Ch11 Raiborn SM

Chapter 11 59
CHAPTER 11
COST ALLOCATION FOR JOINT PRODUCTS AND

BY-PRODUCT/SCRAP
QUESTIONS
1. Jointprocessingoutputisclassifiedbasedontherelativesalesvalueofeachtypeof
output.Jointproductsarethoseoutputsthathavethelargestsalesvalue.Byproductsare
those outputs that have some sales value, but not a sufficient amount to justify
undertakingthejointprocesssimplytoobtainthoseoutputs.Scrapisoutputthathasnoor
verylittlesalesvalue.
Usually,theoutputclassificationisdeterminedbeforeproduction.Managementdecides
whetherajointprocessoutputisajointproduct,abyproduct,orscrapbasedonthe
judgmentoftherelativesalesvalueofeachtypeofoutput.However,inunusualcases,the
actualoutputsofthejointprocessmaynotresultasplanned.Insuchcases,management
mayclassifytheoutputdifferentlythanwasoriginallyintended.
2. Processingoftheoutputsofajointproductionprocessdoesnotalwaysstopatthe
splitoffpoint.Someproductsmaynotbeabletobesoldatthatpointand,assuch,must
beprocessedfurtherbeforetheycanbesold.Otherproductsmayhaveasalesvalueat
splitoffbutfurtherprocessingmightresultinsufficientlygreaterprofitabilitytojustify
theadditionalcosts.
3. Threeofthedecisionpointsare(1)beforethejointprocessisundertaken,(2)atthe
splitoffpoint,and(3)afterthesplitoffpoint.Thecriterionforproceedingatanyofthese
threepointsiswhethertheanticipatedincrementalrevenueswillexceedtheanticipated
incremental costs. A fourth decision point, occurring between (1) and (2), assesses
whetherthisparticularprocessisthebestuseofthefacilities;thecriteriaforthisdecision
iswhethertheincrementalbenefitfromthisprocessexceedstheincrementalbenefitof
thebestalternativefacilityusage.
4. Costallocationreferstotheassignmentofanindirectcosttoacostobjectusingsome
reasonable method. Accountants allocate fixed production costs to products produced
within aperiod, andallocate certain plant and equipment costs (throughdepreciation
charges)tothetimeperiodsduringwhichthoseassetsareusedand,inamanufacturing
company,tothegoodsproducedduringaperiod.
Sincetheproductioncostsincurredinajointprocessproduceseveraloutputs,thosecosts
areindirecttotheindividualoutputproducedandmust,becauseofthecostprinciple,be
assignedtothevariousoutputs.Allocationisnecessarytohaveappropriateinventory
(andcostofgoodssold)valuationsforthejointproductsproducedinthejointprocess.
5. The two primary approaches to allocating joint process costs are those using (1)
physicalmeasuresand(2)monetarymeasures.Physicalmeasures(suchastons,barrels,
2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly
accessible website, in whole or in part.
60 Chapter 11
linearfeet,etc.)areunchangingyardsticks;monetarymeasureschangeovertimebecause
ofgeneralandspecificpricelevelchanges.Physicalmeasurestreateachphysicalunitof
outputasequallydesirablebyassigningauniformamountofjointprocesscosttoevery
unitofoutputproduced.Incontrast,monetarymeasuresassignjointprocesscoststojoint
products proportionately to relative sales value. In most instances, because physical
measuresignoretherelativesalesvalueofproducts,amonetarymeasureisdeemedmore
appropriate.
6. Useofapproximatednetrealizablevaluesarenecessarywhensomeorallofthejoint
productscannotbesoldatthesplitoffpoint.Anapproximatednetrealizablevalueis
calculatedbysubtractingtheincrementalseparatecostsincurredbetweensplitoffand
point of sale from the expected final sales price of the product. Thus, to use the
approximated NRV method, managers must make estimates of final sales prices and
incrementalseparatecosts.
7. Oneapproachistoignorebyproduct/scrapinventorycompletelyuntilitissold.At
that point, the revenue generated by the sale of that inventory acknowledges the
existenceofthebyproduct/scrap.Thisrevenueisshownontheincomestatementasan
increasetonetincome.Thismethodistherealizedvaluemethod.
