Chapter 11
Cost Allocation for Joint Products and By- Products
Questions
1. Joint processing output is based on the
sales value of each type of output. Joint
products are those resulting from a joint
process that has a relatively greater sales
value for each type of output. By-products
are output of insufficient sales value to
justify undertaking the joint process.
Scrap output has little sales value. Thus,
the distinction among the three product
groups is their relative sales value. Joint
products have the highest value followed
by by-products.
process to produce several outputs, those
costs are indirect to the individual output
produced and must be assigned to the
output because of the cost principle. This
is necessary in order to have appropriate
inventory valuations for the joint products
produced
in
the
joint
process.
Accountants allocate fixed production
costs to products produced within a
period, and allocate certain plant and
equipment costs to the time periods during
which those assets are used through
depreciation. Amortization and allocation
of intangible costs are other examples.
Usually, the classification of output is
determined
before
production.
Management decides whether a joint
process output is a joint product, a
by-product, or scrap based on judgment.
Output from a joint process is subjectively
classified according to management's
assessment of the relative sales value of
each type. The classification of outputs of
a joint process is usually decided before
the process is undertaken. However, in
unusual cases, the actual outputs of the
joint process may not result as planned.
In such cases, management may classify
them differently than originally intended.
5. Approaches to allocating joint process
costs are classified into two general
categories: (1) physical measures and (2)
monetary measures. Physical measures
(e.g., tons, barrels, feet) are unchanging
yardsticks; monetary measures change
over time with inflation.
However,
monetary measures assign joint process
costs to joint products proportionately to
relative sales value. Physical measures
treat each physical unit of output as
equally desirable by assigning a uniform
amount of joint process cost to every unit
of output produced.
2. All processing of joint production does not
always stop at the split-off point. Some
products may not have a saleable product
at the split-off point. Rather, the product
must be processed further before it can be
sold.
6. Approximated net realizable values are
necessary when some or all of the joint
products are not salable at the split-off
point. An approximated net realizable
value is calculated by subtracting the
incremental separate costs incurred
between split-off and point of sale from the
expected final sales price of the product.
Thus the additional approximations are the
final sale price and the incremental
separate costs.
3. The three decision points are (1) before
the joint process is undertaken, (2) at the
split-off point, and (3) after the split-off
point. The criterion for proceeding at any
point
is
whether
the
anticipated
incremental revenues will exceed the
anticipated incremental costs.
7. One approach is to ignore by-product
inventory completely until it is sold. Only
then does the revenue it generates
acknowledge the existence of the
by-product. This revenue is carried to the
4. Cost allocation refers to the assignment of
an indirect cost to a cost object using
some reasonable method.
Since
production costs are incurred in a joint
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252
Chapter 11
income statement as an increase to net
income of the period.
The second
approach is to record, at the split-off point,
the final net realizable value of the
by-products recovered. The net realizable
value is credited as a reduction of the joint
process costs that gave rise to the
by-product.
The second approach is
theoretically preferable because it causes
the benefit to be matched with the source
of the benefit – namely, the joint process
costs being incurred during the period.
8. If a company using job order costing
produces a by-product or a scrap item
continuously from normal production, the net
realizable value of that by-product or scrap
should be considered in setting the
predetermined overhead rate.
The
estimated net realizable value of the byproduct or scrap should be deducted from
total estimated overhead costs in setting the
rate. When the by-product or scrap is
actually sold, its net realizable value should
be credited to Manufacturing Overhead.
If a company using job order costing only
produces a by-product or a scrap item
during a particular job, then the net
realizable value of the by-product/scrap
should not be considered in setting the
predetermined overhead rate. The net
realizable value should be credited to the
particular job that gave rise to the
by-product/scrap.
9. For a not-for-profit to appropriately evaluate
the uses of its resources, the AICPA require
that multipurpose costs be allocated
between program and support categories.
Program expenses are those that are
directly aimed at the accomplishment of the
organization's charitable objectives and are
considered a more valid use of resources.
Comparison of support expenses to total
expenses may suggest a measure of
organizational efficiency. The AICPA is
concerned with donors having knowledge of
the relative and absolute magnitude of
funds spent on fundraising.
Exercises
10.
Student solutions will vary. No solution provided.
11.
a. In a poultry butcher shop, the major joint input is chicken and turkey meat.
The major questions to be asked follow: (1) Is a poultry butcher shop really
the business I want to be in? Presumably, this question has been
answered in the affirmative. (2) What specific meats do I want to work with
and what customers do I want to serve? The answer to this question will
determine what inputs will be purchased and, to some extent, what
production processes will be performed. (3) What specific cuts of poultry
should be selected from the meat carcasses? The answer to this question
will determine how the carcasses are cut into salable parts. (4) How much
processing should I do to the individual cuts. The answer to this question
will determine what specific processes will be necessary beyond the splitoff point. The answer to this question will also determine what types of
equipment the poultry butcher shop must have to execute the required
conversion operations. The decision to classify output as joint product,
by-product, scrap, or waste is not as important in this environment
because inventory levels will be minimal due to the perishable nature of the
product. Rather, the focus will be on maximizing the value added to the
raw carcasses that are purchased from poultry wholesalers.
b. For a poultry butcher shop, the manner in which joint cost is allocated can
affect some decisions. For example, in pricing products, a poultry butcher
shop wants to cover all costs. To do so requires that an appropriate price
Chapter 11
253
be established for each cut of meat. This price will be determined partly by
the costs of each cut, and part of the cost is joint cost. The allocation of
joint costs can also be important in meeting reporting requirements, e.g.,
income determination and inventory valuation for purposes of reporting to
the Internal Revenue Service.
