Chapter 7 - Joint and by-product costing

MULTIPLE CHOICE

1. ____ are products with substantial value which are produced simultaneously by the same process up to
a split-off point.
a. By-products
b. Joint products
c. Minor products
d. Both a and b
ANS: B PTS: 1

2. The cost of crude oil used in producing gasoline products is an example of

a. joint costs.
b. a by-product.
c. joint products.
d. common cost allocation.
ANS: A PTS: 1

3. Which of the following industries would most likely have joint costs in production?
a. flour milling
b. dairy products
c. commercial fishing
d. all of the above
ANS: D PTS: 1

4. Joint costs are

a. separable.
b. allocated on the basis of cause and effect relationships.
c. allocated arbitrarily.
d. all of the above.
ANS: C PTS: 1

5. Joint products are

a. indistinguishable before the split-off point.
b. distinguishable before the split-off point.
c. indistinguishable after the split-off point.
d. distinguishable throughout the entire manufacturing process.
ANS: A PTS: 1

6. The ____ is where products become distinguishable after passing through a common process.
a. work in process
b. relevant point
c. break-even point
d. split-off point
ANS: D PTS: 1
 7. A ____ is a secondary product recovered in the course of manufacturing a primary product during a
joint process.
a. by-product
b. joint product
c. main product
d. both a and c
ANS: A PTS: 1

8. Which of the following is a by-product of agricultural and food Industries?

a. meat
b. flour
c. fresh fish
d. fertilizer
ANS: D PTS: 1

9. Which of the following would generally be a by-product?

a. canned fish
b. hamburger
c. cow hides
d. pineapples
ANS: C PTS: 1

10. A joint cost allocation method that would assign the same amount of cost per unit to two joint products
that sell for £10 and £40, respectively, is the
a. sales-value-at-split-off method.
b. direct allocation method.
c. net realizable value method.
d. physical unit method.
ANS: D PTS: 1

11. Which joint cost allocation method is described by the following statement?

Joint cost is prorated to the products on the basis of each product's share of units.
a. physical units method
b. weighted average method
c. sales-value-at-split-off method
d. net realizable value method
ANS: A PTS: 1

12. Bond Ltd., which manufactures products W, X, Y, and Z through a joint process costing £18,000, has
the following data for 2012:

Total Sales Value

Product Units Produced at Split-Off
W 10,000 £5,000
X 6,000 2,500
Y 16,000 3,000
Z 8,000 4,500

What is the amount of joint costs assigned to product W using the physical units method?
 a. £6,000
b. £4,500
c. £12,000
d. £13,500
ANS: B
SUPPORTING CALCULATIONS:
10,000/40,000  £18,000 = £4,500

PTS: 1

13. Amos, SA., manufactures products A and B from a joint process. Joint product costs were £40,000
during the month of October. Additional information is as follows:

Sales Values at
Product Units Produced Split-Off
A 14,000 £110,000
B 6,000 £90,000

Amos uses the physical units method of joint cost allocation. What is the amount of joint product costs
to be allocated to products A and B in October, respectively?
a. £20,000; £20,000
b. £22,000; £18,000
c. £28,000; £12,000
d. £12,000; £28,000
ANS: C
SUPPORTING CALCULATIONS:
14,000/20,000  £40,000 = £28,000

6,000/20,000  £40,000 = £12,000

PTS: 1

14. Carey Ltd. manufactures products X and Y from a joint process. Joint product costs were £60,000
during the month of December. Additional information is as follows:

Sales Values at
Product Units Produced Split-Off per Unit
X 10,000 £24
Y 5,000 £8

What is the amount of joint product costs to be allocated to product X during December using the
physical units method?
a. £20,000
b. £45,000
c. £15,000
d. £40,000
ANS: D
SUPPORTING CALCULATIONS:
10,000/15,000  £60,000 = £40,000

PTS: 1
15. Deli Products produces two products, X and Y, in a single process. In 2012, the joint costs of this
process were £25,000. In addition, 4,000 units of X and 6,000 units of Y were produced. Separable
processing costs beyond the split-off point were: X-£10,000; Y- £20,000. X sells for £10.00 per unit; Y
sells for £7.50 per unit.

What is the gross profit of product Y assuming the physical units method is used?
a. £25,000
b. £-0-
c. £10,000
d. £15,000
ANS: C
SUPPORTING CALCULATIONS:
Joint cost allocation (6,000/10,000  £25,000) = £15,000

Gross profit [(6,000  £7.50) - £20,000 - £15,000] = £10,000

PTS: 1

16. Eden Company manufactures two products, Brights and Dulls, from a joint process. A production run
costs £50,000 and results in 250 units of Brights and 1,000 units of Dulls. Both products must be
processed past the split-off point, incurring separable cost for Brights of £60 per unit and £40 per unit
for Dulls. The market price is £250 for Brights and £200 for Dulls.

What is the gross profit for Brights assuming the physical units method is used?
a. £62,500
b. £12,500
c. £47,500
d. £37,500
ANS: D
SUPPORTING CALCULATIONS:
250/1,250  £50,000 = £10,000

250  (£250 - £60) - £10,000 = £37,500

PTS: 1

Figure 1

Gilbert Production Company incurred £150,000 to manufacture the following products in a joint
process:

Selling Price
Product Units Produced Weight per Unit per Unit
A 250 4 lbs. £20
B 500 3 lbs. 40
C 750 2 lbs. 40
D 1,000 1 lbs. 20

17. Refer to Figure 1. How much joint cost would be allocated to product B based on the physical units
method?
a. £150,000
 b. £30,000
c. £45,000
d. £50,000
ANS: B
SUPPORTING CALCULATIONS:
(500/2,500)  £150,000 = £30,000

PTS: 1

18. Refer to Figure 1. How much joint cost would be allocated to product A based on total weight?
a. £150,000
b. £20,000
c. £30,000
d. £50,000
ANS: C
SUPPORTING CALCULATIONS:

