processing costs, the by-product’s NRV will equal its sales value at split-off. When the byproduct is later sold, the company will record the sale by debiting cash and crediting Finished
Goods Inventory – By-Product. There will be no gross margin recognized on the by-product,
and the sale of the product will not affect the income statement.
BRIEF EXERCISES
111. Menkes Production Company manufactures two products from a joint process. The joint
process costs $20,000. Both products must be processed past the split-off point to be
marketable. White sugar produces 500 units or 20,000 lbs., incurs separable costs of $5
per unit, and has a market price of $25. Brown sugar produces 2,000 units or 50,000 lbs.,
incurs separable costs of $10 per unit, and has a market price of $20.
Using the physical quantities method to allocate joint costs, how much joint costs will be
allocated to each product? (round to the nearest whole dollar)
Ans: N/A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and
Interpretation, IMA: Cost Management.
Answer:
White Sugar = $5,714
Brown Sugar = $14,286
Solution:
20,000 + 50,000 = 70,000 total lbs
White Sugar = 20,000 ÷ 70,000 x $20,000 = $5,714
Brown Sugar = 50,000 ÷ 70,000 x $20,000 = $14,286
112. Menkes Production Company manufactures two products from a joint process. The joint
process costs $20,000. Both products must be processed past the split-off point to be
marketable. White sugar produces 500 units or 20,000 lbs., incurs separable costs of $5
per unit, and has a market price of $25. Brown sugar produces 2,000 units or 50,000 lbs.,
incurs separable costs of $10 per unit, and has a market price of $20.
Using the sales value at split-off method to allocate joint costs, how much joint costs will be
allocated to each product? (round to the nearest whole dollar)
Ans: N/A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and
Interpretation, IMA: Cost Management.
Answer:
White Sugar = $4,762
Brown Sugar = $15,238
Solution:
White Sugar total Sales = 500 x $25 = $12,500
Brown Sugar Total Sales = 2,000 x $20 = $40,000
Total Sales = $12,500 + $40,000 = $52,500
White Sugar = $12,500 ÷ $52,500 x $20,000 = $4,762
Brown Sugar = $40,000 ÷ $52,500 x $20,000 = $15,238
113. Menkes Production Company manufactures two products from a joint process. The joint
process costs $20,000. Both products must be processed past the split-off point to be
marketable. White sugar produces 500 units or 20,000 lbs., incurs separable costs of $5
per unit, and has a market price of $25. Brown sugar produces 2,000 units or 50,000 lbs.,
incurs separable costs of $10 per unit, and has a market price of $20.
Using the NRV method to allocate joint costs, how much joint costs will be allocated to
each product? (round to the nearest whole dollar)
Ans: N/A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and
Interpretation, IMA: Cost Management.
Answer:
White Sugar = $6,667
Brown Sugar = $13,333
Solution:
White Sugar NRV = 500 x ($25 - $5) = $10,000
Brown Sugar NRV = 2,000 x ($20 - $10) = $20,000
Total NRV = $10,000 + $20,000 = $30,000
White Sugar = $10,000 ÷ $30,000 x $20,000 = $6,667
Brown Sugar = $20,000 ÷ $30,000 x $20,000 = $13,333
114. Dolls R Us produces four different dolls that use a joint process. Each product may be sold
at split-off or processed further. Joint processing costs for the products are $200,000.
Other relevant information for the dolls is as follows:
Product
Cry Baby
Diaper Baby
Feeding Baby
Take Along Baby
Sales Value
at Split-Off
$40,000
16,000
20,000
24,000
If Processed Further
Final
Further
Sales Value
Processing Costs
$70,000
$24,000
20,000
10,000
48,000
10,000
36,000
16,000
Suppose joint costs are allocated based on the sales value at split-off, which products
should be processed further. Show all calculations.
Ans: N/A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost
Management.
Answer:
Cry Baby and Feeding Baby should be processed further as processing both products further
will increase overall profits by $24,000.
Solution:
Cry Baby = $70,000 - $24,000 - $40,000 = $6,000
Diaper Baby – $20,000 - $10,000 - $16,000 = -$6,000
Feeding Baby – $48,000 - $10,000 - $20,000 = $18,000
Take Along Baby – $36,000 - $16,000 - $24,000 = -$4,000
Total increase for Cry Baby and Feeding Baby = $6,000 + $18,000 = $24,000
115.Dolls R Us produces four different dolls that use a joint process. Each product may be sold
at split-off or processed further. Joint processing costs for the products are $200,000.
Other relevant information for the dolls is as follows:
Product
Cry Baby
Diaper Baby
Feeding Baby
Take Along Baby
Sales Value
at Split-Off
$40,000
16,000
20,000
24,000
If Processed Further
Final
Further
Sales Value
Processing Costs
$70,000
$24,000
20,000
10,000
48,000
10,000
36,000
16,000
If joint costs are allocated based on the sales value at split-off, determine how processing
each product further will affect profits.
Ans: N/A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost
Management.
