1

CHAPTER 14

Answers to Multiple Choice – Theoretical

1. c 6. b 11. d
2. b 7. a 12. a
3. d 8. a 13. c
4. c 9. a
5. d 10. b

Solutions to Multiple Choice – Computational

1. (a)

P21,000 / 20,000 kilos = P1.05 per kilo for each product

2. (a)

No. of Sales Value Total

Product Kilos Per Kilo Sales Value Ratio
Red 10,000 P1.20 P12,000 37.5%
Blue 10,000 2.00 20,000 62.5%
P32,000 100.0%

Allocated to Red: (P21,000 x 37.5%) = P7,875 / 10,000 kilos = P0.79/kilo

Allocated to Blue: (P21,000 x 62.5%) = P13,125 / 10,000 kilos = P1.31/kilo

3. (a)

Final Additional Adjusted

Product Sales Value Processing Costs Sales Value Ratio
Red P12,000 P -0- P12,000 40%
Blue 20,000 2,000 18,000 60%
P30,000 100%

Allocated to Red: (P21,000 x 40%) = P8,400 / 10,000 kilos = P0.84 /kilo

Allocated to Blue: (P21,000 x 60%) = P12,600 / 10,000 kilos = P1.26 /kilo

4. (b)

Sales value at split off point:

Product A: (500 x P10) P 5,000
Product B: (1,000 x P14) 14,000
Total P19,000

Allocated to Product B: (P14,000/P19,000) x P4,560 = P 3,360

Additional processing costs: (1,000 x P2) 2,000
Cost of Product B P 5,360
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5. (a)

Joint costs P264,000

Less sales value of By-product X 10,000
Joint costs allocated to Product A and B P254,000

Allocation to Product B: (P150,000 / P440,000) x P254,000 = P86,591

6. (a)

P30,000 / 50% = P60,000 total joint costs

7. (a)

Sales value of Product Z P87,000

Manufacturing costs:
Allocated joint cost: [P450,000 x (60/750)] P36,000
Additional processing costs 12,000 48,000
Gross profit P39,000

8. (c)

P12,000 / P20,000 x P10,000 = P6,000

9. (c)

Joint costs allocated to Product S and T: (80/200) x P120,000 = P48,000

Joint costs allocated to Product T 18,000
Joint costs allocated to Product S P30,000

10. (b)

Sales value at split off point:

Product L: (P10 x 5,000) P 50,000
Product M: [ (P15 – P7) x 12,500] 100,000
Total P150,000

Manufacturing costs – Product M:

Allocated joint costs (P96,000 x 100/150) P 64,000
Additional processing costs 87,500
Total P151,500

Cost of ending inventory: (2,000/12,500 x P151,500) P 24,240

11. (b)

Sales value at split off point:

Product 1: (P60,000 – P24,000) P36,000
Product 2: (P60,000 – P36,000) 24,000
Total P60,000

Allocated to Product 1: (36/60 x P55,000) P33,000

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12. (d)

Total production costs P120,000

Less net realizable of By-Product:
By-product sales P30,000
Additional processing costs (25,000) 5,000
Cost of main product 115,000
Less ending inventory – Main Product 15,000
Cost of sales – Main Product P100,000

Cost of sales – By-Product P 0

13. (a)

Estimated sales price: (6,000 x P3) P18,000

Estimated manufacturing cost after separation: (6,000 x P.80) ( 4,800)
Estimated selling and administrative expenses: (18,000 x 20%) ( 3,600)
Estimated normal net profit: (P18,000 x 10%) ( 1,800)
Value of by-product P 7,800

14. (a)

Estimated sales price: (2,000 x P1.20) P 2,400

Estimated manufacturing cost after separation: (2,000 x P.30) ( 600)
Estimated selling expenses: (P2,400 x 10%) ( 240)
Estimated normal profit: (P2,400 x 5%) ( 120)
Cost of by-product P 1,440

15. (b)

Sales: (2,000 x P1.50) P 3,000

Cost of by-product sales:
Allocated joint cost P1,440
Additional manufacturing costs 600 2,040
Gain on sale P 960

16. (d)