Joint products are also relevant in
determining whether one is going to engage in production. However, once
the split-off point is reached in the production operation, the joint costs are
irrelevant in determining whether additional conversion operations should
be performed.
c. Four potential categories of output are obtained from joint production.
Joint products are the main products obtained and are distinguished from
the other outputs by their relatively greater sales value. At the opposite
end of the continuum, waste is an incidental output of a joint production
process and has no value. By-products and scrap are distinguished by the
fact that they both have some value but the value is substantially below
that of joint products. By-product differs from scrap in that it has a
somewhat larger market value.
12.
a. Direct instructional costs
Overhead
Total costs
$38,000
4,000
$42,000
Application rate = $42,000 ÷ 3,000 = $14.00 per hour
Cost assignment:
High School League (2,000 x $14.00)
Amateur Adult (1,000 x $14.00)
Total cost assigned
$28,000
14,000
$42,000
b. Application rate = $42,000 ÷ [($10 x 2,000) + ($30 x 1,000)]
= $0.84 per dollar of sales value
Cost Assignment:
High School League ($20,000 x 0.84)
Amateur Adult ($30,000 x 0.84)
Total cost assigned
$16,800
25,200
$42,000
c. The monetary method of allocation best captures the relative incentives of
providing the joint services. It is appropriate to assign Amateur Adults
more cost because it generates more revenues. Alternatively, more class
hours are required for High School League. If class hours are considered
to be a cost driver, it is appropriate to assign more costs to the High
School League.
254
13.
Chapter 11
a. Allocation rate = $24,000,000 ÷ 48,000,000 = $0.50 per foot
Grade A: $0.50 x 36,000,000 = $18,000,000
Grade B: $0.50 x 12,000,000 = $6,000,000
b. Incremental revenue (36,000,000 x $1.10)
$39,600,000
Incremental costs (36,000,000 x $0.75)
27,000,000
Increase in income
$12,600,000
Based on the incremental change in net income, the company should
process Grade A Wood further.
14.
a.
Joint
Unit
Products Weight
Fish
0.5
Oil
0.25
Meal
0.125
Total lbs.
Produced
100,000
100,000
100,000
b.
Joint
Products
Fish
Oil
Meal
Pounds
Produced
50,000
25,000
12,500
Product
Total
50,000
25,000
12,500
87,500
Percent*
57.14
28.57
14.29
100.00
Unit
Selling
Price
Total Proportion
$6.00 $300,000
30/55
8.00
200,000
20/55
4.00
50,000
5/55
$550,000
100.00
Allocated*
Joint Cost
$108,795
54,397
27,208
$190,400
Allocated *
Joint Cost
$103,855
69,236
17,309
$190,400
*rounded
c. The physical measure (pounds) is an unchanging yardstick, but it treats all
pounds as equally valuable. The monetary basis assigns joint costs using
sales value but, because of inflation and market price variability, is a
changing yardstick. However, the monetary basis probably provides a
better way of matching the joint costs to the benefits achieved from the
joint production process. This is due to the substantial differences in per
pound prices across the three products.
15.
a. Sales value of milk
Sales value of sour cream
Total sales value
$100,000 (31.25%)
220,000 (68.75%)
$320,000
Since the milk represents 31.25% of the total sales value at split-off,
$43,200 represents 31.25% of the total joint costs. Total joint costs are
$138,240 ($43,200 ÷ 0.3125).
b. 320,000 pints = 160,000 quarts of sour cream
Quarts of milk
240,000 (60%)
Quarts of sour cream
160,000 (40%)
Total quarts
400,000
Since the milk represents 60% of the total physical quantity produced,
$43,200 represents 60% of the total joint costs. Total joint costs are $72,000
($43,200 ÷ 0.60).
Chapter 11
16.
255
a.
Revenues
Separate Costs
NRV
Games
News
Documentary
$18,000,000 $15,000,000 $95,000,000
(17,000,000)
(8,000,000) (55,000,000)
$ 1,000,000 $ 7,000,000 $40,000,000
Joint cost allocation:
Games [$12,000,000 x (1 ÷ 48)]
News [$12,000,000 x (7 ÷ 48)]
Documentary [$12,000,000 x (40 ÷ 48)]
Total
Revenues
Separate Costs
Allocated costs
Net Profit
250,000
1,750,000
10,000,000
$12,000,000
$18,000,000 $15,000,000 $95,000,000
(17,000,000)
(8,000,000) (55,000,000)
(250,000)
(1,750,000) (10,000,000)
$ 750,000 $ 5,250,000 $30,000,000
b. Joint cost allocation:
Games [$12,000,000 x (18 ÷ 128)]
News [$12,000,000 x (15 ÷ 128)]
Documentary [$12,000,000 x (95 ÷ 128)]
Total
Revenues
Separate Costs
Allocated costs
Net Profit
$
$ 1,687,500
1,406,250
8,906,250
$12,000,000
$18,000,000 $15,000,000 $95,000,000
(17,000,000)
(8,000,000) (55,000,000)
(1,687,500)
(1,406,250) ( 8,906,250)
$ (687,500) $ 5,593,750 $31,093,750
c. Obviously, as head of the Games Group, a manager would be very
concerned about the effects of allocating joint costs under the scheme in
part (b). The result of the allocation is to make the Games Group appear to
be very unprofitable.