Answer:
Cry Baby – increase $6,000
Diaper Baby – Decrease $6,000
Feeding Baby – Increase $18,000
Take Along Baby – Decrease $4,000
Total overall affect = Increase $14,000
Solution:
Cry Baby = $70,000 - $24,000 - $40,000 = $6,000
Diaper Baby – $20,000 - $10,000 - $16,000 = -$6,000
Feeding Baby – $48,000 - $10,000 - $20,000 = $18,000
Take Along Baby – $36,000 - $16,000 - $24,000 = -$4,000
Total overall affect = $6,000 - $6,000 + $18,000 - $4,000 = $14,000
116.Whitehead Corporation manufactures three different tires that use the same joint process.
Each tire can be sold as is or processed further to create an upgraded tire. The joint
process costs $30,000. Information for the three products is as follows:
Product
Units
Produced
Price per unit
at Split-Off
P225/70R
P265/65R
P275/65R
5,600
10,000
2,500
$70
$90
$120
If Processed Further
Final price
Further
per unit
Processing Costs
$80
$120
$145
$15
$20
$22
If joint costs are allocated based on the NRV, which tire, or tires, should be processed
further and which ones should be sold at split-off. Show all supporting calculations. (round
to the nearest whole dollar)
Ans: N/A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost
Management.
Answer:
P265/65R & P275/65R should be processed further.
P265/65R – increase of profit of $100,000 or $10 per unit
P275/65R – an increase of profit of $7,500 or $3 per unit
Solution:
P225/70R = (($80 - $15) - $70) = -$5 x 5,600 = -$28,000
P265/65R = (($120 - $20) - $90) = $10 x 10,000 = $100,000
P275/65R = (($145 - $22) - $120) = $3 x 2,500 = $7,500
117. Lana can process both of her products using a joint process. She can further process both
products beyond split-off and increase her profits by $9,000 beyond what she can sell them
for at split-off. The final sales value of these products after further processing is $42,000.
If the products can be sold for $25,000 at split-off, how much additional processing costs
would Lana have incurred to generate a higher final sales value?
Ans: N/A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost
Management.
Answer:
$8,000
Solution:
$42,000 - $25,000 - $9,000 = $8,000
118. Lastotal produces ice cream from his home. He creates two main products from a joint
process, chocolate and vanilla, and one by-product, twists. The twists result from the
excess liquid of both the chocolate and vanilla. The chocolate can be sold for $8,000, and
the vanilla can be sold for $6,000. The twists will be sold for $900. If Lastotal uses the
production method to account for by-products, how much of the joint process costs of
$7,500 will be allocated to each product? (Round to the nearest whole dollar)
Ans: N/A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost
Management.
Answer:
Chocolate - $3,771
Vanilla - $2,829
Twists - $900
Solution:
$900 – allocated to Twists (NRV)
$7,500 - $900 = $6,600 to chocolate and vanilla
$8,000 + $6,000 = $14,000, total sales of main products
Chocolate, $8,000 ÷ $14,000 x $6,600 = $3,771
Vanilla, $6,000 ÷ $14,000 x $6,600 = $2,829
119. Lastotal produces ice cream from his home. He creates two main products from a joint
process, chocolate and vanilla, and one by-product, twists. The twists result from the
excess liquid of both the chocolate and vanilla. The chocolate can be sold for $8,000, and
the vanilla can be sold for $6,000. The twists will be sold for $900. If Lastotal uses the
sales method to account for by-products, how much of the joint process costs of $7,500 will
be allocated to each product? (Round to the nearest whole dollar)
Ans: N/A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost
Management.
Answer:
Chocolate - $4,286
Vanilla - $3,214
Twists - $0
Solution:
Twists - $0
$8,000 + $6,000 = $14,000, total sales of main products
Chocolate, $8,000 ÷ $14,000 x $7,500 = $4,286
Vanilla, $6,000 ÷ $14,000 x $7,500 = $3,214
120. Kreider Farms produces three products and one by-product: Whole Wheat Flour,
Bleached Flour, All-Purpose Flour, and Bran (by-product). Bran can be sold for $1,200.
Joint process costs for the products are $12,200. If the other three products can be sold for
$23,000, how much revenue will Kreider Farms record for the Bran if they use the sales
method to account for by-products? How much revenue will they record if they use the
production method to account for by-products?
Ans: N/A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost
Management.
Answer:
Sales Method - $24,200
Production Method - $23,000
Solution:
Sales Method – $23,000 + $1,200
Production Method – $23,000
121. Kreider Farms produces three products and one by-product: Whole Wheat Flour,
Bleached Flour, All-Purpose Flour, and Bran (by-product). Bran can be sold for $1,200.
Joint process costs for the products are $12,200. If the other three products can be sold for
$23,000, prepare the journal entry for the sale of the Bran if the company uses the sales
method to account for by-products? Prepare the journal entry for the sale of the Bran if the
company uses the production method to account for by-products?
Ans: N/A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost
Management.
Answer:
Sales Method:
Cash
Sales – Bran
Production Method:
Cash
FG Inventory – Bran
$1,200
$1,200
$1,200
$1,200
EXERCISES
122. Gene started a business that retrieves golf balls from lakes and surrounding areas at the
local greens. The recovered balls are cleaned and then assessed based on quality and
priced to sell to the local sporting goods store. Birdie golf balls are sold for $5 per dozen,
Bogey golf balls are sold at $4 a dozen, and Duffer golf balls are sold at $3 per dozen.
