To download the complete and accurate content document, go to: https://testbankbell.com/download/cost-management-strategies-for-business-decision s-hilton-4th-edition-test-bank/
1. An intermediate product is a product that might require further processing before it is salable to the ultimate consumer, either by the producer or by another processor.
TRUE
Difficulty: Easy Learning Objective: 1
2. A joint process simultaneously converts a common input into several outputs. TRUE
Difficulty: Easy Learning Objective: 1
3. The net realizable value (NRV) of a product is its sales revenue less all allocated costs.
AICPA FN: Measurement
Difficulty: Medium Learning Objective: 1
4. The net realizable value (NRV) us a measure of a product's contribution to profit before the split-off-point.
AICPA FN: Measurement
Difficulty: Medium Learning Objective: 2
5. Joint costs are irrelevant in a sell-or-process-further decision.
AICPA FN: Decision making
Difficulty: Easy
Learning Objective: 2
6. Costs incurred before the split-off point should be allocated to products according to sales revenue to determine whether products should be sold at the split-off point or processed further.
AICPA FN: Decision making
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 2
7. Joint costs should never be allocated to final products, since they cannot be easily identified as to which product caused the cost.
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 2
8. Allocated joint costs may make some products appear unprofitable even if they have positive sales value after split off. TRUE
AACSB: Reflective Thinking
AICPA FN: Decision making
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 2
9. Only the revenues from selling or processing a product beyond the split-off-point and any expenditures from additional processing are relevant factors in deciding whether to process a product beyond the split-off point.
TRUE
AACSB: Reflective Thinking
AICPA FN: Decision making
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 2
10. Manufacturing companies are required to use joint-cost allocation for both financial accounting and tax purposes.
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 3
11. Determining exactly how much of a joint product resource is used by any of the joint products is impossible.
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 3
12. Because joint-cost allocation is always arbitrary, it is excluded from consideration in determining casualty losses for insurance purposes.
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 3
13. By-products are outputs from a joint production process that are minor in quantity and/or net realizable value when compared to main products.
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: 4
14. Because they are immaterial in value, by-products should never receive more than 10% of the allocation of joint product costs.
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 4
15. The net realizable value (NRV) method allocates joint costs based on the net realizable value of the byproducts and main products at split-off.
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 4
16. The net realizable value (NRV) of a product is the difference between its joint costs up to the split-off point and additional processing costs after split-off.
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 4
17. The net realizable value method preserves the relative profitability of joint products.
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 4
18. The gross margin percentage of joint products using the net realizable value method will not exactly be equal due to further processing costs.
AICPA FN: Measurement
Difficulty: Medium Learning Objective: 4
19. Companies prefer the physical-measures method of allocating joint costs when product prices are stable and predictable.
AICPA FN: Measurement
Difficulty: Medium Learning Objective: 4
20. The physical-measure method of allocating joint costs is based on the relative volumes, weights, energy contents or another physical-measure of joint products at the split-off point.
AICPA FN: Measurement
Difficulty: Easy Learning Objective: 4
21. The final sales total of each product would be an appropriate way to allocate joint costs using the physical-measure method.
AICPA FN: Measurement
Difficulty: Easy Learning Objective: 4
22. A disadvantage of the net realizable value (NRV) method is that it can distort the profitability of a product.
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 4
23. The physical-measures method of allocating joint costs can sometimes distort the profitability of products.
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 4
24. Regardless of the method of allocation of joint costs, total production costs and cost of goods sold remain the same.
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 4
25. If a company uses the net realizable value method and has further processing costs that are equal in dollars for all joint products, then the gross margin as a percentage of sales will be equal for all the joint products with common joint costs. FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: 4
26. If a company uses the net realizable value method and has further processing costs that are equal percentages of the final sales value for all the joint products, then the gross margin as a percent of sales will be equal for all the joint products with common joint costs.
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: 4
27. The physical-quantities method of assigning costs may provide a reasonable basis for joint cost allocation as long as the physical measures reflect economic value.