Some of the points students might make in their presentations include
(some of which could be rebutted):
1. The allocation of joint costs is totally arbitrary; there is no cause and
effect relationship represented in the allocations in part (b).
2. The Games Group has a different degree of utilization than the other
two groups, News and Documentaries, because most of its activities
originate at a different location. Evidence of this relationship can be
found in the separate costs incurred by the Games Group relative to
the other two groups. The allocations in part (b) fail to consider this
fact.
256
17.
Chapter 11
a. Units of output allocation:
Total bottles = 15,000 + 20,000 + 25,000 = 60,000
Perfume
(15,000 ÷ 60,000) x $240,000
Eau de Toilet (20,000 ÷ 60,000) x $240,000
Body Splash (25,000 ÷ 60,000) x $240,000
Total
$ 60,000
80,000
100,000
$240,000
Weight-based allocation:
Total weight = (15,000 x 3) + (20,000 x 2) + (25,000 x 3) = 160,000
Perfume
(45,000 ÷ 160,000) x $240,000
Eau de Toilet (40,000 ÷ 160,000) x $240,000
Body Splash (75,000 ÷ 160,000) x $240,000
Total
$ 67,500
60,000
112,500
$240,000
Approximated Net realizable value computation:
Perfume
15,000 x ($8.50 - $2)
Eau de Toilet 20,000 x ($6.00 - $1)
Body Splash 25,000 x ($6.00 - $1.50)
Total
$ 97,500
100,000
112,500
$310,000
Approximated net realizable value allocation:
Perfume
( 97,500 ÷ 310,000) x $240,000
Eau de Toilet (100,000 ÷ 310,000) x $240,000
Body Splash (112,500 ÷ 310,000) x $240,000
Total
$ 75,484
77,419
87,097
$240,000
b. Cost assigned to inventory = allocated joint cost + separate costs
Perfume
$ 60,000 + ($2 x 15,000)
Eau de Toilet $ 80,000 + ($1 x 20,000)
Body Splash $100,000 + ($1.50 x 25,000)
Total
$ 90,000
100,000
137,500
$327,500
Ending inventory valuation based on bottles of output:
Perfume
($ 90,000) x (500 ÷ 15,000)
$ 3,000
Eau de Toilet ($100,000) x (1,000 ÷ 20,000)
5,000
Body Splash ($137,500) x (1,500 ÷ 25,000)
8,250
Total
$16,250
Inventory valuation based on weight:
Perfume
($ 67,500 + $30,000) x (1,500 ÷ 45,000)
Eau de Toilet ($ 60,000 + $20,000) x (2,000 ÷ 40,000)
Body Splash ($112,500 + $37,500) x (4,500 ÷ 75,000)
Total
$ 3,250
4,000
9,000
$16,250
Chapter 11
257
Inventory valuation based on approximated net realizable value:
Perfume
($75,484 + $30,000) x (500 ÷ 15,000)
$ 3,516
Eau de Toilet ($77,419 + $20,000) x (1,000 ÷ 20,000)
4,871
Body Splash ($87,097 + $37,500) x (1,500 ÷ 25,000)
7,476
Total
$15,863
18.
a.
Product
Butter
Jam
Syrup
(a)
(b)
(c)=(a)–(b)
(d)
(e)=(c)–(d)
Final Sales Split-off Incremental Incremental Incremental
Value Sales Value
Sales
Costs
Profit
$15,000
$10,000
$ 5,000
$ 7,500
$ (2,500)
60,000
10,000
50,000
20,000
30,000
900
750
150
100
50
Only products Jam and Syrup should be processed beyond the split-off point.
b. Joint costs
Less NRV of Syrup ($1.80 - $0.20) x 500
Joint costs to be allocated
$60,000
800
$59,200
Unit-based allocation:
Butter (5,000 ÷ 15,000) x $59,200
Jam (10,000 ÷ 15,000) x $59,200
Total
$19,733*
39,467*
$59,200
Weight-based allocation:
Butter (50,000 ÷ 110,000) x $59,200
Jam (60,000 ÷ 110,000) x $59,200
Total
$26,909
32,291
$59,200
NRV computation (assuming Jam is not processed further)
Butter 5,000 x ($3.00 - $1.50)
$ 7,500
Jam 10,000 x ($6.00 - $2)
40,000
NRV
$47,500
NRV-based allocation:
Butter (7,500 ÷ 47,500) x $59,200
Jam (40,000 ÷ 47,500) x $59,200
Total
$ 9,347*
49,853*
$59,200
*Rounded
19.
a.
Final revenues
Revenues at split-off
Incremental revenues
Incremental costs
Net benefit (cost) of further processing
Fabric
$180,000
120,000
$ 60,000
40,000
$ 20,000
Fabric and Yarn should be processed further.
b. The irrelevant item is the $40,000 of joint processing cost.
Yarn
$140,000
100,000
$ 40,000
34,000
$ 6,000
258
20.
Chapter 11
a.