Sales – Main Product: (20,000 x P1.75) P35,000

Cost of sales:
Beginning inventory: (2,000 x P.70) P 1,400
Production costs: (25,000 x P0.75)] 18,750
By-product sales (850)
Net production cost 19,300
Less ending inventory: (7,000/27,000 x P19,300) 5,004 14,296
Gross profit 20,704
Selling expenses 12,000
Net income P 8,704
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17. (d)

Sales – Main Product P48,000

Cost of sales:
Production costs P40,000
Less net revenue of by-product:
Sales: (3,500 x P1.50) P5,250
Addt’l processing costs ( 300)
Estimated expenses ( 900) 4,050
Net production costs 35,950
Ending inventory: (4,000/20,000 x P35,950) 7,020 28,930
Gross profit 19,070
Marketing and administrative expenses 4,200
Net income P14,870

18. (a)

Joint costs P172,000

Less by-product cost (reversal cost method):
Sales value: (1,000 x P5) P 5,000
Marketing and administrative expenses (2,000)
Operating income: (1,000 x P1) (1,000) 2,000
Allocated to main product D and E P170,000

Sales value at split off point:

Main product D: (P250,000 – P50,000) P200,000
Main product E: (P160,000 - P20,000) 140,000
Total P340,000

Sales – Main Product D P250,000

Manufacturing costs:
Allocated joint cost: (P200,000/P340,000 x P170,000) P100,000
Additional processing costs 50,000 150,000
Gross profit – Main Product D P100,000

19. (a)

Cost of By-Product A B
Sales P12,000 P 7,000
Production cost after separation (2,200) (1,800)
Selling costs (1,500) (1,100)
Normal net profit (1,800) (1,400)
Cost of by-product P 6,500 P 2,700

Sales – Main Product P150,000

Production costs:
Before separation: (75,000 - )9,200) P65,800
After separation 23,000 88,800
Gross profit P 61,200
Selling costs 12,000
Net income P 49,200
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20. (d)

By-Product A By-Product B
Sales P12,000 P 7,000
Manufacturing costs:
Before separation 6,500 2,700
After separation 2,200 1,800
Total 8,700 4,500
Gross profit P 3,300 P 2,500

21. (d)

Sales – Main Product: (10,000 P8) P80,000

Sales – By-Product 12,000
Total revenue for sales 92,000
Cost of sales:
Manufacturing costs: (12,000 x P5) P60,000
Less ending inventory (1,000 x P5) 5,000 55,000
Gross profit 37,000
Selling costs 20,000
Net income P17,000

22. (a)

Units produced: (30,000 + 15,000) 45,000

Unit sales price: (P45,000 / 30,000) P 1.50
Sales value at split off point – Product Red P67,500

23. (c)

Total costs – Department One:

Cost of Material X P144,000
Direct labor 21,000
Manufacturing overhead 15,000
Total joint costs P180,000

24. (a)

Sales Value Additional Adjusted Sales

Product Before Allocation Processing Costs Value at SOP
Red P 67,500 P 0 P 67,500
White 144,000 99,000 45,000
Blue 283,500 171,000 112,500
Total P225,000

Allocation of joint costs:

Red: (P67,500 / P225,000 x P180,000) P 54,000
White: (P45,000 / P225,000 x P180,000) 36,000
Blue: (P112,500 x P225,000 x P180,000) 90,000
Total P180,000

Cost of sales of Product White: (P36,000 + P99,000) P135,000

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25. (a)

Cost of ending inventory – Red: (15,000/45,000 x P54,000) P18,000

26. (a)

Sales – Potato skins P80,000

Cost of goods sold:
Production costs: (P30,000 x 80%) P24,000
Net revenue – Potato skins:
Sales P11,825
Disposal cost: (90,000 x P.10) 9,000 2,825 21,175
Gross profit 58,825
Operating expenses 3,800
Net income P55,025