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: 4
28. If a company uses the physical measures method of allocating joint costs, the gross margin as a percent of sales will always be equal for all joint products with common joint costs.
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 4
29. A product will have a negative net realizable value if costs of further processing exceed sales value.
AICPA FN: Measurement
Difficulty: Easy Learning Objective: 4
30. If by-product costs are immaterial, it is acceptable to expense their cost in the period incurred even though this violates the matching principle.
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 5
31. Two standard measures of accounting for by-products that are sold at the split-off point are to consider by-product net realizable value as other revenue or deduct by-product net realizable value from cost of goods sold. TRUE
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 5
32. By-products can occur before the split-off point, at the split-off point or after the split-off point. TRUE
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 5
33. Accounting for by-products seeks to accurately record transactions at minimum effort and cost.
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: 5
34. The constant gross margin percentage method is based on the physical measures of joint products. (Appendix) FALSE AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 6
35. The constant gross margin percentage method results in the same gross margin in dollars for all joint products. (Appendix) FALSE AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 6
36. The first step in the constant gross margin percentage method is to compute the total gross margin percentage of all products. (Appendix)
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 6
37. The net realizable value method results in gross margin percentages that are equal as a percent of the net realizable value of each product, while the constant gross margin percentage requires that gross margin percentages be equal as a percent of the revenues of the joint products. (Appendix) TRUE AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 6
38. Which of the following is not a step needed to maximize the profits from joint products?
a. Forecasting the sales price of each final product
b. Identifying alternative sets and quantities of final products possible from the joint process
C. Determining how to allocate joint costs to the final products
d. Estimating the costs required to further process joint products into salable products
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 1
39. A product's net realizable value is calculated by:
a. Deducting the cost of goods sold from the sales revenue
b. Deducting the allocated joint costs and processing costs after split-off from the sales revenue
c. Deducting unit-level costs from the sales revenue
D. Deducting processing costs after split-off from the sales revenue
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 2
40. Which of the following statements about maximizing the profit of joint product processes is true?
a. Joint processing costs incurred prior to split-off should be allocated before making those decisions
b. Only costs caused by management decisions to choose one or another set of products after split-off are relevant
c. Only revenues from selling or processing beyond the split-off point and additional expenditures for further processing are relevant
D. Both B and C are true
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 1
Use the following to answer questions 41-44: Great Sweets Candy Company produces various types of candies. Several candies could be sold at the split-off point or processed further and sold in a different form after further processing. The candies are produced in a joint processing operation with $500,000 of joint processing costs monthly, which are allocated based on pounds produced. Information concerning this process for a recent month appears below:
41. Based on the information presented, which of the products should be processed further?
a. Sweet Meats only
B. Both Sweet Meets and Chocolate Delight
c. Minty Wonders only
d. Both Sweet Meats and Minty Wonders
Sell at Split off Process Further
AICPA BB: Decision Making
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 2
42. The net advantage (disadvantage) of processing Sweet Meats further is:
a. A $25,000 disadvantage to process further
b. A $32,143 advantage to process further
C A $25,000 advantage to process further
d. A $282,143 disadvantage to process further
Sell at Split off Process Further
AICPA BB: Decision Making
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 2
43. The joint processing costs in this operation:
a. Should be allocated to products to determine whether they are sold at split-off or processed further
B Should be ignored in determining whether to sell at split-off or process further
c. Should be ignored in making all product decisions
d. Are never included in product cost, as they are misleading to all management decisions
AICPA BB: Decision Making
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: 2
44. If Chocolate Delight is processed further, the gross profit margin that will appear in a product line income statement for Chocolate Delight would be:
A. $734,300
b. $520,000
c. $1,020,000
d. $632,596
(100,000 x $10. 50)-$30,000 = $1,020,000; $1,020,000 - ($500,000 x 100/175)=
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 2
45. Great Sweets Candy Company's management makes processing decisions that will result in the maximum possible profits to the company, the company's monthly profits will be:
a. $562,500
b. $570,000
c. $1,062,500
D. $1,070,000
AICPA BB: Decision Making
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 2
46. Which of the following statements regarding joint cost allocation is False?
a. There is no precise way to trace joint-process costs to joint product
b. Manufacturing companies are required to use joint-cost allocations for financial accounting and tax reporting purposes to value inventories
C. Joint costs should not be allocated to products in estimating casualty losses because such allocation is too arbitrary in nature
d. Improper management decisions can result if managers regard average joint costs per unit as unit-level or marginal costs
AACSB: Reflective Thinking
AICPA BB: Decision Making
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 3
Use the following to answer questions 47-48: Gardner Company processes products in a joint processing operation that produces products A and B in a joint process. The company incurs $1,200,000 of joint processing costs monthly. Currently, 3,600 of A and 2,800 of B are being produced each month. Management plans to decrease B's production by 600 units in order to increase the production of A by 1,000 units. Additionally, this change will require minor modifications which will add $40,000 to the production costs. This cost is entirely attributable to product B
47. What is the amount of the joint costs allocable to A before the changes are made to the existing production process, assuming Gardner allocates its joint costs according to the proportion of A and B produced?
A. $675,000
b. $547,058
c. $529,412
d. $525,000
3,600/6,400 x $1,200,000 = $675,000
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 4
48. What is the new unit-cost of Product B if the changes are made, assuming the physicalmeasures method of allocating joint costs is used?
a. $201.78
B $194.65
c. $206.89
d. $224.52
2,200/6,800 x $1,200,000 = $388,235; ($388,235 + 40,000)/2,200 = $194.65
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: 4
49. WhitneySmithCompany makes two products: X and Y. They are initially processed from the same raw material and than, after split off, further processed separately. Additional information is as follows:
What are the joint costs allocated to products A and B assuming Whitney Smith uses the netrealizable-value approach?
a. Item A
b. Item B
C Item C
d. Item D X Y
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 4
50. Which of the following is not a method of allocating joint costs?
a. Sales value at split-off
b. Net realizable value
C By-product method
d. Physical-measures method
AICPA FN: Measurement
Difficulty: Easy Learning Objective: 4
51. Which of the following would not be a physical measure used to allocate joint costs?
a. Number of pounds produced
b. Cubic feet of gas produced
C Sales value at split off
d. Energy content (BTUs)
AICPA FN: Measurement
Difficulty: Easy Learning Objective: 4
Use the following to answer questions 52-54: Glenwilliams Lumber Company manufactures 3 products: Poplar, Birch, and Pine from a joint process. Joint-process costs in 2007 were $3,000,000. Additional information regarding the three products is as follows:
52. Assuming that joint-product costs are allocated using the physical-measures method, what were the total costs of Pine?
A. $7,500,000
b. $1,500,000
c. $3,000,000
d. $6,000,000
1,800,000/3,600,000 x $3,000,000 = $1,500,000; $1,500,000 + $6,000,000 = $7,500,000
AICPA FN: Measurement
Difficulty: Medium Learning Objective: 4
53. Assuming that joint-product costs are allocated using the net-realizable-value method, what were the total costs of Birch?
a. $10,545,455
b. $511,500
C. $10,511,500
d. $10,000,000
AICPA FN: Measurement
Difficulty: Medium Learning Objective: 4
54. Based on the cost information provided, Poplar should be:
a. Sold at the split-off point
b. Processed further for an incremental profit of $4,000,000
C. Processed further for an incremental profit of $2,000,000
d. Either be sold at split-off point or processed further, depending upon how joint product costs are allocated
Revenue at split off: $36,000,000
AACSB: Reflective Thinking
AICPA BB: Decision Making
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 2
55. Which of the following statements is true?
a. Joint costs are allocated to both main products and by-products
b. Joint costs are allocated only to by-products
c. Joint costs are not allocated because they cannot be attributed to specific units of output
D. Joint costs are allocated only to main products
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: 5
56. If by-product revenue is treated as other revenue instead of deducted from the netrealizable-value of the main products:
a. Overall gross margin of the company will be higher
b. Overall gross margin of the company will be lower
c. The answer would depend on how joint product costs were allocated
D. There is no difference in the overall gross margin of the company
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 5
57. Companies may prefer the physical-measures method of joint cost allocation when:
a. They do not wish to distort the profitability of products
b. Each product's gross margin will contribute approximately the same percentage to the overall gross margin