Product
Candied
apples
Apple
jelly
Apple
jam
(a)
(b)
(c) = (a) - (b)
(d)
Final
Split-off Incremental Incremental
Revenues Sales Value Revenue
Costs
(e) = (c) - (d)
Incremental
Profit
$620,000
$642,000
($22,000)
$26,000
$(48,000)
740,000
706,000
34,000
38,000
(4,000)
270,000
253,000
17,000
15,000
2,000
Management should not have further processed candied apples and apple
jelly because the incremental costs from further processing was greater than
the incremental revenues. Rather, management should only further process
apple jam beyond the split-off point.
b. Candied apples
Apple jelly
Additional potential profit
21.
$48,000
4,000
$52,000
a. Joint cost
Less NRV of by-product 1,000 x (0.75 - 0.15)
Joint cost to be allocated
$64,000
(600)
$63,400
NRV of Fillet
9,000 x ($6 - $1.50)
NRV of Smoked 10,000 x ($6.50 - $4.50)
Total NRV
$40,500
20,000
$60,500
Cost allocation:
Fillet $63,400 x ($40,500 ÷ $60,500)
Smoked $63,400 x ($20,000 ÷ $60,500)
Total cost allocation
$42,441
20,959
$63,400
b. Separate costs for Fillet
= 9,000 x $1.50 = $13,500
Separate costs for Smoked = 10,000 x $4.50 = $45,000
Joint costs
Separate costs
Total costs
Divide by units
Unit cost
Fillet
$42,441
13,500
$55,941
9,000
$6.22*
Smoked
$20,959
45,000
$65,959
10,000
$6.60*
*rounded
Inventory values:
Fillet 600 x $6.00
Smoked 600 x $6.50
Canned (54 ÷ 1,000) x $600
Total inventory value
$3,600.00
3,900.00
32.40
$7,532.40
Chapter 11
259
22.
Because the by-products have substantial value, they should be accounted for
on the basis of net realizable value rather than realized value. Use of realized
value would result in distorted cost information. Whether the direct or indirect
method is used would be dependent on the timing of the sale of by-products
and joint products. If both product groups sell shortly after they are produced,
then the choice of method is less important. However, if the by-product tends
to sell in a different period than its related joint products, the use of the direct
method would provide a stronger match between costs and benefits.
23.
a. Joint Services Increase in Revenues
Renting
$ 400,000
Sales
800,000
Totals
$1,200,000
1/3
2/3
1
b. Joint Services Increase in Net Income
Renting
$ 75,000
0.60
Sales
50,000
0.40
Totals
$ 125,000
1.00
Allocated Cost
$ 8,333
16,667
$25,000
Allocated Cost
$15,000
10,000
$25,000
c. The allocation based on increase in net income may be better because it
matches the advertising cost to the net benefit of the advertising.
24.
Joint process cost
Less net realizable value of by-product inventory
Amount to be allocated
$240,000
40,000
$200,000
Proration of amount to be allocated based on weight:
Product
Premium
Good
Fair
Bushels Proportion*
9,600
0.22
26,000
0.59
8,400
0.19
44,000
1.00
Allocation
$ 44,000
118,000
38,000
$200,000
*rounded
25.
a. Sales value of blouses =
Joint cost of blouses
Total sales value
Total allocated joint cost
$ 40,000 =
X
$300,000
$180,000
$300,000 X
$30X
$30X
X
= $40,000($180,000)
= $4($180,000)
= $720,000
= $24,000 for blouses
Total joint cost
Joint cost for dresses and blouses ($87,000 + $24,000)
Joint cost assigned to jackets
$180,000
(111,000)
$ 69,000
260
Chapter 11
b. Joint costs = 60% of relative sales value amounts; therefore,
$87,000 = 0.6X
X = $145,000 sales value for dresses
$300,000 - $145,000 for dresses and $40,000 for blouses = sales value of
$115,000 for jackets
c.
Final sales value
Sales value at split off
Increase in value
Additional costs
Incremental benefit (loss)
Dresses
$150,000
145,000
$ 5,000
(13,000)
$ (8,000)
Jackets
$134,000
115,000
$ 19,000
(10,000)
$ 9,000
Blouses
$105,000
40,000
$ 65,000
(39,000)
$ 26,000
Process jackets and blouses further.
d. Joint costs allocated to jackets:
Additional costs
Total costs for 8,000 units
$69,000
10,000
$79,000
Sales
Cost for 4,000 units
Gross profit
26.
$67,000
(39,500)
$27,500
a. Total joint cost
Revenue from tours
Expenses of tours
Joint cost to be allocated
$16,000,000
$700,000
(380,000)
Rare D&C
$8,000,000
(4,800,000)
$3,200,000
Gross Revenues
Separate costs
Net realizable value
Joint cost allocation:
NRV
Rare D&C
$ 3,200,000
Sequel
16,800,000
$20,000,000
b.
Gross Revenues
Separate costs
Net realizable value
Joint costs
Net profit
27.
Sequel
$54,000,000
(37,200,000)
$16,800,000
Joint Cost Allocated
16%
$ 2,508,800
84
13,171,200
100%
$ 15,680,000
Rare D&C
$8,000,000
(4,800,000)
$3,200,000
(2,508,800)
$ 691,200
Total sales value (24,000 x $21)
Less costs (24,000 x $4)
Reduction of joint cost
(320,000)
$15,680,000
$504,000
96,000
$408,000
Sequel
$54,000,000
(37,200,000)
$16,800,000
(13,171,200)
$ 3,628,800
Chapter 11
261
The gross margin for the major products will decrease by $408,000, but net
income will remain the same.