A: 250  4 =1,000
B: 500  3 =1,500
C: 750  2 =1,500
D: 1,000  1 =1,000
5,000

(1,000/5,000)  £150,000 = £30,000

PTS: 1

19. Hall Ltd. produces four products in a joint process for £250,000. The following information is
available on total sales and production in units:

Sales Production
D 2,000 4,000
A 4,000 5,000
V 6,000 7,000
E 8,000 8,000

What amount of joint costs will be allocated to V based on the physical units of production method?
a. £72,925
b. £75,000
c. £100,000
d. £250,000
ANS: A
SUPPORTING CALCULATIONS:
0.2917  £250,000 = £72,925

PTS: 1

Figure 2

Foster Company incurred £200,000 to manufacture the following products in a joint process:
 Selling Price
Product Units Produced Weight per Unit per Unit
I 500 8 lbs. £5
J 1,000 6 lbs. 10
K 1,500 4 lbs. 10
L 2,000 2 lbs. 5

20. Refer to Figure 2. How much joint cost would be allocated to product J based on total weight?
a. £33,333
b. £26,667
c. £60,000
d. £40,000
ANS: C
SUPPORTING CALCULATIONS:

I: 500  8 = 4,000
J: 1,000  6 = 6,000
K: 1,500  4 = 6,000
L: 2,000  2 = _4,000
20,000

6,000/20,000  £200,000 = £60,000

PTS: 1

21. Refer to Figure 2. How much joint cost would be allocated to product L based on total weight?
a. £33,333
b. £26,667
c. £40,000
d. £44,444
ANS: C
SUPPORTING CALCULATIONS:

I: 500  8 = 4,000
J: 1,000  6 = 6,000
K: 1,500  4 = 6,000
L: 2,000  2 = _4,000
20,000

4,000/20,000  £200,000 = £40,000

PTS: 1

22. The sales-value-at-split-off method allocates joint production costs based on each product's share of
a. revenues realized at the split-off point.
b. costs realized at the split-off point.
c. final sales value less further processing costs after the split-off point.
d. units produced at the split-off point.
ANS: A PTS: 1
23. Amos, SA., manufactures products A and B from a joint process. Joint product costs were £40,000
during the month of October. Additional information is as follows:

Sales Value
Product Units Produced at Split-Off
A 14,000 £110,000
B 6,000 £90,000

Amos uses the sales-value-at-split-off method of joint cost allocation. What is the amount of joint
product costs to be allocated to products A and B in October, respectively?
a. £20,000; £20,000
b. £22,000; £18,000
c. £28,000; £12,000
d. £18,000; £22,000
ANS: B
SUPPORTING CALCULATIONS:
£110,000/£200,000  £40,000 = £22,000

£90,000/£200,000  £40,000 = £18,000

PTS: 1

Figure 3

Bond Ltd., which manufactures products W, X, Y, and Z through a joint process costing £18,000, has
the following data for 2012:

Sales Value
Product Units Produced at Split-Off
W 10,000 £5,000
X 6,000 2,500
Y 16,000 3,000
Z 8,000 4,500

24. Refer to Figure 3. What is the amount of joint costs assigned to Product X using the sales-value-at-
split-off method?
a. £18,000
b. £10,000
c. £3,000
d. £2,700
ANS: C
SUPPORTING CALCULATIONS:
£2,500/£15,000  £18,000 = £3,000

PTS: 1

25. Refer to Figure 3. What is the amount of joint costs assigned to Product Y using the sales-value-at-
split-off method?
a. £7,200
b. £3,600
c. £18,000
d. £1,200
 ANS: B
SUPPORTING CALCULATIONS:
£3,000/£15,000  £18,000 = £3,600

PTS: 1

26. Carey Ltd. manufactures Products X and Y from a joint process. Joint product costs were £60,000
during the month of December. Additional information is as follows:

Sales Value at
Product Units Produced Split-Off per Unit
X 10,000 £24
Y 5,000 £8

What is the amount of joint product costs to be allocated to Product X during December using the
sales-value-at-split-off method?
a. £20,000
b. £45,000
c. £51,429
d. £40,000
ANS: C
SUPPORTING CALCULATIONS:
Sales-value-at-split-off:
Product X = 10,000  £24 = £240,000
Product Y = 5,000  £8 = £40,000
(£240,000/280,000)  £60,000 = £51,429

PTS: 1

27. Foster Company incurred £200,000 to manufacture the following products in a joint process:

Selling Price
Product Units Produced Weight per Unit per Unit
I 500 8 lbs. £5
J 1,000 6 lbs. 10
K 1,500 4 lbs. 10
L 2,000 2 lbs. 5

How much joint cost would be allocated to Product K based on the total sales value method?
a. £13,334
b. £80,000
c. £26,666
d. £60,000
ANS: B
SUPPORTING CALCULATIONS:

I: 500  £5 = £ 2,500
J: 1,000  £10 = 10,000
K: 1,500  £10 = 15,000
L: 2,000  £5 = _10,000
£37,500
 (15,000/37,500)  £200,000 = £80,000

PTS: 1

28. Which of the following methods allocates joint production costs based on their proportionate share of
eventual revenue less further processing costs?
a. sales-value-at-split-off method
b. net realizable value method
c. physical units method
d. replacement cost method
ANS: B PTS: 1

29. ____ is an approximation of the sales value of a joint product at split-off.

a. Replacement cost
b. Separable cost
c. Weighing factor
d. Hypothetical sales value
ANS: D PTS: 1

30. Which of the following methods allocates a joint cost such that each product has the same cost of
goods sold percentage?
a. constant gross margin percentage method
b. net realizable value method
c. physical units method
d. replacement cost method
ANS: A PTS: 1

31. Which joint cost allocation method is described by the following statement?

Joint cost is prorated to the products on the basis of each product's share of units.
a. physical units method
b. weighted average method
c. sales-value-at-split-off method
d. net realizable value method
ANS: A PTS: 1

32. Which joint cost allocation method is described by the following statement?

Joint cost is backed into. First, overall sales revenue minus overall costs (joint plus further processing
costs) is calculated to yield gross profit and the gross profit percentage. Then, each product is assigned
the same cost of goods sold percentage.
a. constant gross margin method
b. weighted average method
c. sales-value-at-split-off method
d. net realizable method
ANS: A PTS: 1

Figure 4
 Deli Products produces two products, X and Y, in a single process. In 2012, the joint costs of this
process were £25,000. In addition, 4,000 units of X and 6,000 units of Y were produced. Separable
processing costs beyond the split-off point were: X-£10,000; Y-£20,000. X sells for £10.00 per unit; Y
sells for £7.50 per unit.