c. When there are no by-products
D. When regulators set prices in regulated pricing situations
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 4
58. Which of the following statements regarding the physical-measures method of allocating joint-product costs is false?
A. Joint product costs are allocated proportional to economic values
b. It is based on the relative volume, weight, or other physical measure of each joint product at the split-off point
c. It is preferred when prices of output products are highly volatile or unpredictable
d. The total profit of the company will be the same regardless of which physical measure is used to allocated joint-product costs
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 4
Use the following to answer questions 59-64: SimpsonSpring Corporation manufactures products J, K and L from a joint process. Additional information is as follows:
Total joint costs of $120,000 were incurred on the three products
59. Assuming that joint product costs are allocated using the net-realizable-value at split-off, what joint costs were allocated to the three products?
a. Item A
B. Item B
c. Item C
d. Item D
J K LTotal
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 4
60. Product J should be:
a. Sold at split-off
B Processed further for an additional profit of $6,000
c. Dropped from the product line because it shows an overall loss
d. Processed further for an additional profit of $126,000
AACSB: Reflective Thinking
AICPA BB: Decision Making
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 2
61. Without regard to your previous answers, assume that the joint costs allocated to product L were $20,000. Product L should be:
a. Sold at split-off
B Processed further
c. Sold as a by-product
d. More information is needed before a decision can be made
AACSB: Reflective Thinking
AICPA BB: Decision Making
Difficulty: Medium
Learning Objective: 2
62. The joint-costs allocated to each product using the physical-measures method of cost allocation would be:
A. Item A
b. Item B
c. Item C
d. Item D
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 4
63. If the decision is made that will maximize company profits and if joint costs are allocated using physical-measures, product L will show a gross margin of:
a. $12,857
b. $34,000
C. $16,857
d. $14,571
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 4
64. Regarding a decision to sell products J and L at split-off or process them further, the company should:
a. Sell both at the split-off point
B. Process both further
c. Sell J at the split-off point and process L further
d. Sell L at the split-off and process K further
Revenue at split off Net revenue to process further
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: 2
65. Which of the following statements regarding accounting for by-products is true?
a. If all products are sold in the same period as they are produced, treating by-product revenue as other revenue will result in a higher overall gross margin
b. If all products are sold in the same period as they are produced, treating by-product netrealizable-value as a deduction of the cost of the main products will result in a higher overall gross margin
c. If all products are sold in the same period as they are produced, total reported revenues will be the same regardless of how by-product revenue is accounted for
D If all products are sold in the same period as they are produced, the reported gross margin will be the same regardless of how by-product revenue is accounted for
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 5
Use the following to answer questions 66-67:
KeithManufacturing produced three products in a joint operation. Joint costs up to the split off point were $150,000. Products H and I were processed further. Additional information is as follows:
66. If the net-realizable-value method is used and product J is accounted for as a joint product, how much of the joint-costs would be allocated to Product H?
A $106,350
b. $106,250
c. $107,143
d. $98,078
H I J Total
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 4
67. Assume the relative sales value at split-off method is used and that product J is accounted for as a joint product, how much of the joint-costs would be allocated to product I? (Appendix)
a. $80,690
B. $42,000
c. $65,000
d. $39,000
H I J Total
AICPA FN: Measurement
Difficulty: Medium Learning Objective: 6
68. In joint-process costing and analysis, which of the following costs is relevant when deciding the point at which a product should be sold to maximize profits?
a. The cost of the machinery used to produce the three products
b. The salaries of production personnel making the product
c. The cost of the materials required for the joint products
D The selling price if the products are processed further
AACSB: Reflective Thinking
AICPA BB: Decision Making
AICPA FN: Measurement
Difficulty: Easy Learning Objective: 2
69. In joint-process costing and analysis, which of the following costs would not be relevant when deciding the point at which a product should be sold to maximize profits?