Costs incurred last month amounted to $8,000 and produced (in dozens) 1,000 Birdie,
3,000 Bogey, and 2,000 Duffer. A dozen golf balls (no matter the quality) weigh 2lbs.
Instructions
a. If Gene uses the sales value at split-off method, how much in joint costs will be allocated
to each product?
b. If Gene uses the physical quantities method, how much in joint costs will be allocated to
each product?
c. Using the sales value at split-off method, how much will Gene recognize as gross profit
for each product?
d. Using the physical quantities method, how much will Gene recognize as gross profit for
each product?
Ans: N/A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and
Interpretation, IMA: Cost Management.
Answer:
a. Birdie - $1,739
Bogey - $4,174
Duffer - $2,087
b. Birdie - $1,333
Bogey - $4,000
Duffer - $2,667
c. Birdie - $3,261
Bogey - $7,826
Duffer - $3,913
d. Birdie - $3,667
Bogey - $8,000
Duffer - $3,333
Solution:
a.
Product
Sales
Price
Per Unit
Units
Produced (in
dozens)
Birdie
5
x
1,000
=
5,000
÷ 23,000
Bogey
4
x
3,000
=
12,000
Duffer
Total
3
x
2,000
=
6,000
23,000
Joint
Costs
Allocated
Costs
x
8,000
1,739
÷ 23,000
x
8,000
4,174
÷ 23,000
x
8,000
2,087
$8,000
Total Sales
b.
Product
Units
Produced
(in
dozens)
Birdie
1,000
x
2
=
2,000
÷ 12,000
Bogey
3,000
x
2
=
6,000
Duffer
Total
2,000
x
2
=
4,000
12,000
lb per
dozen
Joint
Costs
Allocated
Costs
x
8,000
1,333
÷ 12,000
x
8,000
4,000
÷ 12,000
x
8,000
2,667
$8,000
Total Lbs
c.
Birdie
5,000
1,739
Bogey
12,000
4,174
Duffer
6,000
2,087
Gross Margin
3,261
7,826
3,913
Sales
Costs
Gross Margin
Birdie
5,000
1,333
3,667
Bogey
12,000
4,000
8,000
Duffer
6,000
2,667
3,333
Sales
Costs
d.
123. Blender Corporation produces two products, cheese, and butter, in a single process. In the
month of January, the joint costs related to the process amounted to $96,000. In addition,
5,000 pounds of cheese and 4,000 pounds of butter were produced. The sales value at the
point of separation was $13 for cheese and $14 for butter. Separable processing costs
beyond the split-off point were: cheese, $18,000; butter, $18,000. Cheese sells for $17 per
pound; butter sells for $18 per pound.
Instructions
a. If Blender uses the sales-value at split-off method, how much in joint costs will be allocated
to each product?
b. If Blender uses the NRV method, how much in joint costs will be allocated to each product?
c. Which method will be a better allocation for Blender Corporation if the sales value at splitoff is reliable?
Ans: N/A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and
Interpretation, IMA: Cost Management.
Answer:
a. Cheese - $51,570
Butter - $44,430
b. Cheese - $53,157
Butter - $42,843
c. Because the sales value at split-off is reliable, it is the preferred method for Blender
Corporation.
Solution:
a.
Product
Sales
Price
Per Unit
Cheese
$13
x
5,000
=
65,000
÷ 121,000
Butter
14
x
4,000
=
56,000
÷ 121,000
Lbs.
Produced
Total
Sales
Total
Joint
Costs
Allocated
Costs
x
96,000
51,570
x
96,000
44,430
Further
Processing
Cost
NRV
121,000
b.
Product
Market
Price
Per Unit
Lbs.
Produced
Final
Sales
Cheese
$17
x
5,000
=
85,000
-
18,000
67,000
Butter
Total
18
x
4,000
=
72,000
-
18,000
54,000
Joint
Costs
Allocated
Costs
Product
NRV
Cheese
67,000 ÷
121,000
x
96,000 =
53,157
Butter
54,000 ÷
121,000
x
96,000 =
42,843
Total
121,000
124. Payton Company uses a joint process to produce two products. The production results in
500 units for Product I and 2,000 units for Product II. The joint process costs are $20,000.
Both products must be processed past the split-off point, incurring separable costs of $5
per unit for Product I and $10 per unit for Product II. The market price is $25 and $20 per
unit of Products I and II, respectively. Product I has a weight of 20oz per unit, and Product
II weighs 25oz per unit.
Instructions
a. Allocate the joint costs to each product using the NRV method.
b. Allocate the joint costs to each product using the physical quantities method.
c. Calculate the difference in allocated costs between the two methods. Which method
would you recommend and why?
Ans: N/A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost
Management.
Answer:
a. Product I - $6,667
Product II - $13,333
b. Product I - $3,333
Product II - $16,667
c. Product I Difference $3,333
Product II Difference ($3,333)
If the NRV information is available and reliable, the NRV method should be used.
Solution:
a.
Further
Processing
Cost per
Unit
Product
Market
Price Per
Unit
Product I
$25
-
5
=
20
x
500
=
10,000
Product II
20
-
10
=
10
x
2,000
=
20,000
NRV
per Unit
Units
Produced
Product
Total
NRV
Joint
Costs
Allocated
Costs
Product I
10,000 ÷
30,000
x
20,000 =
6,667
Product II
20,000 ÷
30,000
x
20,000 =
13,333
Total
30,000
Total
NRV
b.