28.
Sales of by-product
Cost of by-product sales (90,000 x $0.10)
Net realizable value of by-product
a.
$11,825
9,000
$ 2,825
Azzi Potato Inc
Income Statement
For May 2006
Sales of hash browns & potato chips
Cost of goods sold:
Hash browns & potato chips (80% x $30,000)
By-products
Gross profit
Expenses
Income from operations
Other revenues (by-product sales)
Net income before taxes
b.
$24,000
9,000
(33,000)
$47,000
(3,800)
$43,200
11,825
$55,025
Azzi Potato Inc
Income Statement
For May 2006
Sales of hash browns & potato chips
Cost of goods sold
Gross profit
Expenses
Income from operations
Other income (by-product sales)
Net income before taxes
c.
$80,000
$80,000
(24,000)
$56,000
(3,800)
$52,200
2,825
$55,025
Azzi Potato Inc
Income Statement
For May 2006
Sales of hash browns & potato chips
Cost of goods sold
Gross profit
Expenses
Net income before taxes
$80,000
(21,740)*
$58,260
(3,800)
$54,460
*$30,000 - $2,825 = $27,175; $27,175 x 80% = $21,740.
d. The approach in part (c) is better than either (a) or (b) because it
consistently matches the NRV of the by-product with the costs of the joint
production operations that produced the by-product.
262
29.
Chapter 11
a. Estimated OH
Estimated NRV of by-product
Estimated OH to be covered
Divided by estimated CPU time
Predetermined OH rate per CPU hr.
b. Cash
Manufacturing Overhead
$199,250
( 9,200)
$190,050
÷ 70,000
$2.715
9,794
9,794
To record sale of by-product
c. Total actual OH
Total applied OH (68,400 x $2.715)
Total actual NRV of by-product
Underapplied overhead
30.
$199,750
$185,706
9,794
$
195,500
4,250
a. $ 67,500 ÷ 30,000 = $42.25
b. DM
DL ($10 x126)
OH ($2.25 x126)
Total
$ 210.00
1,260.00
283.50
$1,753.50
c. Cash
Manufacturing Overhead
Work in Process - Job XX
9.00
18.50
27.50
To record disposal value of spoiled work incurred
on Job XX (the stained glass window)
31.
a. Cash
Work in Process - Stiles Bldg.
2,500
2,500
To record sale of Stiles model
b. Cash
Manufacturing Overhead
To record sale of Stiles model
32.
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
2
1
1
2
2
1
1
2
1
2
2,500
2,500
Chapter 11
33.
a.
b.
263
Joint Product
Fundraising
Program
Total
Percent
0.10
0.90
1.00
Joint Cost Allocated
$ 18,000
162,000
$180,000
Joint Product
Fundraising
Program
Total
Percent
0.02
0.98
1.00
Joint Cost Allocated
$ 3,600
176,400
$180,000
34.
Student solutions will vary. No solution provided.
35.
a. Work in Process - Combining
Raw Material Inventory
Wages Payable
Manufacturing Overhead
39,810
28,000
7,560
4,250
Work in Process - Heating
Work in Process - Combining
39,810
Work in Process - Heating
Raw Material Inventory
Wages Payable
Manufacturing Overhead
Work in Process - Heating
Raw Material Inventory
11,490
Work in Process - Heating
Raw Material Inventory
Wages Payable
Manufacturing Overhead
9,210
Finished Goods - Forever
Finished Goods – Fantasy
Work in Process - Heating
b. Joint cost allocation:
Forever ($158,910 ÷ $211,880) x $51,300
Fantasy ($52,970 ÷ $211,880) x $51,300
Total
39,810
6,100
2,150
3,240
2,120
2,120
1,960
3,120
4,130
40,595
22,035
62,630
$38,475
12,825
$51,300
264
Chapter 11
Work in Process – Combining
DM 28,000
39,810 To Heating
DL
7,560
c.
OH
Bal
4,250
0
Work in Process - Heating
DM
6,100 40,595
To FG – Forever
DL
2,150 22,035
To FG – Fantasy
OH
3,240
From Combining 39,810
DM
2,120
DM
1,960
DL
3,120
OH
Bal
4,130
0
Finished Goods – Forever
Beg
XXX
CGM 40,595
36.
Finished Goods – Fantasy
Beg
XXX
CGM 22,035
a. Joint cost allocation:
Cream (80,000 ÷ 920,000) x $320,000
Skim (840,000 ÷ 920,000) x $320,000
Total
$ 27,826*
292,174*
$320,000
*rounded
b. Beg Finished Goods
CGM
Goods available for sale
End Finished Goods
Cost of Goods Sold
$
0
320,000
320,000
(81,740)*
$238,260
* Cream
($27,826 ÷ 80,000) x (80,000 – 60,000)
= $ 6,957 rounded
Skim ($292,174 ÷ 840,000) x (840,000 – 625,000) = 74,783 rounded
Total
$81,740
Sales
Cost of Goods Sold
Gross Margin
$679,000
238,260
$440,740
c. Lakeside could test the fat content of the milk before purchase and only
purchase milk that, when processed, would result in minimal loss.
Chapter 11
37.