33. Refer to Figure 4. What amount of joint costs will be allocated to product X using the estimated net
realizable value method?
a. £13,636
b. £40,000
c. £39,000
d. £11,765
ANS: A
SUPPORTING CALCULATIONS:

X: (4,000  £10.00) - £10,000 = £30,000

Y: (6,000  £7.50) - £20,000 = _25,000
£55,000

£30,000/£55,000  £25,000 = £13,636

PTS: 1

34. Refer to Figure 4. What is the gross profit of product Y assuming the net realizable value method is
used?
a. £13,636
b. £16,364
c. £30,000
d. £45,000
ANS: A
SUPPORTING CALCULATIONS:
Joint cost allocation: (£25,000/£55,000  £25,000) = £11,364

Gross profit: [(6,000  £7.50) - £20,000 - £11,364] = £13,636

PTS: 1

Figure 5

Eden Company manufactures two products, Brights and Dulls, from a joint process. A production run
costs £50,000 and results in 250 units of Brights and 1,000 units of Dulls. Both products must be
processed past the split-off point, incurring separable costs for Brights of £60 per unit and £40 per unit
for Dulls. The market price is £250 for Brights and £200 for Dulls.

35. Refer to Figure 5. What is the amount of joint costs allocated to Brights using the net realizable value
method?
a. £50,000
b. £11,906
c. £-0-
d. £11,446
ANS: D
SUPPORTING CALCULATIONS:
 Brights [250  (£250 - £60)] £ 47,500
Dulls [1,000  (£200 - £40)] _160,000
£207,500

(£47,500/£207,500)  £50,000 = £11,446

PTS: 1

36. Refer to Figure 5. What is the amount of joint costs allocated to Dulls using the constant gross margin
percentage method?
a. £15,000
b. £40,000
c. £50,000
d. £10,000
ANS: B
SUPPORTING CALCULATIONS:

Revenues: (250  £250) + (1,000  £200) = £262,500

Costs: (250  £60) + (1,000  £40) + £50,000 = £105,000

COGS Percentage = £105,000/£262,500 = 40%

(1,000  £200  40%) - £40,000 = £40,000

PTS: 1

37. Refer to Figure 5. What is the gross profit for Dulls assuming the constant gross margin percentage
method is used?
a. £120,000
b. £150,000
c. £37,500
d. £200,000
ANS: A
SUPPORTING CALCULATIONS:

Revenues (1,000  £200) £200,000

COGS (£200,000  40%) __80,000
Gross Profit £120,000

PTS: 1

Figure 6

Suppose that a sawmill processes logs into four grades of lumber totaling 500,000 board feet as
follows at a joint cost of £300,000:

Grade Board Feet Final Sales Value

First and second 75,000 £ 56,250
No. 1 common 200,000 180,000
No. 2 common 100,000 105,000
 No. 3 common 125,000 127,500

38. Refer to Figure 6. What amount of joint costs will be allocated to No. 2 common using the constant
gross margin percentage method?
a. £300,000
b. £37,800
c. £67,200
d. £192,000
ANS: C
SUPPORTING CALCULATIONS:

Revenues: £468,750
Costs: £300,000

COGS percentage: (£300,000/£468,750) = 64%

£105,000  0.64 = £67,200

PTS: 1

39. Refer to Figure 6. What is the gross profit of No. 3 common if the constant gross margin percentage
method is used?
a. £45,900
b. £168,750
c. £81,600
d. £135,000
ANS: A
SUPPORTING CALCULATIONS:
£127,500  0.36 = £45,900

PTS: 1

40. Refer to Figure 6. No. 2 common can be cut into 2  4s. The final sales value will increase to
£150,000. The cost of cutting No. 2 common is £15,000. Should the No. 2s be cut into 2  4s?
a. Sell now.
b. Cut into 2  4s; profits will increase £30,000.
c. Cut into 2  4s; profits will increase £45,000.
d. Cut into 2  4s; profits will increase £150,000.

ANS: B
SUPPORTING CALCULATIONS:

Additional revenues (£150,000 - £105,000) £45,000

Additional costs _15,000
Profits will increase by £30,000

PTS: 1

Figure 7

Suppose that a concrete manufacturer produces four grades of concrete totaling 500,000 cubic yards as
follows at a joint cost of £2,000,000:
 Grade Cubic Yards Sales Value
A 75,000 £ 375,000
B 200,000 1,200,000
C 100,000 700,000
D 125,000 850,000

41. Refer to Figure 7. What amount of joint costs will be allocated to Grade C using the constant gross
margin percentage method?
a. £2,000,000
b. £252,000
c. £448,000
d. £1,280,000
ANS: C
SUPPORTING CALCULATIONS:

Revenues: £3,125,000
Costs: £2,000,000

COGS percentage (£2,000,000/£3,125,000) is 64%.