Product
Units
Produced
oz
per
unit
Joint
Costs
Total ozs
Allocated
Costs
Product I
500 x
20
=
10,000 ÷ 60,000
x
20,000
=
3,333
Product II
Total
2,000 x
25
=
50,000 ÷ 60,000
60,000
x
20,000
=
16,667
c.
NRV Method
Physical Quantities Method
Difference
Product I
$6,667
Product II
$13,333
3,333
3,333
16,667
(3,333)
125. Napa Productions produces Salsa and Spaghetti Sauce from fresh tomatoes grown in its
local greenhouse. The process is a joint process that produces juice and then is separated
and two identifiable products are created. The joint cost to produce the products is $90,000
and results in the following data:
Product
Spaghetti Sauce
Salsa
Gallons
Produced
6,000
15,000
Final
Sales Value
$130,000
20,000
Instructions
a. Allocate the joint costs to each product using the NRV method.
b. Napa has identified a new marketable product by further processing the salsa. With an
additional cost of $4,000, he can modify the salsa to create different spices. The gallons
produced will not change, and the final sales value of the new product will be 26,000.
Given this new information, reallocate the joint costs to each product using the NRV
method.
c. Based on your calculations in part a, if Napa could sell the juice as is without processing
it further into Spaghetti Sauce and Salsa with a marketable value of $$135,000, would
you recommend the juice be sold as is or processed further?
Ans: N/A, LO 2, 3 Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost
Management.
Answer:
a. Spaghetti Sauce - $78,000
Salsa - $12,000
b. Spaghetti Sauce - $76,974
Salsa - $13,026
c. Yes, Napa should process the juice into spaghetti sauce and Salsa because it will increase
profits by $15,000.
Solution:
a.
Product
Final
Sales
Value
Further
Processing
Cost per
Unit
Total
NRV
Joint
Costs
Allocated
Costs
Spaghetti Sauce
130,000 -
-
= 130,000 ÷ 150,000 x 90,000
=
78,000
Salsa
20,000 -
-
=
=
12,000
Total
20,000 ÷ 150,000 x 90,000
150,000
b.
Product
Final
Sales
Value
Further
Processing
Cost per
Unit
Total
NRV
Joint
Costs
Allocated
Costs
Spaghetti Sauce
130,000 -
-
=
130,000 ÷
152,000 x
90,000
=
76,974
Salsa
26,000 -
4,000
=
22,000 ÷
152,000 x
90,000
=
13,026
Total
152,000
c.
Total NRV (from part a)
Total Value before processing
Profit change
$150,000
135,000
15,000
126. Concrete Mixtures created cement lawn ornaments for its customers. The joint process
costs $165,000 and creates two identifiable products, XS and M. The company has
determined M can be sold as-is or processed further into product XL for an additional cost
of $325,000. Information for the products is:
Product XS Quantity
Product M Quantity
Product XL Quantity
XS Sales value at split-off
M Sales value at split-off
XL Final sales value
25,000 cubic yards
45,000 cubic yards
80,000 cubic yards
$3 per cubic yard
$5 per cubic yard
$9 per cubic yard
Instructions
a. Allocate the joint costs to each product using the sales value at split-off method, assuming
XS and M are sold as-is with no further processing.
b. Calculate the gross margin for products XS and M, assuming they are sold at split-off,
and the sales value at split-off method is used to allocate joint costs.
c. If product M is further processed into Product XL, allocate the joint costs using the NRV
method and calculate the gross margin for Product XL.
d. Should Product M be further processed into Product XL? Report the profit increase or
decrease if Product M is processed further.
Ans: N/A, LO 2, 3 Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost
Management.
Answer:
a. Product XS
Product M
$41,250
$123,750
b. Product XS
Product M
$33,750
$101,250
c.
Joint Costs
$26,330
$138,670
Product XS
Product M
d. Yes, overall profits will increase by $170,000
Gross Margin
$48,670
$256,330
Solution:
a.
Price
Per
Cubic
Yard
Product
Sales
at Splitoff
Cubic
Yards
Joint
Costs
Allocated
Costs
XS
3
x
25,000 =
75,000 ÷
300,000 x
165,000
=
41,250
M
5
x
45,000 =
225,000 ÷
300,000 x
165,000
=
123,750
Total
300,000
b.
Product
XS
Product
M
Sales
75,000
225,000
Costs
41,250
123,750
Gross Margin
33,750
101,250
c.
Product
Price
Per
Cubic
Yard
Cubic
Yards
Further
Processing
Cost
Sales
Value
NRV
XS
3
x
25,000
=
75,000
-
0
=
75,000
XL
Total
9
x
80,000
=
720,000
-
325,000
=
395,000
Product
Joint
Costs
NRV
Allocated
Costs
XS
75,000
÷
470,000
x
165,000 =
26,330
XL
395,000
÷
470,000
x
165,000 =
138,670
Total
470,000
Sales
Costs
Gross Margin
Product XS
75,000
26,330
48,670
Product XL
395,000
138,670
256,330
d.
Product XL NRV
Product M sales value
Difference
$395,000
225,000
$170,000
127. Creekside Winery produces three types of wine, Dry, Sweet, and Fruity, using a joint
process costing $150,000. The company uses the NRV method to allocate joint costs.