265
a. Cream
Skim
$54,000 ÷ 60,000 lbs = $0.90 per pound
$181,000 ÷ 625,000 lbs = $0.2896 per pound
b. Joint cost allocation:
Cream ($72,000* ÷ $315,264) x $320,000
Skim ($243,264* ÷ $315,264) x $320,000
Total
*
Cream ($0.90 x 80,000) =
Skim ($0.2896 x 840,000) =
Total
c. Beg Finished Goods
CGM
Goods available for sale
End Finished Goods
Cost of Goods Sold
$ 73,082 rounded
246,918 rounded
$320,000
$ 72,000
243,264
$315,264
$
0
320,000
320,000
(81,740)*
$238,260
* Cream
($73,082 ÷ 80,000) x (80,000 – 60,000)
= $18,271 rounded
Skim ($246,918 ÷ 840,000) x (840,000 – 625,000) = 63,199 rounded
Total
$81,740
Sales
Cost of Goods Sold
Gross Margin
38.
$679,000
238,260
$440,740
a. Joint cost allocation (in millions):
Oil (55 ÷ 275) x $49.8
= $ 9.96
Meal (220 ÷ 275) x $49.8 = 39.84
Total
$49.80
b. Cost of goods sold (in millions):
Oil ($9.96 ÷ 55) x (55 x 0.60)
= $ 5.976
Meal ($39.84 ÷ 220) x (220 x 0.80) = 31.872
Total
$37.848
c. Ending finished goods (in millions):
Oil ($9.96 ÷ 55) x (55 x 0.40)
= $ 3.984
Meal ($39.84 ÷ 220) x (220 x 0.20) = 7.968
Total
$11.952
39.
a. Joint cost allocation (in millions):
Oil ($0.339 x 55)
Meal ($0.169 x 220)
Total
Oil ($18.645 ÷ $55.825) x $49.8
Meal ($37.180 ÷ $55.825) x $49.8
Total
*rounded
= $18.645
= 37.180
$55.825
= $16.633*
= 33.167*
$49.800
266
Chapter 11
b. Cost of goods sold (in millions):
Oil ($16.633 ÷ 55) x (55 x 0.60)
= $ 9.980*
Meal ($33.167 ÷ 220) x (220 x 0.80) = 26.534*
Total
$36.514
*rounded
c. Ending finished goods (in millions):
Oil ($16.633 ÷ 55) x (55 x 0.40)
= $ 6.653*
Meal ($33.167 ÷ 220) x (220 x 0.20) = 6.633*
Total
$13.286
*rounded
d. Each method allocates a different amount of joint costs to the joint
products and results in a different per-unit cost for each product. In
problem 38 the physical measure was used to assign joint costs and more
joint costs were assigned to the meal. This allocation resulted in a lower
cost of goods sold number and a higher value in ending inventory.
40.
a. Joint cost allocation:
Checking $400,000 x ($948,750 ÷ $1,650,000) = $230,000
Credit Cards $400,000 x ($701,250 ÷ $1,650,000) = 170,000
Total
$400,000
b.
Revenues
Joint costs
Separate costs
Gross margin unadjusted
Insurance revenue
Overall gross margin
41.
Checking
$948,750
(230,000)
(125,000)
$593,750
a. Total joint costs:
Direct material
Direct labor
Overhead
Sales value of scrap:
$0.65 per lb. x 3,600 lbs.
Joint cost to be allocated
b.
Revenues
Separate costs
NRV per unit
Multiply by # of units produced
Total NRV
NRV %
Credit Card
Total
$701,250
$1,650,000
(170,000)
(400,000)
(90,000)
(215,000)
$441,250
$1,035,000
32,500
$1,067,500
$37,500
12,000
11,000
$60,500
(2,340)
$58,160
Robes Bath Towels
$40.00
$22.00
(16.80)
(4.60)
$23.20
$17.40
x 6,000
x 12,000
$139,200
$208,800
40%
60%
Chapter 11
267
Joint cost assignable to robes (40% x $58,160)
Joint cost assignable to towels (60% x $58,160)
WIP-Robes
WIP-Towels
Work in Process - Cutting
$23,264
34,896
$58,160
23,264
34,896
58,160
Allocation of joint costs to robes and towels
Finished Goods – Scrap
Work in Process - Cutting
2,340
2,340
To record production of scrap
c.
Joint costs
Separate costs:
$16.80 X 6,000
$ 4.60 X 12,000
Total to finished goods
42.
Robes
$ 23,264
Bath Towels
$34,896
100,800
$124,064
55,200
$90,096
a.
Cutting Dept.
Split-off
Premium
1,500 pecks
Clean & Sort
$15,450
Good
2,000 pecks
Fair
500 pecks
b. Materials
Labor
Overhead
Joint cost
$15,000
300
150
$15,450
Package &
Delivery
Dept.
$1,500
$30,000
$2,200
$15,000
$2,000
$500
$4,500
268
Chapter 11
c.