£700,000  0.64 = £448,000

PTS: 1

42. Refer to Figure 7. What is the gross profit of Grade D if the constant gross margin percentage method
is used?
a. £306,000
b. £1,125,000
c. £544,000
d. £900,000
ANS: A
SUPPORTING CALCULATIONS:
£850,000  0.36 = £306,000

PTS: 1

43. What amount of joint costs will be allocated to Grade B using the final sales value method?
a. £2,000,000
b. £768,000
c. £800,000
d. £240,000
ANS: B
SUPPORTING CALCULATIONS:
(£1,200,000/£3,125,000)  £2,000,000 = £768,000

PTS: 1

44. Refer to Figure 7. Grade C can be made into bricks. The final sales value will increase to £900,000.
The additional cost to make the bricks is £250,000. Should the concrete be processed into bricks?
a. Sell now.
 b. Produce bricks; profits will increase £200,000.
c. Produce bricks; profits will increase £900,000.
d. Produce bricks; profits will increase £450,000.
ANS: A
SUPPORTING CALCULATIONS:

Additional revenues (£900,000 - £700,000) £200,000

Additional costs _250,000
Profits will decrease by £(50,000)

PTS: 1

Figure 8

James Ltd. produces three products in a joint process: A, B, and C. The joint costs are as follows:

Direct materials £50,000

Direct labour 20,000
Overhead 40,000

The split-off values for A, B, and C are £80,000, £100,000, and £60,000, respectively. If management
processes the three products beyond the split-off point, sales values for A, B, and C would increase to
£150,000, £130,000, and £120,000, respectively. In order to process the products further, the company
must incur separable costs of £14,000, £12,000, and £10,000 for products A, B, and C, respectively.
James uses the sales-value-at-split-off method to allocate joint costs.

45. Refer to Figure 8. Should James Ltd. process A further?

a. Process further; profits will increase £56,000.
b. Sell now.
c. Process further; profits will increase £70,000.
d. Process further; profits will increase £136,000.
ANS: A
SUPPORTING CALCULATIONS:

Additional revenues (£150,000 - £80,000) £70,000

Additional costs _14,000
Profit increases £56,000

PTS: 1

46. Refer to Figure 8. Should James Ltd. process B further?

a. Process further; profits will increase £30,000.
b. Process further; profits will increase £98,000.
c. Process further; profits will increase £18,000.
d. Sell now.
ANS: C
SUPPORTING CALCULATIONS:

Additional revenues (£130,000 - £100,000) £30,000

Additional costs _12,000
Profit increases £18,000
 PTS: 1

47. Refer to Figure 8. Should James Ltd. process C further?

a. Process further; profits will increase £56,000.
b. Process further; profits will increase £66,000.
c. Process further; profits will increase £50,000.
d. Sell now.
ANS: C
SUPPORTING CALCULATIONS:

Additional revenues (£120,000 - £60,000) £60,000

Additional costs _10,000
Profit increases £50,000

PTS: 1

48. Karl Body Parts produces three products in a joint process: Arms, Legs, and Heads. The joint costs are
as follows:

Direct materials £25,000

Direct labour 10,000
Overhead 20,000

The hypothetical values for Arms, Legs, and Heads are £40,000, £50,000, and £30,000, respectively. If
management processes the three products beyond the split-off point, sales values for Arms, Legs, and
Heads would increase to £75,000, £65,000, and £60,000, respectively. In order to process the products
further, the company must incur separable costs of £7,000, £16,000, and £5,000 for products Arms,
Legs, and Heads, respectively. Karl uses the sales-value-at-split-off method to allocate joint costs.

Should Karl Body Parts process Arms further?

a. Process further; profits will increase £28,000.
b. Sell now.
c. Process further; profits will increase £35,000.
d. Process further; profits will increase £68,000.
ANS: A
SUPPORTING CALCULATIONS:

Additional revenues (£75,000 - £40,000) £35,000

Additional costs __7,000
Profit increases £28,000

PTS: 1

49. The decision of whether or NOT to process joint products beyond their split-off point is
a. based on the total cost of the finished product including joint costs.
b. based on joint costs only.
c. based on selling price at split-off point.
d. based on additional revenues versus additional costs of processing further.
ANS: D PTS: 1
50. Joint production processes are seldom found in
a. sawmill operations.
b. petroleum refining operations.
c. the fishing industry.
d. dentist offices.
ANS: D PTS: 1

51. Joint production processes are seldom found in

a. manufacturing firms.
b. the meat industry.
c. crude oil drilling.
d. service firms.
ANS: D PTS: 1

52. Which of the following costs is NOT relevant to a decision to sell a product at split-off or to process
the product further and then sell the product?
a. the joint costs allocated to the product
b. the selling price of the product at split-off
c. the additional processing costs after split-off
d. the selling price of the product after further processing
ANS: A PTS: 1

53. A joint product should be processed beyond split-off if additional revenue from further processing
exceeds
a. joint costs.
b. allocated joint costs.
c. allocated joint costs and additional costs of further processing.
d. additional costs of further processing.
ANS: D PTS: 1

54. Which of the following costs is NOT relevant to a decision to sell a product at split-off or process the
product further and then sell the product?
a. joint costs allocated to the product
b. the selling price of the product at split-off
c. the additional processing costs after split-off
d. the selling price of the product after further processing
ANS: A PTS: 1

Figure 9

Stars Manufacturing Company produces Products A1, B2, C3, and D4 through a joint process. The
joint costs amount to £200,000.