Each type of wine can be sold as is or processed further. The information on the products
is as follows:
Product
Dry
Sweet
Fruity
Sales Value
at Split-off
$140,000
116,000
124,000
Additional
Processing Costs
$22,000
13,000
16,000
Sales Value of
Final Product
$170,000
120,000
136,000
Instructions
a. If Creekside does not process any of the products further, what will the company report
for a total gross margin?
b. If Creekside processes all the wines further, what will the company report for a total gross
margin?
c. Which wine or wines should the company process further? Support your conclusion with
calculations.
d. If the company proceeds with your recommendation in part c, what will the company report
for a total gross margin?
Ans: N/A, LO 2, 3 Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost
Management.
Answer:
a. $230,000
b. $225,000
c. Only Dry should be processed further. It will increase profits by $8,000. The sweet and
fruity wines will decrease profits by $9,000 and $4,000, respectively.
d. $238,000
Solution:
a.
Product
Allocated
Costs
NRV
Dry
140,000 ÷
380,000
x
150,000 =
55,263
Sweet
116,000 ÷
380,000
x
150,000 =
45,789
Fruity
124,000 ÷
380,000
x
150,000 =
48,947
380,000
Dry
Sweet
Fruity
Total
Sales
140,000
116,000
124,000
380,000
Cost
Gross
Margin
55,263
45,789
48,947
150,000
84,737
70,211
75,053
230,000
b.
Sales
Value of
Final
Product Product
Additional
Processing
Costs
Allocated
NRV
Costs
Dry
170,000
-
22,000
= 148,000 ÷ 375,000 x
150,000 =
59,200
Sweet
120,000
-
13,000
= 107,000 ÷ 375,000 x
150,000 =
42,800
Fruity
136,000
-
16,000
= 120,000 ÷ 375,000 x
150,000 =
48,000
375,000
Dry
Sweet
Fruity
Total
Sales
170,000
120,000
136,000
426,000
Cost
81,200
55,800
64,000
201,000
Gross Margin
88,800
64,200
72,000
225,000
c.
Product
Sales
Value
at Split-off
Sales Value of
Final Product
Additional
Processing Costs
Inc (Dec)
In Profits
Dry
170,000
-
140,000
-
22,000
= 8,000
Sweet
120,000
-
116,000
-
13,000
= (9,000)
Fruity
136,000
-
124,000
-
16,000
= (4,000)
d.
Product
Sales
Value
of Final
Product
Dry
170,000
-
Sweet
116,000
Fruity
124,000
Additional
Processing
Costs
22,000
Allocated
NRV
Costs
= 148,000 ÷ 388,000 x
150,000 =
57,216
-
= 116,000 ÷ 388,000 x
150,000 =
44,845
-
= 124,000 ÷ 388,000 x
150,000 =
47,938
388,000
Dry
Sweet
Fruity
Total
Sales
170,000
116,000
124,000
410,000
Cost
79,216
44,845
47,938
172,000
Gross Margin
90,784
71,155
76,062
238,000
128. Carpets N More produces carpet for commercial use. In the process of creating the carpet
and sizing it for its customers, a by-product is created. These scraps are sold to other
companies to be used in small projects such as dog houses or decorative designs. The
revenue of these scraps is minimal compared to the overall sales of the company. The
joint process to create both products is $65,000. The carpet produces 16,000 yards at $15
per yard. The scraps produce 3,000 yards and are sold at $1 per yard. Both products are
sold at split-off and not processed further.
Instructions
a. If the companies use the production method to account for the by-product, record the
journal entries for the following transactions:
1. The completion of all products. (carpet and scrap)
2. The sale of the carpet, assuming all yards produced were sold.
3. The sale of the scraps, assuming all yards produced were sold.
b. Repeat the steps of part a, if the company accounts for by-products using the sales
method.
c. If 15% of the production for both products is unsold at year-end, how much inventory cost
would remain on the balance sheet under the (1) production method, (2) sales method?
Ans: N/A, LO 4 Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost
Management.
Answer:
a.
1. FG Inventory – Carpet (65,000 – 3,000)
FG Inventory – Scraps (3,000 x $1)
WIP Inventory
2. Cash (or Accounts Receivable) (16,000 x 15)
Sales - Carpet
$62,000
3,000
$65,000
240,000
240,000
Cost of Goods Sold
FG Inventory – Carpet
62,000
3. Cash (or Accounts Receivable)
FG Inventory – Scraps
3,000
b.
1. FG Inventory – Carpet
WIP Inventory
2. Cash (or Accounts Receivable) (16,000 x 15)
Sales - Carpet
Cost of Goods Sold
FG Inventory – Carpet
3. Cash (or Accounts Receivable) (3,000 x $1)
Sales - Scraps
c. Production Method - $9,750
Sale Method $9,750
62,000
3,000
$65,000
$65,000
240,000
240,000
65,000
65,000
3,000
3,000
Solution:
c.