Solutions to Problems

Problem 14-1

1 a: Sales value at split-off point method

Copra Alcohol Total

Sales value at split-off point:
Copra: (1,200 x P50) P60,000
Vinegar: (800 x P75) P60,000 P120,000
Ratio:
Copra: (P60,000/P120,000) 50%
Vinegar: (P6,000/P120,000) 50% 100%
Allocated joint costs:
Copra: (P100,000 x 50%) P50,000
Alcohol: (P100,000 x 50%) P50,000 P100,000

b: Physical-measure method
Copra Alcohol Total
Physical measure (tons) 1,200 800 2,000
Ratio:
Copra: (1,200/2,000) 60%
Alcohol: (800/2,000) 40%
Allocated joint costs:
Copra: (P100,000 x 60%) P60,000
Alcohol: (P100,000 x 40%) P40,000 P100,000

c. NRV method
Copra Alcohol Total
Final sales value:
Copra: (1,200 x P50) P60,000
Alcohol: (500 x P200) P100,000 P160,000
Less separable costs 0 20,000 20,000
NRV at splitoff point P60,000 P 80,000 P140,000
Ratio:
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Copra: (P60,000/P140,000) 43%

Alcohol:(P80,000/P140,000) 57%
Allocated joint costs:
Copra: (P100,000 x 43%) P43,000
Alcohol:(P100,000 x 57%) 57,000 P100,000

2.a Copra:
Sales Value
At Splitoff Physical
Point Measure NRV
Sales P60,000 P60,000 P60,000
Less joint costs 50,000 60,000 43,000
Gross margin P10,000 P 0 P17,000
Gross margin percentage 16.67% 0% 28.33%

b. Alcohol:
Sales Value
At Splitoff Physical
Point Measure NRV
Sales P100,000 P100,000 P100,000
Less: Joint costs 50,000 40,000 57,000
Separable costs 20,000 20,000 20,000
Total production costs 70,000 60,000 77,000
Gross margin P 30,000 P 40,000 P 23,000
Gross margin percentage 30% 40% 23%

3. Incremental revenues from further processing of vinegar into alcohol:

(500 tons x P200) – (800 tons x P75) P40,000

Incremental costs of further processing vinegar into alcohol 20,000
Incremental operating income from further processing P20,000

The operating income would be reduced by P20,000 if Bulacan sold 800 tons of
vinegar to Laguna chemicals instead of further processing the vinegar into alcohol.

Problem 14-2

1. Work in process – First Department 95,372.99

Materials 76,292.27
Payroll payable 11,232.32
Applied overhead 7,847.40
To record costs incurred in the First Department.

2. By-product inventory 1,300.00

Work in process – First Department 1,300.00
To record by-product at estimated sales value
and removed from the main product.
200 x 5% = 10 x P130 = P1,300.

3. Cash 618.00
Loss on sale of by-product 32.00
By-product inventory 650.00
To record sale of by-product
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Problem 14-3

1. Sales Price : (400 units x P26.50) P10,600

Less: Labor: (400 units x P4) P1,600
Overhead: (400 units x P2) 800
Selling costs: (400 units x P3) 1,200
Normal profit: (10% x P10,600) 1,060 4,660
Costs assigned to By-Product P 5,940

2. Selling Price: (400 units x P26.50) P10,600

Less: Common cost assigned to By-Product P5,940
Additional processing costs 2,400
Selling costs 1,200 9,540
Profit on sale P 1,060

3. Materials P 600,000
Labor 160,000
Overhead 200,000
Total production costs P 960,000
Less: cost of By-product 5,940
Cost of main product P 954,060
Divided by ÷ 7,600
Unit cost of main product P 125.53

4. Yes the company was wise to process the by-product per computation below:

Sales price of By-product after further processing P10,600

Additional processing and selling costs after separation:
Labor costs P1,600
Overhead costs 800
Selling costs 1,200 3,600
Net proceeds from further processing P 7,000
Proceeds from sale of product if sold at time of separation:
(400 units x P14) 5,600
Additional contribution from further processing P 1,400

Problem 14-4

1. a. Recognized b. Recognized
at Production at Sale
Revenues:
Main Product P1,600,000 (a) P1,600,000
By-product 0 28,000 (d)
Total revenues 1,600,000 1,628,000
Cost of goods sold:
Manufacturing costs 1,200,000 1,200,000
Less by-product revenue 40,000 (b) 0
Net manufacturing costs 1,160,000 1,200,000
Less main product inventory 232,000 (c) 240,000 (e)
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Cost of goods sold 928,000 960,000

Gross profit P 672,000 P 668,000

(a) 16,000 x P200

(b) 4,000 x P20
(c) 2,000/10,000 x P1,160,000 = P232,000
(d) 1,400 x P20
(e) 2,000/10,000 x P1,200,000 = P240,000

2. Recognized Recognized
at production at Sale
Coke P232,000 P240,000
Pepse 12,000 (a) 0

(a) Ending inventory shown at unrealized selling price.