If Processed Further
Sales Value Additional
Product Units Produced at Split-Off Costs Sales Value
A1 3,000 £10,000 £2,500 £15,000
B2 5,000 30,000 3,000 35,000
C3 4,000 20,000 4,000 25,000
D4 6,000 40,000 6,000 45,000
55. Refer to Figure 9. If Product B2 is processed further, profits will
a. increase by £30,000.
b. decrease by £3,000.
c. increase by £32,000.
d. increase by £2,000.
ANS: D
SUPPORTING CALCULATIONS:
£35,000 - £30,000 - £3,000 = £2,000 increase

PTS: 1

56. Refer to Figure 9. Which product(s) should be sold at split-off to maximize profits in the short run?
a. Product A1
b. Product D4
c. Product B2
d. Products A1 and D4
ANS: B
SUPPORTING CALCULATIONS:

Additional Additional
Product Revenues Costs Differences Decision
A1 £5,000 £2,500 £2,500 Process on
B2 £5,000 £3,000 £2,000 Process on
C3 £5,000 £4,000 £1,000 Process on
D4 £5,000 £6,000 (£1,000) Sell now

PTS: 1

Figure 10

Manning Company uses a joint process to produce products W, X, Y, and Z. Each product may be sold
at its split-off point or processed further. Additional processing costs of specific products are entirely
variable. Joint processing costs for a single batch of joint products are £120,000. Other relevant data
are as follows:

Sales Value Additional Sales Value of

Product at Split-Off Processing Costs Final Product
Y £ 20,000 £ 32,000 £120,000
Z 28,000 20,000 32,000
W 40,000 60,000 80,000
X __12,000 ____4,000 __20,000
£100,000 £116,000 £252,000

57. Refer to Figure 10. Which products should Manning process further?
a. all
b. all except Z
c. Y and X
d. none
ANS: C
SUPPORTING CALCULATIONS:
 Additional Additional
Product Revenues Costs Differences Decision
Y £100,000 £32,000 £68,000 Process on
Z 4,000 20,000 (16,000) Sell now
W 40,000 60,000 (20,000) Sell now
X 8,000 4,000 4,000 Process on

PTS: 1

58. Refer to Figure 10. Processing Y further will cause profits to

a. increase by £120,000.
b. increase by £52,000.
c. increase by £68,000.
d. decrease by £32,000.
ANS: C
SUPPORTING CALCULATIONS:
£120,000 - £20,000 - £32,000 = £68,000 increase

PTS: 1

59. Information about three joint products follows:

A B C
Anticipated production 5,000 lbs. 1,000 lbs. 2,000 lbs.
Selling price/lb. at split-off £10 £30 £16
Additional processing costs/lb.
after split-off (all variable) £ 6 £12 £24
Selling price/lb. after further
processing £20 £40 £50

The cost of the joint process is £60,000. Which of the joint products should be sold at split-off?
a. A
b. B
c. C
d. both A and B
ANS: B
SUPPORTING CALCULATIONS:

Split-Off Process Further

A £10 £20 - £6 = £14
B £30 £40 - £12 = £28 *Sell now
C £16 £50 - £24 = £26

PTS: 1

Figure 11

Information about three joint products follows:

X Y Z
Anticipated production 12,000 lbs. 8,000 lbs. 7,000 lbs.
 Selling price/lb. at split-off £16 £26 £48
Additional processing costs/lb.
after split-off (all variable) £ 8 £20 £20
Selling price/lb. after further
processing £20 £40 £70

The cost of the joint process is £140,000.

60. Refer to Figure 11. Which of the joint products should be processed further?
a. X
b. Y
c. Z
d. both X and Y
ANS: C
SUPPORTING CALCULATIONS:

Split-Off Process Further

X £16 £20 - £8 = £12
Y £26 £40 - £20 = £20
Z £48 £70 - £20 = £50 *Process on

PTS: 1

61. Refer to Figure 11. If the firm is currently processing all three products beyond split-off, the firm's
income would be
a. £736,000.
b. £654,000.
c. £596,000.
d. £514,000.
ANS: D
SUPPORTING CALCULATIONS:

X (12,000  £12) £144,000

Y (8,000  £20) 160,000
Z (7,000  £50) _350,000
£654,000
Less: Joint costs _140,000
£514,000

PTS: 1

62. Refer to Figure 11. Assuming all of the sell now or process further decisions were correctly made,
what will be the firm's income?
a. £736,000
b. £654,000
c. £596,000
d. £610,000
ANS: D
SUPPORTING CALCULATIONS:

X (12,000  £16) £192,000

 Y (8,000  £26) 208,000
Z (7,000  £50) _350,000
£750,000
Less: Joint costs _140,000
£610,000

PTS: 1

Figure 12

Ottawa Ltd. produces two products from a joint process. Information about the two joint products is as
follows:

Product Product
____X____ ____Y____
Anticipated production (in pounds) 2,000 4,000
Selling price per pound at split-off £30 £16
Additional processing costs per pound
after split-off (all variable) £15 £30
Selling price per pound after
further processing £40 £50

The cost of the joint process is £85,000.

63. Refer to Figure 12. Which of Ottawa's joint products should be sold at split-off?
a. Product X only
b. Product Y only
c. both Product X and Product Y
d. neither Product X nor Product Y
ANS: A
SUPPORTING CALCULATIONS:

Split-off Process Further

Product X £30 £40 - £15 = £25
Product Y £16 £50 - £30 = £20

PTS: 1

64. Refer to Figure 12. Ottawa currently sells both products at the split-off point. If Ottawa makes
decisions that maximize profit, Ottawa's profit will increase by
a. £16,000.
b. £4,000.
c. £50,000.
d. £10,000.
ANS: A
SUPPORTING CALCULATIONS:

Split-off Process Further

Product X £30 £40 - £15 = £25
Product Y £16 £50 - £30 = £20

4,000 pounds  (£20 - £16) = £16,000

 PTS: 1

65. Refer to Figure 12. Which of Ottawa's joint products should be processed further?
a. Product X only
b. Product Y only
c. both Product X and Product Y
d. neither Product X nor Product Y
ANS: B
SUPPORTING CALCULATIONS:

Split-off Process Further

Product X £30 £40 - £15 = £25
Product Y £16 £50 - £30 = £20

PTS: 1

Figure 13

Information about three joint products is as follows:

Product Product Product

____A____ ____B____ ____C____
Anticipated production
(in pounds) 10,000 2,000 4,000
Selling price per pound
at split-off £10 £30 £16
Additional processing costs
per pound after split-off
(all variable) £6 £12 £24
Selling price per pound
after further processing £20 £40 £50

The cost of the joint process is £120,000.