A. The cost of the machinery used to produce the three products
b. The selling price at the split off point
c. The additional processing costs
d. The selling price if the product is processed further
AACSB: Reflective Thinking
AICPA BB: Decision Making
Difficulty: Easy Learning Objective: 2
Use the following to answer questions 70-71: Cahill Lumber manufactures mulch and wood bark from a joint processing operation using wood as the raw material. For a recent month, 8,000 pounds of mulch were produced having a sales value after split-off point of $21,000. 4,000 pounds of wood bark were produced having a sales value after split-off of $14,000. Using the net- realizable-value method, the portion of the total joint product costs allocated to mulch was $12,000. (CPA adapteD
70. The amount of joint costs allocated to wood bark using the net-realizable-value method would be:
a. $18,000
b. $13,000
C $8,000
d. $3,000
$21,000/$35,000 = 60%; $12,000 = . 6X; X = $20,000 (Total joint costs); $20,000 - 12,000 = $8,000
AICPA FN: Measurement Difficulty: Medium
Learning Objective: 4
71. If the physical-measures method of allocation were used, the amount of joint costs allocated to mulch would be:
a. $6,000
b. $6,667
c. $20,000
D $13,333
8,000/12000= 66. 7%; $20,000 x . 667= $13,333
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 4
Use the following to answer questions 72-74: Rhone Corporation produces a product called Sharone, which gives rise to a by-product called Erone. The only costs associated with Erone are additional processing costs of $2 for each unit. Rhone accounts for Erone's sales first by deducting its separable costs from its sales and then by deducting this net amount from the cost of goods sold of Sharone. This year, 4,800 units of Erone were produced. They were all sold for $10 each. Company operating expenses were $120,000 for the year. Sales revenue and cost of goods sold for Sharone were $800,000 and $400,000, respectively, for the year. (CPA adapteD
72. Under the existing method of accounting for Erone, what is Rhone's gross margin?
a. $400,000
b. $218,400
c. $361,600
D $438,400
Net profit of Erone: 4,800 ($10-2) = $38,400
AICPA FN: Measurement Difficulty: Hard Learning Objective: 5
73. If Rhone changes its method of accounting for Erone's sales by showing the net amount as "other revenue," Rhone's gross margin would be:
a. $400,000
b. $318,400
C. $438,400
d. $361,600
$800,000 + $38,400 - 400,000 = $438,400
AICPA FN: Measurement Difficulty: Hard Learning Objective: 5
74. If Rhone changes its method of accounting for Erone's sales, assuming that all of Erone's production is sold in the period that it is produced, what would be the effect on Rhone's overall profits?
a. Overall profit would increase
b. Overall profit would decrease
C. Overall profit would remain the same
d. Additional information is needed to determine the effect on overall profit
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 5
75. Sell-or-process-further decisions based on gross margin per unit:
a. Provide the same contribution to profit as using the net-realizable-value method
B. May resemble the net-realizable-value per unit if physical quantities are positively related to the net-realizable- value and further processing costs are similar across joint product alternatives
c. Provide the same contribution to profit as using the physical quantities method
d. Should never be used
AACSB: Reflective Thinking
AICPA BB: Decision Making
Difficulty: Hard
Learning Objective: 2
Learning Objective: 4
Use the following to answer questions 76-81: The Stanford Corporation produces three outputs: A, B and C from one input. The netrealizable-value of A at the split-off point is $200,000. The net-realizable-value of B at the split-off point is $400,000 and the net-realizable- value of C at the split-off is $50,000. Final sales values are $400,000, $600,000 and $50,000 for A, B and C respectively. However, these prices are subject to erratic change. The additional processing costs for A, B and C are $100,000, $150,000 and $0 respectively. Stanford produces 120,000 units of A, 120,000 units of B and 60,000 units of C. The total costs incurred up to the split-off point are $300,000
76. Which allocation method would be best for Stanford to use?
a. Gross margin method
B. Net-realizable-value method
c. Physical quantities method
d. By-product method
AACSB: Reflective Thinking
AICPA BB: Decision Making
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 4
77. If the net-realizable-value method is used and product C is accounted for as a jointproduct, what amount of joint- costs should be allocated to product A?