Ending Inventory in Units:
Carpet, 16,000 Yards x 15% = 2,400 yards
Scraps, 3,000 yards x 15% = 450 yards
Production Method
Allocated
Units
Units
Value in
Product
Costs
Produced
Remaining
Ending Inventory
Carpet
62,000 ÷
16,000
x
2,400
=
9,300
Scraps
3,000 ÷
3,000
x
450
=
450
9,750
Sales Method
Allocated
Units
Units
Value in
Product
Costs
Produced
Remaining
Ending Inventory
Carpet
65,000 ÷
16,000
x
2,400
=
9,750
129. Honey Bees produces pure honey and distributes it in 8 oz bottles. While harvesting and
packaging the honey, pollen is collected and sold to another distributor that uses it to make
Bee Bread. The honey is sold for $7 per bottle, and the pollen is sold for $1.50 per pound.
Honey Bees produced 20,000 lbs of honey and 2,000 lbs of pollen.
Instructions
a. Assuming Honey Bees uses the production method to account for by-products, record the
journal entry to record the sale of the pollen.
b. Assuming Honey Bees uses the sales method to account for by-products, record the
journal entry to record the sale of the pollen.
c. Explain how the by-product benefits the company’s income in each of the above methods.
Ans: N/A, LO 4 Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost
Management.
Answer:
a.
Cash (or Accounts Receivable)
FG Inventory – Pollen (2,000 x $1.50)
3,000
3,000
b.
Cash (or Accounts Receivable)
Sales - Pollen
3,000
3,000
c. Under the production method, the effect comes through a lower COGS and higher total
gross margin for the main product. Using the sales method, the benefit is higher sales
and a higher gross margin. Both methods will have the same effect on net income if all
by-products that are produced are sold in the same period.
Problems
130. Wooly Productions is a cotton mill that produces a variety of products. The Yarn and
Fibers are produced using a joint process that costs $80,000. Lint is also produced as part
of the joint process but is produced in a small quantity and not part of the general sale of
the company but more of an after-thought with a marketable value. The Yarn and Fibers
can be produced further into Woven Fabric and Tight-Knitted Fabric. The cost to process
these further is 120,000 (Yarn to Woven Fabric) and 140,000 (Fibers to Tight-Knitted
Fabric). Wooly has identified a market for all the products they produce but determined
that the Yarn and Fibers would be processed further as the income appears to be greater.
You have been asked to run some analysis and prepare some journal entries to assist
Wooly in achieving the highest net income based on the products it produces. The
following information has been provided to assist with your analysis.
Product
Yarn
Fibers
Woven Fabric
Tight-Knitted Fabric
Lint
Pounds
Produced
20,000
60,000
24,000
66,000
5,000
Pounds
Sold
24,000
60,000
5,000
Sales Value
Per Pound
$ 4
6
8
10
2
Instructions
a. Wooly uses the NRV to allocate joint costs and the production method to account for byproducts.
1. Allocate the joint costs to each product.
2. Calculate the gross margin for each product.
3. Prepare the journal entry to record the completion of the products.
4. Prepare the journal entry to record the sale of the primary products.
5. Prepare the journal entry to record the sale of the by-product.
b. Wooly uses the NRV to allocate joint costs and the sales method to account for byproducts.
1. Allocate the joint costs to each product.
2. Calculate the gross margin for each product.
3. Prepare the journal entry to record the completion of the products.
4. Prepare the journal entry to record the sale of the primary products.
5. Prepare the journal entry to record the sale of the by-product.
c. Since not all the Tight-Knitted Fabric produced was sold, calculate the ending inventory
of the Finished Goods Inventory account.
1. using the production method to account for by-products.
2. using the sales method to account for by-products
d. Is Wooly making a good decision to process both products further? (Assume all Yarn
and Fibers produced could also be sold) Support your answer with calculations.
Ans: N/A, LO 1, 2, 3, 4 Bloom: AN, Difficulty: Hard, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost
Management.
Answer:
a.
1. Woven Fabric $8,514
Tight-Knitted Fabric $61,486
Lint $10,000
2. Woven Fabric $63,486
Tight-Knitted Fabric $416,830
Lint $0
3. FG Inventory – Woven Fabric (8,514 + 120,000)
FG Inventory – Tight-Knitted Fabric (61,486 + 140,000)
FG Inventory – Lint
WIP Inventory
$128,514
201,486
10,000
4. Cash (or Accounts Receivable)
Sales - Woven Fabric
Sales - Tight-Knitted Fabric (60,000 X $10)
792,000
Cost of Goods Sold
FG Inventory – Woven Fabric
FG Inventory - Tight-Knitted Fabric
5. Cash (or Accounts Receivable)
FG Inventory – Lint
$340,000
192,000
600,000
311,684
128,514
183,170
10,000
10,000
b.
1. Woven Fabric $9,730
Tight-Knitted Fabric $70,270
2. Woven Fabric $62,270
Tight-Knitted Fabric $408,845
Lint $10,000
3. FG Inventory – Woven Fabric (9,730 + 120,000)
FG Inventory – Tight-Knitted Fabric (70,270 + 140,000)
WIP Inventory
$129,730
210,270
$340,000
4. Cash (or Accounts Receivable)
Sales - Woven Fabric
Sales - Tight-Knitted Fabric
792,000
192,000
600,000
Cost of Goods Sold
FG Inventory – Woven Fabric
FG Inventory - Tight-Knitted Fabric
320,885
129,730
191,155
5. Cash (or Accounts Receivable)
Sales – Lint
10,000
10,000
c. Production method - $18,316
Sales Method - $19,115
d. No, the Yarn should not be further into Woven Fabric. It is decreasing profits by $8,000.