66. Refer to Figure 13. Which of the joint products should be sold at split-off?
a. Product A only
b. Product B only
c. Product C only
d. both Product A and Product B
ANS: B
SUPPORTING CALCULATIONS:

Split-off Process Further

Product A £10 £20 - £6 = £14
Product B £30 £40 - £12 = £28
Product C £16 £50 - £24 = £26

PTS: 1

67. Refer to Figure 13. If the firm is currently processing all three products beyond split-off, the firm's
income would be
 a. £300,000.
b. £224,000.
c. £180,000.
d. £104,000.
ANS: C
SUPPORTING CALCULATIONS:

Product A (10,000 pounds  £20 £200,000

(10,000 pounds  £6) __60,000 £140,000

Product B (2,000 pounds  £40) £ 80,000

(2,000 pounds  £12) __24,000 56,000

Product C (4,000 pounds  £50) £200,000

(4,000 pounds  £24) __96,000 _104,000
£300,000
Less: Cost of joint process _120,000
Income £180,000

PTS: 1

Figure 14

Information about three joint products is as follows:

Product Product Product

____A____ ____B____ ____C____
Anticipated production
(in pounds) 24,000 16,000 14,000
Selling price per pound
at split-off £16 £26 £48
Additional processing costs
per pound after split-off
(all variable) £8 £20 £20
Selling price per pound
after further processing £20 £40 £70

The cost of the joint process is £280,000.

68. Refer to Figure 14. Which of the joint products should be sold at split-off?
a. Product A only
b. Product B only
c. Product C only
d. both Product A and Product B
ANS: D
SUPPORTING CALCULATIONS:

Split-off Process Further

Product A £16 £20 - £8 = £12
Product B £26 £40 - £20 = £20
Product C £48 £70 - £20 = £50
 PTS: 1

69. Refer to Figure 14. If the firm is currently processing all three products beyond split-off, the firm's
income would be
a. £1,472,000.
b. £1,308,000.
c. £1,192,000.
d. £1,028,000.
ANS: D
SUPPORTING CALCULATIONS:

Product A [24,000 pounds  (£20 - £8)] £ 288,000

Product B [16,000 pounds  (£40 - £20)] 320,000
Product C [14,000 pounds  (£70 - £20)] ___700,000
£1,308,000
Less: Cost of joint process ___280,000
Income £1,028,000

PTS: 1

70. Refer to Figure 14. Assume the firm makes decisions that maximize profit. The firm's income would
be
a. £1,220,000.
b. £1,308,000.
c. £1,472,000.
d. £1,028,000.
ANS: A
SUPPORTING CALCULATIONS:

Product A (sell at split-off)

24,000 pounds  £16 £ 384,000
Product B (sell at split-off)
16,000 pounds  £26 416,000
Product C (process further)
14,000 pounds  (£70 - £20) ___700,000
£1,500,000
Less: Cost of joint process ___280,000
Income £1,220,000

PTS: 1

71. Moore Manufacturing Company makes two products from a common input. Joint processing costs up
to the split-off point total £23,400. The company allocates the joint costs to the products on the basis of
their total sales values at split-off. The total sales value at split-off for both products is the same. Each
product may be sold at the split-off point or processed further. Data concerning one of these products
are as follows:

Sales value at split-off £15,000

Cost of further processing 10,000
Sales value after further processing 30,000
 What is the minimum amount the company would accept for this product if it is to be sold at the split-
off point?
a. £10,000
b. £21,700
c. £20,000
d. £26,700
ANS: C
SUPPORTING CALCULATIONS:
£30,000 - £10,000 = £20,000

PTS: 1

PROBLEM

1. Beef Products produces two products, hamburger and steaks, in a single process. In 2012, the joint
costs of this process were £36,000. In addition, 20,000 pounds of Hamburger and 10,000 pounds of
steaks were produced. Separable processing costs beyond the split-off point were: hamburger, £7,500;
steaks, £4,500. Hamburger sells for £2 per pound; steaks sells for £4 per pound.

Required:

a. Allocate the joint costs using the net realizable value method.
b. Allocate the joint costs using the physical units method.

ANS:
a. Sales Sep. Costs NRV Fraction
Hamburger £40,000 £7,500 £32,500 325/680
Steaks £40,000 £4,500 _35,500 355/680
£68,000

Hamburger (325/680)  £36,000 = £17,206

Steaks (355/680)  £36,000 = £18,794

b. Units Fraction Allocation

Hamburger 20,000 20/30  £36,000 = £24,000
Steaks 10,000 10/30  £36,000 = £12,000
30,000

PTS: 1

2. Lake Ltd. manufactures two products, AA and BB, from a joint process. A production run costs
£20,000 and results in 500 units of AA and 2,000 units of BB. Both products must be processed past
the split-off point, incurring separable costs of £5 per unit for AA and £10 per unit for BB. The market
price is £25 for AA and £20 for BB.

Required:

a. Allocate joint production costs to each product using the physical units method.
b. Allocate joint production costs to each product using the net realizable value method.
c. Allocate joint production costs to each product using the constant gross margin percentage
 method.