A. $112,500
b. $114,286
c. $120,000
d. $168,750
A B C
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 4
78. If the net-realizable-value method is used and product C is accounted for as reduction of joint costs, what amount of joint- costs should be allocated to product B?
a. $100,000
b. $118,750
C. $150,000
d. $168,750
A B C
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 4
79. If the physical-measures method is used and product C is accounted for as a by-product whose income is credited to the joint costs of production, what amount of joint-costs should be allocated to product A?
a. $93,750
b. $100,000
C. $125,000
d. $130,000
Joint costs of production: $300,000 - $50,000= $250,000; 120,000/240,000 x $250,000 = $125,000
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 5
80. If the physical-quantities method is used and product C is accounted for as a joint product, what amount of joint costs will be allocated to product B?
a. $100,000
B. $120,000
c. $130,000
d. $150,000
120,000/300,000 x $300,000 = $120,000
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 5
81. What is the expected gross margin for Stanford Corporation?
a. $350,000
b. $450,000
C. $500,000
d. The expected gross margin cannot be determining without knowing how joint-costs will be allocated
$1,050,000 - 250,000 - 300,000 = $500,000
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 4
82. In the sequence of decisions involved in the management of joint processes, which decision should be made first?
a. Deciding whether each product should be sold at split-off or processed further
b. Deciding how to allocate joint product costs
c. Deciding on the final selling price of each product
D. Deciding which products to produce
AICPA FN: Decision making
Difficulty: Easy Learning Objective: 1
83. When multiple products are produced in a joint-process, which of the following distinguishes main products from by-products?
a. The final selling price
b. The amount of hours needed to produce each product
c. The number of units produced
D The net realizable value at the split-off point
AICPA FN: Decision making
Difficulty: Easy Learning Objective: 5
84. Net realizable value at split-off is used to allocate:
A. Item A
b. Item B
c. Item C
d. Item D
AICPA FN: Measurement
Difficulty: Easy Learning Objective: 4
85. Which of the following would not be a joint-product cost?
a. Cost of picking apples to be processed into cider and applesauce in a cider factory
B. Cost of cinnamon used in applesauce
c. Cost of maintaining oil rigs for an oil manufacturer
d. Costs of running a fishing boat that sells haddock, cod, and lobsters to wholesalers
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
Difficulty: Easy
Learning Objective: 2
86. Richards Manufacturing Corporation manufactures three products in a joint process. Additional information is as follows:
Required:
(a) Allocate the joint costs to the three products using the net-realizable-value method.
(b) Determine which products should be sold at split-off and which products should be processed further.
Answer:
Only Products K and L should be processed further. Product J should be sold at split-off.
AACSB: Reflective Thinking
AICPA FN: Decision making
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 2
Learning Objective: 4
87. Colbert Corporation produces a product called Spots are Out, which gives rise to a byproduct called Sunshine. The only costs associated with Sunshine are additional processing costs of $4 for each unit. Colbert accounts for Sunshine's sales first by deducting its separable costs from its sales and then by deducting this net amount from the cost of sales of Spots are Out. This year, 9,600 units of Sunshine were produced. They were all sold for $8 each. Company operating expenses were $250,000 for the year. Sales revenue and cost of goods sold for Spots are Out were $1,600,000 and $800,000 respectively. (CPA AdapteD.
(a) Calculate the company's gross margin under the current accounting method.
(b) Assume the company changes its accounting method and accounts for the byproduct's netrealizable-value as "other revenue. " Calculate the gross margin under the new method.
(c) Under what circumstances would method a or b be preferred?