BI + Production - Sales -= EI
0 + 2,000 - 1,400 = 600 gallons

Ending inventory = 600 x P20 = P12,000/

Problem 14-5

1. Allocation of Joint Costs of P300,000.

a. Sales value at splitoff point method

Narra A Narra B Narra C Total
Sales value at splitoff:
(30,000 x P8) P240,000 )
(50,000 x P4) P200,000 )
(20,000 x P3) P60,000 ) P500,000
Ratio: (240/500); (200/500); (60/500) 48% 40% 12%
Allocated joint costs, (48%;40%;12%) P144,000 P120,000 P36,000 P300,000
Total costs:
Joint costs P144,000 P120,000 P36,000 P300,000
Separable processing costs 60,000 90,000 15,000 165,000
Total costs P204,000 P210,000 P51,000 P465,000
Divided by total production ÷ 25,000 ÷ 40,000 ÷15,000
Cost per board foot P 8.16 P 5.25 P 3.40

Problem 14-5 (continued)

b. Physical-measures method

Narra A Narra B Narra C Total

Production (board feet) 30,000 50,000 20,000 100,000
Ratio: (30/100; 50/100; 20/100) 30% 50% 20%
Allocated joint costs:
(30%, 50%, 20% x P300,000) P 90,000 P150,000 P60,000 P300,000
Total costs computation:
Joint costs P 90,000 P150,000 P60,000 P300,000
Separable processing costs 60,000 90,000 15,000 165,000
Total costs P150,000 P240,000 P75,000 P465,000
Total board feet 25,000 40,000 15,000
Cost per board foot P 6.00 P 6.00 P 5.00
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c. Net realizable value method

Narra A Narra B Narra C Total
Final sales value:
(25,000 x P16) P400,000 )
(40,000 x P 9) P360,000 )
(15,000 x P 7) P105,000) P865,000
Less separable costs 60,000 90,000 15,000 165,000
NRV at splitoff P340,000 P270,000 P 90,000 P700,000

Ratio:340/700;270/700;90/700) 0.4857 0.3857 0.1286

Allocated joint costs:
0.4857 x P300,000 P145,000 )
0.3857 x P300,000 P115,710 )
0.1286 x P300,000 P 38,580) P300,000

Total costs computation:

Joint costs P145,000 P115,710 P 38,580 P300,000
Separable costs 60,000 90,000 15,000 165,000
Total costs P205,710 P205,710 P 53,580 P465,000
Total units ÷ 25,000 ÷ 40,000 ÷ 15,000
Unit cost P 9.23 P 5.14 P 3.57

2. Narra A Narra B Narra C Total

Sales value at splitoff:
P8.16 x 1,000 P 8,160 )
P5.25 x 2,000 P10,500 )
P3.40 x 500 P1,700 ) P20,360
Physical measures:
P6.00 x 1,000 6,000 )
P6.00 x 2,000 12,000 )
P5.00 x 500 2,500 ) 20,500
Estimated NRV:
P8.23 x 1,000 8,230 )
P5.14 x 2,000 10,280 )
P3.57 x 500 1,785 ) 20,295

Problem 14-6

1a. Sales value at split0ff method:

Dark-Chocolate Milk-Chocolate
Powder Powder Total
Sales value at splitoff:
200* x P21 P4,200
300** x P26 P7,800 P12,000
Ratio:
P4,200/P12,000 35%
P7,800/P12,000 65%
Allocated joint costs:
35% x P10,000 3,500
65% x P10,000 6,500 P10,000

* (2,000/200) x 20
**(3,400/340) x 30
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1b. Physical-measure method:

Dark-Chocolate Milk-Chocolate
Powder Powder Total
Gallons:
10 x 20 gallons 200 gallons )
10 x 30 gallons 300 gallons ) 500 gallons
Ratio:
200/500 40%
300/500 60%
Allocated joint costs:
.40 x P10,000 P4,000 )
.60 x P10,000 P 6,000 ) P10,000

1c. Net realizable value method:

Dark-Chocolate Milk-Chocolate
Powder Powder Total
Final sales value:
2,000 x P4 P8,000 )
3,400 x P5 P17,000 ) P25,000
Less separable costs 4,250 8,750 13,000
NRV at splitoff point P3,750 P 8,250 P12,000
Ratio:
P3,750/P12,000 31.25%
P8,250/P12,000 68.75%
Allocated joint costs:
31.25% x P10,000 P3,125
68.75% x P10,000 P 6,875 P10,000

2. Dark-Chocolate Milk-Chocolate
Powder Powder Total
a. Revenues P8,000 P17,000 P25,000
Joint costs 3,500 6,500 10,000
Separable costs 4,250 8,750 13,000
Total costs 7,250 15,250 23,000
Gross margin P 250 P 1,750 P 2,000

Gross-margin % 3.125% 10.294% 8%

b. Revenues P8,000 P17,000 P25,000

Joint costs 4,000 6,000 10,000
Separable costs 4,250 8,750 13,000
Total costs 8,250 14,750 P23,000
Gross margin (loss) P(250) P 2,250 P 2,000

Gross-margin % (3.125%) 13.235% 8%

c. Revenues P8,000 P17,000 P25,000

Joint costs 3,125 6,875 10,000
Separable costs 4,250 8,750 13,000
Total costs 7,375 15,625 23,000
Gross margin P 625 P 1,375 P 2,000
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Gross-margin % 7.812% 8.088% 8%

Problem 14-7

1. Day 1 Pork Chops Ham Bacon Total

Selling price P120 P150 P144 P414
Allocated joint costs 45 75 180 300
Operating income (loss) P 75 P 75 P(38) P114

Day 2
Selling price P120.00 P150.00 - P270.00
Allocated joint costs 112.50 187.50 300.00
Operating income P 7.50 P(37.50) P(30.00)

Day 3
Selling price P 120.00 - - P 120.00
Allocated joint costs 300.00 300.00
Operating income P(180.00) P(180.00)

Day 4 The butcher loses P300.

2. Sales Value Allocated

Product at Splitoff Ratio Joint Costs
Pork chops P120 28.99% P 86.97
Ham 150 36.23% 108.69
Bacon 144 34.78% 104.34
P414 100.00% P300.00

3. No. The decision to sell or not sell individual products should consider relevant
revenues and relevant costs. In the butcher’s context, the relevant costs would be the
additional time and other incidentals to take each pig part and make it a salable product. The
relevant revenues would be the differences between the selling price at the consumer level for
the pig parts and what the butcher may receive for the whole pig.

Problem 14-8

1. For the month of May 2010, Prince Corporation’s output was:

§ Apple slices 89,100

§ Applesauce 81,000
§ Apple juice 67,500
§ Animal feed 27,000

These were computed as follows:

Total Kilos Net
Product Input Proportion Kilos Lost Kilos
Slices 270,000 kilos 0.33 89,100 - 89,100
Sauce 270,000 0.30 81,000 - 81,000
Juice 270,000 0.27 72,900 5,400 67,500*
Feed 270,000 0.10 27,000 - 27,000
1.00 270,000 5,400 264,600
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*Net kilos: = 72,900 – (0.08 x net kilos)

1.08 net kilos = 72,900
Net kilos = 67,500

2. Net
Final Sales Separable Realizable
Product Value Costs Value
Slices P 71,280 P11,280 P 60,000
Sauce 44,550 8,550 36,000
Juice 27,000 3,000 24,000
P142,830 P22,830 P120,000

3. The net realizable value of the byproduct is deducted from the production costs prior
to allocation to the joint products, as presented below:

Allocation of Cutting Department costs to joint products and byproducts:

NRV of byproduct = Byproduct sales value – separable costs

= P0.10 (27,000 kilos) – P700
= P2,000

Costs to be allocated = Joint costs – NRV of by product

= P60,000 - P20,000
= P58,000

4. Sales Separable Joint Gross

Product Value Costs Costs* Margin
Slices P 71,280 P11,280 P29,000 P31,000
Sauce 44,550 8,550 17,400 18,600
Juice 27,000 3,000 11,600 12,400
P142,830 P22,830 P58,000 P62,000

*Allocated using NRV of the three joint products from requirement 2:

Slices: (P60,000/P120,000) x P58,000 = P29,000
Sauce: (P36,000/P120,000) x P58,000 = 17,400
Juice: (P24,000/P120,000) x P58,000 = 11,600

Problem 14-9

Rizal Corporation
Income Statement
Date

Sales:
Main product P916,050
By-product 25,000 P941,050
Cost of goods sold:
Production costs:
Main product (schedule 1) P478,750
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By-product (schedule 2) 21,250 500,000

Less ending inventory of main product:
(P478,750/312,500) x 17,000 26,044 473,956
Gross profit 467,094
Operating expenses:
Selling expenses:
Main product P73,426
By-product 5,374 78,800
Net income P388,294

Schedule 1: Production cost of main product

Total production costs: [P500,000 – (2.5% x P500,000)] P487,500

Less cost of by-product (reversal cost method):
Sales value P 25,000
Further processing cost (2.5% x P500,00) (12,500)
Expected gross profit (15% x P25,000) ( 3,750) 8,750
Production cost of main product P478,750

Schedule 2: Production cost of by-product

Joint cost applicable to by-product P 8,750

Further processing costs 12,500
Production cost of by-product P 21,250

Problem 14-10

a. 56,000 gallons of output in Dept. 1:

Transferred to Dept. 2 (30%) 16,800 gallons
Transferred to Dept. 3 (70%) 39,200 gallons

b. 39,200 gallons of input to Dept. 3:

Pulp (20%) 7,840 gallons
Jelly (80%) 31,360 gallons

c. Sales value (7,840 x P0.40) P3,136

Distribution expenses 550
NRV P2,586

d. Joint Sales Total Separate

Product Gallons Price Sales Costs NRV
Juice 16,800 P26.25 P441,000 P48,100 P393.400
Jelly 31,360 17.25 540,960 29.664* 511,296

*P32,250 - P2,586

e. Joint Joint
Product NRV Ratio Cost*
Juice P393,400 43% P167,485
Jelly 511,296 57 222,015
P904,696 100% P389,500
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* Total joint cost: P221,000 + 168,500 = P389,500

f. Juice: (P167,485 + P48,100) x 15% = P32,338

Jelly: (P222,015 + P29,664) x 15% = 37.752

Problem 14-11

1. Computation of Cost of By-Product

Estimated sales price (600 units x P140) P84,000

Estimated selling and administrative expenses (P10 x 600) ( 6,000)
Estimated normal net profit (8% of sales) ( 6,720)
Total estimated manufacturing cost P71,280
Estimated further processing costs:
Materials (300 units x P50) P15,000
Labor (600 units x P10) 6,000
Overhead (600 units x P15) 9,000 (30,000)
Estimated manufacturing cost before separation P41,280

2. Macho Manufacturing Company – Finishing Department

Cost of Production Report
Month of June 2010

Quantity Schedule Units

Transferred In from prior department 4,000

Transferred Out to finished goods 3,700

By-Product recovered 300
Total accounted for 4,000

Cost Schedule Total Cost EUP Unit Cost

Cost transferred in from prior dept. P 954,600 ÷ 3,700 = P258.00
Cost added in this department:
Labor 55,500 ÷ 3,700 = 15.00
Overhead 66,600 ÷ 3,700 = 18.00
Total costs to account for P1,076,700 P291.00

Cost accounted for:

Production completed in current month P1,076,700 = 3,700 = P291.00
Less value of by-product recovered 41,280 ÷ 3,700 = 11.16
Adjusted cost of main product
Transferred out to finished goods 1,035,420 ÷ 3,700 = 279.84
Cost of by-product 41,280
Total costs accounted for P1,076,700