Thesecondapproachistorecordthefinalnetrealizablevalueofthebyproduct/scrap
recoveredatthesplitoffpoint.TheNRViscreditedasareductionofthejointprocess
costs that gave rise to the byproduct. On one hand, this approach is theoretically
preferablebecauseitmatchesthebenefit(NRVofbyproduct/scrap)withthesourceof
thebenefit(thejointprocesscoststhatwereincurredtoproducethebyproduct/scrap).
However,ontheotherhand,itispossiblethatuseofthismethodwilloverstatethevalue
ofthebyproductinventory(especiallyifitisneversold)andunderstatethecostofthe
jointproducts.Thus,therealizablevaluemethodismorelikelytoraisethepotentialfor
misleadingearningsmanagement.
8. Ifacompanyusingjobordercostingproducesbyproduct/scrapcontinuouslyfrom
normalproduction,thenetrealizablevalueofthatbyproduct/scrapshouldbeconsidered
insettingthepredeterminedoverheadrate.TheestimatedNRVofthebyproduct/scrap
shouldbedeductedfromtotalestimatedoverheadcostsinsettingtherate.Thatdeduction
causestheoveralloverheadallocationrateforallproductstobereduced.Whentheby
productorscrapisactuallysold,itsnetrealizablevalueiscreditedtoManufacturing
Overhead.
If a company using job order costing only produces byproduct/scrap items during a
particularjob,thentheNRVofthebyproduct/scrapshouldnotbeconsideredinsetting
thepredeterminedoverheadrate.TheNRVshouldbecreditedtotheparticularjobthat
gaverisetothebyproduct/scrap.
9. Foranotforprofitorganizationtoappropriatelyevaluatetheusesofitsresources,the
AICPA requires that multipurpose costs be allocated between program and support
categories.Programexpensesarethosethataredirectlyaimedattheaccomplishmentof
theorganizationscharitableobjectivesandareconsideredamorevaliduseofresources.
Comparison of support expenses to total expenses may suggest a measure of
Chapter 11 61
organizationalefficiency.TheAICPAisconcernedwithdonorshavingknowledgeofthe
relativeandabsolutemagnitudeoffundsspentonfundraising.
62 Chapter 11
EXERCISES
10. Eachstudentwillhaveadifferentanswer.Nosolutionisprovided.
11. a. Inapoultryprocessingplant,thejointinputwouldbechickensand/orturkeys.The
primaryquestionstobeaskedfollow.
(1) Whatspecificpoultrywillbeused;whatcustomerswillbeserved;andwhatisthe
estimated profitability of the business? The answer to these questions will
determinewhatinputswillbepurchasedand,tosomeextent,whatproduction
processes will be performed. It also will help determine whether the process
shouldbeundertakenatall.
(2) Whatspecificcutsofpoultryshouldbeselectedfromthepoultryinputs?The
answertothisquestionwilldeterminehowtheinputsarecutintosalableparts.
(3) Howwillthejointprocessoutputbeclassified:jointproduct,byproduct,scrap,or
waste?Theanswertothisquestiondetermineswhichoutputisallocatedpartof
thejointcost.
(4) Howmuchprocessingshouldbedonetotheindividualcuts?Theanswertothis
question will determine what specific processes will be necessary beyond the
splitoffpointandwhattypesofequipmentthepoultryprocessingplantmusthave
to execute the required conversion operations. To answer this question, the
incremental costs and benefits must be compared before undertaking any
additionalprocessing.
b. Inapoultryprocessingplant,thewayjointcostisallocatedcanaffectmany
decisions.Forexample,allocatingjointcosttobyproduct/scrapwouldlikelycauseit
tobeseenasamoneyloser,andassuch,itmightsimplybedisposedofaswaste.
Joint cost allocation is also important forreporting requirements, such as income
determinationandinventoryvaluationforIRSreportingpurposes.Jointcostisalso
relevant indetermining whetherproduction shouldoccur. However, oncesplitoff
pointisreached,jointcostisirrelevantindecidingwhetheradditionalconversion
shouldbeperformed.
c. Four categories of output may be obtained from joint production. Joint