Answer:
(c) While either method will result in the same gross margin for the company, treating the netrealizable-value as other revenue is the simpler method. Technically, the matching principle is violated if all products are not sold in the accounting period. However, because the effect is normally considered immaterial, it is used by many companies. Deducting the net realizable value from the cost of the main products can be more complicated if all main products are not sold. If all the main products produced in the period have not been sold, the net-realizablevalue of by-products should be prorated to the main product inventories and cost of goods sold.
AACSB: Reflective Thinking
AICPA FN: Decision making
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 5
88. Misty Manufacturing produced three products in a joint operation. Products O and P were processed further. Product Q was sold at the split-off point. Additional information is as follows:
Required:Allocate the joint costs using the net-realizable-value method, accounting for Product Q as a joint product.
Answer:
AICPA
89. Mount IdaManufacturing produces three products in a joint process. Products O and P were processed further. Additional information is as follows:
Required: Assume that product Q is a by-product whose sales value is credited to the joint production costs. Allocate the joint costs if the net-realizable-value method is used.
Answer:
**** $200,000 - $20,000sales value of Q = $180,000
90. Bancroft Manufacturing produces three products in a joint process. Products A and B were processed further. Additional information is as follows:
Required:
(a) Allocate the joint costs assuming that all products are joint products and joint-costs are allocated using the physical-measures method.
(b) Allocate the joint costs using the physical-measures method assuming that product Q is considered a by-product, whose sales value is deducted from the total joint costs.
Answer:
Difficulty: Medium
Learning Objective: 4
Learning Objective: 5
91. Reading Corporation produces three products in a joint process. Additional information is as follows:
Required:
a) Determine which products should be sold at split-off and which should be processed further.
b) Assuming the company makes decisions that are in its best interests for overall profitability, what would be the company's gross margin?
Answer:
(a) Only product O should be processed further. It is the only product where the incremental processing costs are less than the incremental revenues.
(b) If the company processes O further and sells P and Q at split-off, its gross margin will be $42,000
AACSB: Reflective Thinking
AICPA FN: Decision making
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 2
92. Summerfield Foods produces three supplemental food products simultaneously through a refining process costing $186,000. The joint products, Bulkup and Bodybuilder, have a final selling price of $8 per pound and $10 per pound, respectively, after additional processing costs of $2 per pound for each product incurred after the split-off point. Quicksnack, a byproduct, is sold at the split-off point for $6 per pound. The production of Bulkup results in 20,000 pounds with a caloric value of 6,000 calories per pound. The production of Bodybuilder, which is very high in carbohydrates, has a caloric value of 12,500 calories per pound. 10,000 pounds of Bodybuilder are produced. Quicksnack has a caloric value of 2,000 calories a pound and 2,000 pounds are produced. (C. M. A. AdapteD.
Required:
(a) Allocate the joint-product costs using the net-realizable-value method, assuming that Quicksnack is accounted for as a by-product, with its net-realizable value deducted from the cost of the main products.
(b) Allocate the joint-product costs using the physical measures method, assuming that Quicksnackis accounted for as a by-product, with its sales revenue accounted for as "other revenue. "
(c) Compute Summerfield Food's gross margin under requirements a and b.
Answer:
Assumption 1: Byproduct revenue deducted from the costs of the main products
Costs allocated according to net realizable value
Total costs to be allocated=$186,000-$12,000=$174,000
b) By-product revenue recorded as "other revenue."
Note: Some students may assume that physical measures method uses total pounds produced.
(c) Regardless of the method chosen, the gross margin will remain the same.
Requirement a:
AACSB: Reflective Thinking
AICPA FN: Decision making
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 4
Learning Objective: 5
93. Covehead Corporation produces three products from a joint process: Marty, Shea and Mary. Each product can be processed further and sold for more. Data on the processes are as follows:
The amount of joint costs for Marty is the amount that has been allocated. Required: Determine the values for the lettered spaces. (CPA AdapteD.
Answer:
The ratio of sales value at split-off to total sales value at split-off equals the joint-cost ratio.