Joint
Sales
Product
Price
Premium $30,000
Good
15,000
Add'l
Cost
$1,500
4,200
NRV at
Joint *
Split-Off Percent*
Cost
$28,500
73
$11,278
10,800
27
4,172
$39,300
100
$15,450
*rounded
d. Raw materials
Cash (A/P)
15,000
15,000
Purchase of peaches
Work in Process – Clean & Sort
Raw Materials
Wages Payable
Manufacturing Overhead
15,450
15,000
300
150
To record joint processing costs
Work in Process – Packaging (Premium)
Work in Process – Cutting (Good)
Work in Process – Clean & Sort
11,278
4,172
15,450
To move joint production costs to
Packaging and Cutting Departments
Work in Process - Cutting (Good)
Various accounts
2,000
2,000
To record cutting and bottling costs for Good Peaches
Work in Process - Packaging (Good)
Work in Process – Cutting (Good)
6,172
6,172
To move Good Peaches from the
Cutting to the Packaging department
Work in Process - Packaging (Premium)
Work in Process - Packaging (Good)
Various accounts
1,500
2,200
3,700
To record packaging and delivery costs
Finished Goods (Premium)
Work in Process - Packaging (Premium)
12,778
12,778
To record completed production of premium peaches
Finished Goods (Good)
Work in Process - Packaging (Good)
8,372
8,372
To record completed production of Good Peaches
Cash
Various Accounts
Other Income
To record sale of Fair Peaches
4,500
500
4,000
Chapter 11
269
e. Total cost
Estimated NRV of scrap
Joint cost to allocate
Joint
Product
Premium
Good
Sales
Price
$30,000
15,000
$15,450
(4,000)
$11,450
Add'l
Cost
$1,500
4,200
NRV at
Split-Off
$28,500
10,800
$39,300
Percent*
73
27
100
Joint *
Cost
$ 8,358
3,092
$11,450
*rounded
f. Raw materials
Cash (A/P)
15,000
15,000
Purchase of peaches
Work in Process – Clean & Sort
Raw Materials
Wages Payable
Manufacturing Overhead
15,450
15,000
300
150
To record joint processing costs
Work in Process - Packaging (Fair)
Work in Process – Clean & Sort
4,000
4,000
To recognize by-product
Work in Process - Packaging (Premium)
Work in Process - Cutting (Good)
Work in Process – Clean & Sort
8,358
3,092
11,450
To allocate joint processing costs
Work in Process - Cutting (Good)
Various accounts
2,000
2,000
To record cutting cost for Good Peaches
Work in Process - Packaging (Good)
Work in Process – Cutting (Good)
5,092
5,092
To move Good Peaches from the
Cutting to the Packaging department
Work in Process - Packaging (Premium)
Work in Process - Packaging (Good)
Work in Process - Packaging (Fair)
Various accounts
1,500
2,200
500
4,200
To record Packaging Cost
Finished Goods (Premium)
Finished Goods (Good)
Finished Goods (Fair)
Work in Process - Packaging (Premium)
Work in Process - Packaging (Good)
Work in Process - Packaging (Fair)
To move completed production to finished goods
9,852
7,292
4,500
9,852
7,292
4,500
270
43.
Chapter 11
a.
Personal
Training
Joint Costs
$62,800
$707,000
$753,000
$29,600
$289,000
Apparel
Towels
2,510 lbs
Pack & Sell
$377*
$1,506
*rounded
b. 2,510 x ($0.60 - $0.10 - $0.05) = $1,130 (rounded)
c. $36,000 + $23,800 + $3,000 - $1,130 = $61,670
d.
Personal Training Apparel
Gross revenues
$753,000
$289,000
Separate costs:
Cost of Goods Sold
(194,850)*
Labor
(431,000)
(24,000)
Supplies
(98,000)
(700)
Equipment depreciation
(65,000)
(1,200)
Administration
(113,000)
(3,700)
Net realizable value
$ 46,000
$ 64,550
* BI + Purchases - EI = $35,000 + $181,350 - $21,500
e. Personal Training: $61,670 x ($46,000 ÷ $110,550) = $25,661 (rounded)
Apparel: $61,670 x ($64,550 ÷ $110,550) = $36,009 (rounded)
Chapter 11
271
f.
Gross revenues
Separate costs:
Cost of Goods Sold
Labor
Supplies
Equipment depreciation
Administration
Joint costs
Operating income
44.
Personal Training
$753,000
Apparel
$289,000
(431,000)
(98,000)
(65,000)
(113,000)
(25,661)
$ 20,339
(194,850)
(24,000)
(700)
(1,200)
(3,700)
(36,009)
$ 28,541
a.
Split-off
Dept 2
$9,620
16,800 gal
Juice
16,800 gal
Juice
$5.25 gal
Dept 1
Oranges
140,000 lbs
$77,900
Jelly
31,360 gal
Dept 3
$6,450
39,200 gal
Pulp
7,840 gal
Distribution
$110
b. 56,000 gallons of output in Dept. 1:
Transferred to Dept. 2 (30%) 16,800 gallons
Transferred to Dept. 3 (70%) 39,200 gallons
c. 39,200 gallons of input to Dept. 3:
Pulp (20%)
7,840 gallons
Marmalade (80%)
31,360 gallons
d. Sales value (7,840 x $.08)
Distribution expense
NRV
*rounded
$627*
(110
$517
Jelly
$3.45 gal
Pulp
$0.08 gal
272
Chapter 11
e.
Joint
Product Gallons
Juice
16,800
Jelly
31,360
Sales
Price
$5.25
3.45
Total Separate
Sales
Costs
$ 88,200 $9,620
108,192
5,933*
NRV
$ 78,580
102,259
* $6,450 - $517
f.
Joint
Product
Juice
Jelly
NRV
$ 78,580.00
102,259.20
$180,839.20
Joint
Cost*
$33,497
44,403
$77,900
Percent
43
57
100
* Total joint cost: $44,200 + $33,700 = $77,900
g.