ANS:
a. Units Fraction Allocation
AA 500 5/25  £20,000 = £ 4,000
BB 2,000 20/25  £20,000 = £16,000
2,500

b. Sales Sep. Costs NRV Fraction

AA £12,500 £ 2,500 £10,000 10/30
BB 40,000 £20,000 £20,000 20/30

AA: 10/30  £20,000 = £6,667

BB: 20/30  £20,000 = £13,333

c. Sales (500  £25) + (2,000  £20) = £52,500

Costs (500  £5) + (2,000  £10) + £20,000 = £42,500

COGS Percentage = £42,500/£52,500 = 80.9524%

AA: (500  £25  80.9524%) - £2,500 = £7,619.05

BB: (2,000  £20  80.9524%) - £20,000 = £12,380.96

PTS: 1

3. Anderson Company pays a flat fee of £500 for the right to retrieve stray golf balls from lakes and
ponds at golf and country clubs. The recovered balls are then cleaned, graded as to quality (birdie,
bogey, or duffer), and sold to sporting goods stores at the following prices per dozen: birdie quality,
£5; bogey quality, £4; and duffer quality, £3. Last month £8,000 of cost was incurred retrieving the
following quantities of golf balls: birdie quality, 1000 dozen; bogey quality, 3,000 dozen; and duffer
quality, 2,000 dozen.

Required: (Calculate relative quantity to three decimal points.)

a. Determine the cost and gross profit percent for each type of golf ball using the physical units
method of joint cost allocation.
b. Repeat part (a) using the sales-value-at-split-off method of joint cost allocation.
c. The company has an opportunity to sell bogey quality balls for £4.50 per dozen to a company
that operates golf driving ranges; however, the balls will have to be painted and striped. The
company estimates that the cost of painting and striping will be 60 cents per dozen. Assuming
the physical unit method is used to allocate joint costs, should the offer be accepted?

ANS:
a. Quantity Relative
Product (Dozens) Quantity Joint Cost Allocation
Birdies 1,000 0.167  £8,000 = £1,336
Bogeys 3,000 0.500  £8,000 = 4,000
Duffers 2,000 0.333  £8,000 = _2,664
Total 6,000 1.000 £8,000
 Birdies Bogeys Duffers Total
Unit sales (dozens) 1,000 3,000 2,000 6,000

Sales price/dozen £5.00 £4.00 £3.00

Sales £5,000 £12,000 £6,000 £23,000

Joint costs _1,336 __4,000 _2,664 __8,000
Gross profit £3,664 £ 8,000 £3,336 £15,000

Gross profit % 73.28% 66.67% 55.60% 65.22%

b. Relative
Product Sales Value Sales Value Joint Cost Allocation
Birdies £ 5,000 0.22  £8,000 = £1,760
Bogeys 12,000 0.52  £8,000 = 4,160
Duffers __6,000 0.26  £8,000 = _2,080
£23,000 1.00 £8,000

Birdies Bogeys Duffers Total

Sales £5,000 £12,000 £6,000 £23,000
Joint costs 1,760 4,160 2,080 8,000
Gross profit £3,240 £ 7,840 £3,920 £15,000

Gross profit % 64.800% 65.333% 65.333% 65.217%

c. The decision to accept the offer is not affected by the allocation of joint costs, only the
relevant revenues and costs after split-off. Since the relevant revenue from further processing
is 50 cents (£4.50 - £4.00) per unit and the relevant cost is 60 cents per unit for painting and
striping, the net cost of further processing is 10 cents per dozen. The offer should not be
accepted.

PTS: 1

4. Maddux Company manufactures products X, Y, and Z in a joint process. The following information is
available:

Products
X Y Z Total
Units produced 12,000 ? ? 24,000
Sales value
at split-off ? ? £50,000 £200,000
Joint costs £48,000 ? ? £120,000
Sales value if
processed further £110,000 £90,000 £60,000 £260,000
Additional cost if
processed further £18,000 £14,000 £10,000 £42,000

Joint product costs are allocated using the sales value at split-off approach.

Required:

a. What is the sales-value-at-split-off for Product X?

b. What is the amount of joint costs allocated to Product Y using the sales-value-at-split-off
 method?
c. If the company used the physical units method to allocate joint cost, how much joint cost
would be allocated to Product X?

ANS:
a. £48,000/£120,000  £200,000 = £80,000
b. {£120,000 - £48,000 - [(£50,000/£200,000)  £120,000]} = £42,000
c. 12,000/24,000  £120,000 = £60,000

PTS: 1

5. Nelson SA. obtains two products and a by-product from its production process. By-product revenues
are treated as other income and a noncost approach is used to assign costs to them. During the period,
1,200 units were processed at a cost of £12,000 for materials and conversion costs, resulting in the
following:

Sales Value Costs after Final

Product Units at Separation Separation Value
X 200 £4,000 £2,000 £10,000
Y 400 5,000 6,000 12,000
By-product 150 500 500 1,500

Required:

a. Account for all costs using a physical basis for allocation.

b. Account for all costs using net realizable value as the basis for allocation.
c. Account for all costs using final sales value as the basis for allocation.
d. How much joint costs should be allocated to the by-product?

ANS:
a. Product Units Fraction Allocation
X 200 2/6 £ 4,000
Y 400 4/6 8,000

Product Allocation Sep. Costs Total

X £ 4,000 £2,000 £ 6,000
Y __8,000 6,000 _14,000
£12,000 £20,000

b. Product Sales Sep. Costs NRV Fraction

X £10,000 £2,000 £ 8,000 8/14
Y _12,000 _6,000 __6,000 6/14
£22,000 £8,000 £14,000

Product Allocation Sep. Costs Total

X £ 6,857 £2,000 £ 8,857
Y __5,143 6,000 _11,143
£12,000 £20,000

c. Product Sales Fraction Allocation

X £10,000 10/22 £5,455
Y £12,000 12/22 6,545
 Product Allocation Sep. Costs Total
X £ 5,455 £2,000 £ 7,455
B __6,545 6,000 _12,545
£12,000 £20,000

d. None of the cost of the joint costs should be assigned to the by-product.

PTS: 1

6. Explain how joint cost allocation may be misleading in managerial decision making.

ANS:
Joint cost allocation may lead managers to believe that part of a joint cost is avoidable when this is not
true. Additionally, allocated joint costs may impact on pricing decisions of the individual products
when it is the overall product package that must be evaluated in terms of profitability.