The Fibers should be further processed into Tight-Knitted Fabric. It is increasing profits by
$160,000.
Solution:
a. Lint Sales = 5,000 x $2 = $10,000
Joint Costs
Less: Lint Sales
$
80,000
10,000
70,000
(Costs allocated to Lint)
(Costs to allocate to Primary products)
1.
Pounds
Product
Produced
Sales
Price
Per
Pound
Sales
Total
Additional
Costs
to Process
Further
NRV
72,000
Woven
24,000
x
8
= 192,000
-
120,000 =
Tight-Knitted
66,000
x
10
= 660,000
-
140,000 = 520,000
Product
NRV
Total
Joint
NRV
Costs
Allocated
Joint
Costs
Woven
72,000
÷
592,000
x
70,000
=
8,514
Tight-Knitted
520,000
592,000
÷
592,000
x
70,000
=
61,486
2. Tight-Knitted Costs Sold
$61,486 ÷ 66,000 x 60,000 = $55,897
$140,000 ÷ 66,000 x 60,000 = $127,273
Woven
Tight-Knitted
Fabric
Fabric
Lint
Total
$192,000
$600,000
$10,000
$802,000
8,514
55,897
10,000
74,410
Further Processing Costs
120,000
127,273
-
247,273
Gross Margin
$63,486
$416,830
-
$480,317
Sales
Joint Costs
b.
1.
Sales
Price
Per
Pound
Pounds
Product
Produced
Additional
Costs
to Process
Further
Total
Sales
NRV
Woven
24,000
x
8
= 192,000
-
120,000
=
Tight-Knitted
66,000
x
10
= 660,000
-
140,000
= 520,000
Product
NRV
Total
Joint
Allocated
NRV
Costs
Joint Costs
Woven
72,000
÷
592,000
x
80,000
=
9,730
Tight-Knitted
520,000
÷
592,000
x
80,000
=
70,270
72,000
592,000
2. Tight-Knitted Costs Sold
$70,270 ÷ 66,000 x 60,000 = $63,882
$140,000 ÷ 66,000 x 60,000 = $127,273
Woven
Tight-Knitted
Fabric
Fabric
Lint
$192,000
$600,000
$10,000
$802,000
9,730
63,882
-
73,612
Further Processing Costs
120,000
127,273
-
247,273
Gross Margin
$62,270
$408,845
$10,000
$481,115
Sales
Joint Costs
Total
c.
1. Production Method
Costs transferred to FG Inventory
Costs transferred to COGS
Costs in FG Inventory
201,486
183,170
18,316
from part a3
from part a4
210,270
191,155
19,115
from part a3
from part a4
2. Sales Method
Costs transferred to FG Inventory
Costs transferred to COGS
Costs in FG Inventory
d.
Additional
Costs
to Process
Further
Final
Sales
Value
Before
Split-Off
Inc (Dec)
Product
Sales Value
in Profits
Woven Fabric
192,000
-
120,000
-
80,000
=
(8,000)
Tight-Knitted Fabric
660,000
-
140,000
-
360,000
=
160,000
131. Red Hot manufactures a variety of red products. Each product has a market and can be
sold as-is or processed further. Four of the products use a joint process costing $25,000.
Red Hots can be sold for $2 per pound or processed further for $21,000 and sold for
$2.50 per pound. Smokin Reds can be sold for $3.50 per pound or processed further for
$18,500 and sold for $5 per pound. Little Reds can be sold for $5 per pound or
processed further for $23,000 and sold for $6 per pound. Red Peppers can be sold for
$8 per pound or processed further for $15,000 and sold for $10.50 per pound.
The following table shows how many pounds were produced of each product. Even if the
products are processed further, the pounds produced will remain the same.
Product
Red Hots
Smokin Reds
Little Reds
Red Peppers
Pounds
Produced
30,000
25,000
21,000
12,000
Instructions
a. Red Hot does not plan to process any of the products further. Allocate the joint costs
using the sales at split-off method and calculate the gross margin for each product.
b. Red Hot does not plan to process any of the products further. Allocate the joint costs
using the sales at physical quantities method and calculate the gross margin for each
product.
c. Red Hot plans to process all of products further. Allocate the joint costs using the
sales at NRV method and calculate the gross margin for each product.
d. If Red Hots does not plan to process any of the products further and the current sales
value per pound is accurate, which method should the company use to allocate joint
costs?
e. If Red Hots plans to produce all the products further, which method should the
company use to allocate joint costs?
f. Which product or products should the company process further and which product or
products should the company sell as-is? Be sure to justify your answer with
calculations.
g. If the company takes your suggestions in part f, calculate the new gross margin of the
company if the company uses the NRV method to allocate joint costs, and only the
product or products recommended in part f are processed further.
h. What is the overall effect on gross margin by only processing further the products
identified in part f versus not processing any of the products further.
i. What is the overall effect on gross margin by only processing further the products
identified in part f versus processing all of the products further?
Ans: N/A, LO 2, 3 Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Decision Modeling, IMA: Cost
Management.