45.
Joint
Product
Juice
Jelly
Joint
Cost
$33,497
44,403
Separate
Costs
$9,620.00
$5,932.80
Total
Inv.
Cost
%
$43,117.00 x 15
$50,335.80 x 15
Value of
End. Inv.
$6,468
$7,550
a.
Split-off
Wheat
350,000 bushels
$3.50/bushel
Harvest
$875,000
Straw
5,000 tons
b. 1. By-Product Inventory – Straw
Work in Process - Wheat
Baling
$50,000
Straw
$45/ton
150,000
150,000
(5,000 tons x $30 per ton)
To record completed production of by-product
2. By-product Inventory – Straw
Various Production Expenses
Work in Process - Wheat
225,000
50,000
175,000
(5,000 tons at $45 per ton - $50,000)
To record completed production of by-product
(Alternative)
Work in Process - Straw
Various Production Expenses
To record production of by-product
50,000
50,000
Chapter 11
273
Work in Process – Straw
Work in Process - Wheat
175,000
175,000
To record reduction of main product for NRV of by-product
By-Product Inventory - Straw
Work in Process - Straw
225,000
225,000
To record completed production of by-product
3. Work in Process - Straw
Work in Process - Wheat
96,250*
96,250
To allocate joint processing costs to straw
*Sales value of Wheat at split-off (70 × 5,000 × $3.50)
Sales value of Straw at split-off (5,000 × $30)
Total joint costs ($175 x 5,000)
Proportion of straw sales value at split-off
Joint costs assignable to straw
Work in Process – Straw
Various Production Expenses
$1,225,000 (89%)
150,000 (11%)
$1,375,000
$875,000
x
.11
$ 96,250
50,000
50,000
Incurrence of separable processing costs of straw
Finished Goods Inventory – Straw
Work in Process - Straw
146,250
146,250
To record completed production of straw
(CPA adapted)
46.
a. Joint process cost:
Direct materials
Direct labor
Overhead
Total
Less by-product NRV
Amount to be allocated
$40,000
23,400
10,000
$73,400
4,600
$68,800
Allocation on the basis of sales value at split-off:
Product
Sales Value Proportion Allocation*
Tenderloin
$132,000
0.5491
$37,778
Roast
86,000
0.3577
24,610
Ham
22,400
0.0932
6,412
$240,400
1.0000
$68,800
Allocation on the basis of pounds produced:
Product
Pounds Proportion Allocation*
Tenderloin
8,600
0.2622
$18,039
Roast
13,400
0.4085
28,105
Ham
10,800
0.3293
22,656
32,800
1.0000
$68,800
*rounded
274
Chapter 11
Computation of EI values under each allocation base:
Sales Value Approach:
Product
Allocation
Units Unit Cost Units in EI
Tenderloin
$37,778
6,440 $5.87
1,000
Roast
24,610
16,740
1.47
2,600
Ham
6,412
8,640
0.74
1,040
EI Value
$5,870.00
3,822.00
769.60
Physical Pounds Approach:
Product
Allocation
Units Unit Cost Units in EI EI Value
Tenderloin $18,039
6,440 $2.80
1,000
$2,800.00
Roast
28,105
16,740
1.68
2,600
4,368.00
Ham
22,656
8,640
2.62
1,040
2,724.80
b. 1. For financial statement purposes, the sales value approach apportions
costs according to the relative market values of the products while the
physical (pounds) approach allocation treats every pound of output as
equally worthy. This is done by assigning the same cost per pound to
all outputs ignoring that some pounds of product sell for a higher
amount than others. Pounds are, however, an unchanging measure of
output while dollars (sales value in the present case) change as the
purchasing power of the monetary unit changes.
2. Because joint process costs are sunk, once the joint process has been
conducted, these costs and the bases used to allocate them are
irrelevant to decisions about processing beyond the split-off point.
47.
a. With many scrap and waste materials it is often an issue of who is to bear
the cost. Undoubtedly, the resulting costs in this case to the firms and
society far exceeded the cost the individual or firm would have incurred to
properly dispose of the hazardous waste materials.
b. If caught, those involved with this type of illegal disposal of materials could
be subject to damage claims, very large fines, and prison time.
Furthermore, it is likely that the costs of the cleanup would be imposed on
them.
c. Firms have an obligation to ensure proper waste disposal and to educate
their employees in proper methods of waste disposal. Employees should
be made aware of the risks associated with improper disposal including
the legal repercussions. Thus, the least expensive and most effective way
to control waste is for each firm to assume responsibility for its own waste.
Beyond internal measures, the larger society can assume a greater
oversight role through increased regulation and monitoring of waste
control efforts. Much of this activity is currently monitored by the EPA, but
the role of this agency could be expanded. Further, we could tighten laws
and improve the penalty structure for improper disposal of waste materials.
Lastly, we could improve waste recycling opportunities for manufacturing
firms and pursue other alternatives to reduce the costs of waste disposal.
Chapter 11
275
d. The vendor/manufacturer must bear some of the responsibility for proper
use and disposal of its products. Manufacturers should have superior
knowledge about chemical properties and the risks associated with the
components of their products.
Furthermore, while giving due
consideration to relative cost, manufacturers have an obligation to produce
products with materials and components that are the least toxic and the
most convenient to recycle. If extraordinarily toxic to the environment,
manufacturers should be directly responsible for proper waste disposal.