PTS: 1

7. Park Company produces three products in a joint process: A, B, and C. The joint costs are described as
follows:

Direct materials £45,000

Direct labour 60,000
Overhead 30,000

The split-off values for A, B, and C are £100,000, £120,000 and £80,000, respectively. If management
processes A beyond the split-off point, the sales value of A would increase to £150,000. In order to
process A further, the company must rent another facility for £24,000, as well as incur additional
materials and labour costs equal to £15,000.

Required:

a. What is the amount of joint costs allocated to products A, B, and C if the sales value at split-off
value method is used?
b. Should the division process A further or sell it at split-off? What is the effect of the decision on
gross profit?

ANS:
a. Product Split-Off Fraction Joint Cost Allocation
A £100,000 5/15  £135,000 = £ 45,000
B 120,000 6/15  £135,000 = 54,000
C __80,000 _4/15  £135,000 = __36,000
Total £300,000 15/15 £135,000

b. Additional (£150,000 -
£50,000
revenues £100,000)
Additional costs(£24,000 +
_39,000
£15,000)
Profit would
£11,000
increase by

Process A further.
 PTS: 1

8. Mickey Company manufactures three joint products: X, Y, and Z. The cost of the joint process is
£30,000. Information about the three products follows:

X Y Z
Anticipated production 5,600 lbs. 10,000 lbs. 2,500 lbs.
Selling price/lb. at split-off £2.00 £1.00 £3.00
Additional processing costs/lb.
after split-off (all variable) £1.50 £1.25 £.75
Selling price/lb. after
further processing £2.50 £3.75 £6.25
Allocated joint costs £12,000 £10,500 £7,500

Required:

a. Determine whether each product should be sold at split-off or processed further. Show all
supporting calculations in good form.
b. Determine the firm's income if the firm processed all three products beyond split-off.

ANS:
a. Sell at Process Further
Split-Off Then Sell Decision
X £11,200 £14,000
_(8,400) Sell at split-off
£ 5,600

Y £10,000 £37,500
(12,500) Process further
£25,000

Z £ 7,500 £15,625
_(1,875) Process further
£13,750

The joint costs are not relevant to the decision.

b. £14,350 (£13,750 + £25,000 + £5,600 - £30,000)

PTS: 1

9. Arcadia, SA, uses a joint process to produce Products W, X, Y, Z. Each product may be sold at its split-
off point or processed further. Additional processing costs of specific products are entirely variable.
Joint processing costs for a single batch of joint products are £200,000. Other relevant data are as
follows:

Sales Value Additional Sales Value of

Product at Split-off Processing Costs Final Product
W £ 40,000 £24,000 £ 70,000
X 16,000 10,000 20,000
Y 20,000 10,000 48,000
Z __24,000 _16,000 __36,000
£100,000 £60,000 £174,000
 Required:

a. Determine which products should be processed further.

b. How will processing each product further affect profits?

ANS:

Product Additional Sales Value Additional Costs Difference

W £30,000 £24,000 £ 6,000
X 4,000 10,000 (6,000)
Y 28,000 10,000 18,000
Z 12,000 16,000 (4,000)

Arcadia, SA., should process products W and Y further because they increase profits by £6,000 and
£18,000, respectively. Products X and Z should be sold at the split-off point.

PTS: 1

10. Maxwell Company manufactures two products from a joint process. Information about the two joint
products is as follows:

Product ABC Product XYZ

Anticipated production (in gallons) 40,000 50,000
Selling price per gallon at split-off £50 £60
Additional processing costs per gallon
after split-off (all variable) £25 £95
Selling price per gallon after further
processing £100 £140

The cost of the joint process is £1,500,000.

Required:

a. Which of Maxwell's joint products should be processed further?

b. Assume that Maxwell currently sells both products at the split-off point. What is Maxwell's income?
c. Assume that Maxwell makes decisions about its joint products that maximize profit. What is
Maxwell's income?

ANS:
a. Product ABC should be processed further; Product XYZ should be sold at split-off.

Split-off Process Further

Product ABC £50 £100 - £25 = £75
Product XYZ £60 £140 - £95 = £45

b. £3,500,000

Product ABC (40,000 gallons  £50) £2,000,000

Product XYZ (50,000 gallons  £60) _3,000,000
£5,000,000
Less: Joint process costs _1,500,000
Income £3,500,000
 c. £4,500,000

Product ABC (40,000 gallons  £100) £4,000,000

(40,000 gallons  £25) _1,000,000 £3,000,000
Product XYZ (50,000 gallons  £60) _3,000,000
£6,000,000
Less: Joint process costs _1,500,000
Income £4,500,000

PTS: 1

11. Jazzmyne Company manufactures two products from a joint process. Information about the two joint
products is as follows:

Product X Product Y
Anticipated production (in units) 10,000 15,000
Selling price per unit at split-off £60 £100
Additional processing costs per unit
after split-off (all variable) £100 £55
Selling price per unit after further
processing £150 £175

The cost of the joint process is £1,750,000.

Required:

a. Which of Jazzmyne's joint products should be processed further?

b. Assume that Jazzmyne currently sells both products at the split-off point. What is Jazzmyne's
income?
c. Assume that Jazzmyne makes decisions about its joint products that maximize profit. What is
Jazzmyne's income?

ANS:
a. Product Y should be processed further; Product X should be sold at split-off.

Split-off Process Further

Product X £60 £150 - £100 = £50
Product Y £100 £175 - £55 = £120

b. £350,000

Product X (10,000 units  £60) £ 600,000

Product Y (15,000 units  £100) __1,500,000
£ 2,100,000
Less: Joint process costs __1,750,000
Income £ 350,000

c. £650,000

Product X (10,000 units  £60) £ 600,000

Product Y (15,000 units  £175) £2,625,000
 (15,000 units  £55) ___825,000 _1,800,000
£2,400,000
Less: Joint process costs _1,750,000
Income £ 650,000

PTS: 1