Answer:
a. Red Hots - $55,696
Smoking Reds - $81,223
Little Reds - $97,468
Red Peppers - $89,113
b. Red Hots - $51,447
Smoking Reds - $80,398
Little Reds - $99,034
Red Peppers - $92,591
c. Red Hots - $50,395
Smoking Reds - $99,391
Little Reds - $96,124
Red Peppers - $103,590
d. The company should use the sales value at split-off method.
e. The company should use the NRV method.
f. Smokin Reds and Red Peppers should be processed further. They will increase profits
by $19,000 and $15,000 respectively. The other two products will decrease profits, Red
Hots and Little Reds, by $6,000 and $2,000, respectively.
g. Red Hots – $56,078
Smoking Reds - $99,539
Little Reds - $98,137
Red Peppers - $103,745
h. Increase of $34,000
i. Decrease of $8,000
Solution:
a.
Product
Pounds
Sales Price
Totals Sales
Produced
Per Pound
at Split-off
Red Hots
30,000
x
2.00
=
60,000
Smokin Reds
25,000
x
3.50
=
87,500
Little Reds
21,000
x
5.00
=
105,000
Red Peppers
12,000
x
8.00
=
96,000
Product
Totals Sales
Joint
Allocated
at Split-off
Costs
Costs
Red Hots
60,000
÷
348,500
x
25,000
=
4,304
Smokin Reds
87,500
÷
348,500
x
25,000
=
6,277
Little Reds
105,000
÷
348,500
x
25,000
=
7,532
Red Peppers
96,000
÷
348,500
x
25,000
=
6,887
348,500
Red Hots
Smokin
Little
Red
Red
Reds
Peppers
Total
Sales
60,000
87,500
105,000
96,000
348,500
Costs
4,304
6,277
7,532
6,887
25,000
Gross Margin
55,696
81,223
97,468
89,113
323,500
b.
Product
Pounds
Joint
Allocated
Produced
Costs
Costs
Red Hots
30,000
÷
88,000
x
25,000
=
8,523
Smokin Reds
25,000
÷
88,000
x
25,000
=
7,102
Little Reds
21,000
÷
88,000
x
25,000
=
5,966
Red Peppers
12,000
÷
88,000
x
25,000
=
3,409
88,000
Smokin
Little
Red
Red Hots
Red
Reds
Peppers
Sales
60,000
87,500
105,000
96,000
348,500
Costs
8,523
7,102
5,966
3,409
25,000
Gross Margin
51,477
80,398
99,034
92,591
323,500
Total
c.
Product
Pounds
Sales
Price
Produced
Per Pound
Additional
Costs
to Process
Further
Final
Sales
Value
NRV
Red Hots
30,000
x
2.50
=
75,000
-
21,000
=
54,000
Smokin Reds
25,000
x
5.00
=
125,000
-
18,500
=
106,500
Little Reds
21,000
x
6.00
=
126,000
-
23,000
=
103,000
Red Peppers
12,000
x
10.50
=
126,000
-
15,000
=
111,000
Product
NRV
Joint
Allocated
Costs
Costs
Red Hots
54,000
÷
374,500
x
25,000
=
3,605
Smokin Reds
106,500
÷
374,500
x
25,000
=
7,109
Little Reds
103,000
÷
374,500
x
25,000
=
6,876
Red Peppers
111,000
÷
374,500
x
25,000
=
7,410
374,500
Red Hots
Smokin
Little
Red
Red
Reds
Peppers
Total
Sales
75,000
125,000
126,000
126,000
452,000
Costs
24,605
25,609
29,876
22,410
102,500
Gross Margin
50,395
99,391
96,124
103,590
349,500
f.
Totals
Sales
at Split-off
**
Final Sales
Product
Value *
Additional
Costs
to Process
Further
Net Increase
(Decrease)
Red Hots
75,000
-
60,000
-
21,000
=
(6,000)
Smokin Reds
125,000
-
87,500
-
18,500
=
19,000
Little Reds
126,000
-
105,000
-
23,000
=
(2,000)
Red Peppers
126,000
-
96,000
-
15,000
=
15,000
26,000
* From part a
** from part c
g.
Sales
Price
Per
Pound
Pounds
Product
Produced
Additional
Costs
to Process
Further
Final
Sales
Value
Red Hots
30,000
x
2.00
=
60,000
-
Smokin Reds
25,000
x
5.00
=
125,000
-
Little Reds
21,000
x
5.00
=
105,000
-
Red Peppers
12,000
x
10.50
=
126,000
-
Product
NRV
NRV
=
18,500
60,000
= 106,500
= 105,000
15,000
= 111,000
Joint
Allocated
Costs
Costs
Red Hots
60,000
÷
382,500
x
25,000
=
3,922
Smokin Reds
106,500
÷
382,500
x
25,000
=
6,961
Little Reds
105,000
÷
382,500
x
25,000
=
6,863
Red Peppers
111,000
÷
382,500
x
25,000
=
7,255
382,500
Smokin
Little
Red
Red Hots
Red
Reds
Peppers
Total
Sales
60,000
125,000
105,000
126,000
416,000
Costs
3,922
25,461
6,863
22,255
58,500
Gross Margin
56,078
99,539
98,137
103,745
357,500
h. Gross Margin (from part g)
Gross Margin (from part a)
Difference
$357,500
323,500
34,000
i. Gross Margin (from part g)
Gross Margin (from part c)
Difference
$357,500
349,500
8,000