First, allocate costs to Mary: Sales value at split-off divided by total sales value at split-off x $120,000 joint costs. $30,000/$200,000x $120,000 = $18,000b= $18,000
Joint costs allocated to Shea: $120,000 total - $60,000 to Marty - $18,000 to Mary =$42,000
a= $42,000
Marty sales value at split off: (c/ $200,000) x $120,000 = $60,000
c= $100,000
Shea sales value at split off:(d/$200,000) x 120,000 = $42,000
d= 35% of $200,000
d= $70,000
AACSB: Reflective Thinking
AICPA FN: Decision making
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: 2
Learning Objective: 4
94. Charlottetown Powder Company produces powder in batches. Each powder can be sold in its current condition or processed further and specialized for high priced department stores. Data concerning the various products appear below. Joint processing costs are $200,000.
Required:
(a) Determine which products should be sold at split-off and which should be processed further.
(b) Charlottetown Powder is approached by the Brudnelle Department Store chain. Brudnelle would like Charlottetown Powder to process regular powder into a special powder for its cosmetics department. At what price per pound would Charlottetown Powder be economically indifferent between selling the powder at the split-off point and processing it further for Brudnelle?
Answer:
The company should process Talcom and Sweet Smelling further, since the net revenue after further processing exceeds the revenue at split-off. Regular powder should be sold at the splitoff point.
(b) Charlottetown Powder would be economically indifferent at a selling price of $6. 60 for the regular powder. There is currently an advantage of $55,000 for the company to sell Regular powder at the split-off point ($250,000-195,000). With 50,000 pounds of powder produced, the additional selling price per pound needed to generate the same net revenues by processing further is $1. 10 ($55,000/50,000). The current selling price after further processing is $5. 50. The selling price to be economically indifferent would be $5. 50 + $1. 10 = $6. 60.
AACSB: Reflective Thinking
AICPA FN: Decision making
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 2
95. Indicate whether the following costs would be treated as joint-product costs or costs incurred after the split-off point. Use J for joint product costs and S for costs incurred after the split-off point.
Answer:
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
Difficulty: Easy
Learning Objective: 2
96. Peters Pineapples is a pineapple grower. After cultivating, fertilizing, growing and picking pineapples, the company sells whole pineapples to food processors. The company is considering adding a processing line where sliced pineapples and pineapple juice, along with a "mash" used for animal feed will be the final products. Projected information about the costs follows:
Joint product costs of cultivating, fertilizing and picking pineapples total $1,000,000.
Required:
(a) Determine the amount of separable costs allocated to each product using the netrealizable-value method.
(b) Determine the final cost per unit for each product
(c) Determine the gross margin for each product.
(d) A fertilizer manufacturer approaches Peter Good, the President of the company, and asks to buy the rinds and other excess materials currently used to produce Mash. He would be willing to pay $0. 30 per pound for these materials. What advice would you give Peter?
Answer:
(d) Peter should sell the product to the fertilizer manufacturer. Company profits will increase $20,000:
AACSB: Reflective Thinking
AICPA FN: Decision making
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: 2
97. JarvisManufacturing produces three products in a joint operation. Information regarding the products appears below:
Required: (Appendix)
(a) Allocate the joint costs using the relative sales value at split-off method.
(b) Allocate the joint costs using the constant gross margin percentage method.
Answer:
AACSB: Reflective Thinking
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: 6
98. Peters Pineapples is a pineapple grower. After cultivating, fertilizing, growing and picking pineapples, the company sells whole pineapples to food processors. The company is considering adding a processing line where sliced pineapples and pineapple juice, along with a "mash" used for animal feed will be the final products. Projected information about the costs follows:
Joint processing costs totaled $1,000,000. What method would you recommend the company select to allocate the joint production costs of $1,000,000? Give reasons for your answer.
Answer:
While allocating joint costs is always an arbitrary procedure, the company should use the netrealizable-value method to allocate the joint production costs. The physical measures approach would be very difficult to apply here since units are different measures: cans, bottles and pounds. This "apples and oranges" (or pineapples) mixture would make the physicalmeasures method seem inappropriate here.
AACSB: Reflective Thinking
AICPA FN: Decision making
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: 4