productsaretheprimaryproductsandaredistinguishedfromotheroutputsbytheir
relatively greater sales value. At the opposite end of the continuum, waste is
incidentaloutputofajointproductionprocessandhasnovalue.Byproductandscrap
have some value, but the value is substantially below that of joint products. By
producthasasomewhatgreatermarketvaluethanscrap.
Chapter 11 63
12. #of SVat

Products Units SplitOff TotalSV Classification
Boco 1,200 $6.000 $7,200 Jointproduct
Loco 1,000 $1.750 $1,750 Byproduct
Roco 5,000 $2.500 $12,500 Jointproduct
Soco 3,800 $4.200 $15,960 Jointproduct
Moco 4,100 $1.900 $7,790 Jointproduct
Coco 200 $0.250 $50 Scrap
Doco 300 $1.800 $540 Scrap
Joco 1,000 $0.020 $20 Scrap
Voco 6,000 $0.001 $6 Waste
Allclassificationsarebasedontherespectiveproportionalsalesvalues.Itisevenpossible
thatCocoandJocowouldbeconsideredwaste.Afurtherconsiderationwouldbeany
sellingordisposalcoststhatwouldaffectthenetinflowstoTriscuitCo.
13. a. Allocationrate=$16,200,00036,000,000feet=$0.45perfoot
GradeA:$0.4527,000,000=$12,150,000
GradeB:$0.459,000,000=$4,050,000
b. Incrementalrevenue(27,000,000$0.80) $21,600,000
Incrementalcosts(27,000,000$0.75) (20,250,000)

Increaseinincome(27,000,000$0.05) $1,350,000
Basedontheincrementalchangeinnetincome,thecompanyshouldprocessGradeA
lumberfurther.
14. a.
JP4539 4,500 0.125$558,000= $69,750
JP4587 18,000 0.500$558,000= 279,000
JP4591 13,500 0.375$558,000=
209,250
36,000 1.000 $558,000
b. JP4539 4,500$14=$63,000 0.14$558,000=$78,120

JP4587 18,000$8=144,000 0.32$558,000=178,560
JP4591 13,500$18=243,000 0.54$558,000=301,320
$450,000 1.00$558,000
JP4539 4,500($24$4)=$90,000 0.17$558,000=$94,860

JP4587 18,000($15$5)=180,000 0.33$558,000=184,140
JP4591 13,500($22$2)=270,000 0.50$558,000=279,000
$540,000 1.00$558,000
64 Chapter 11
15.a.Final Sales SplitOff Increm. Increm. Increm.

Product Value SalesValue Revenue Cost Profit
Butter $6.00 $4.00 $2.00 $3.00 $(1.00)
Jam 14.00 6.40 7.60 4.00 3.60
Syrup 3.60 3.00 0.60 0.40 0.20
Onlyjamandsyrupshouldbeprocessedbeyondthesplitoffpoint.
b. Jointcost $123,200
LessNRVofsyrup($3.60$0.40)1,000 3,200
Jointcosttobeallocated $120,000
Unitbasedallocation:
Butter(10,00030,000)$120,000 $40,000
Jam(20,00030,000)$120,000
80,000
Total $120,000
Weightbasedallocation:
Butter(10,00016ounces) 160,000 50%
Jam(20,0008ounces) 160,000
50%

Totalproductweight 320,000
100%
Butter(0.50$120,000) $60,000
Jam(0.50$120,000)
60,000
Total $120,000
Salesvalueatsplitoffallocation[from(a)]
Butter(10,000$4.00) $40,000 24%
Jam(20,000$6.40) 128,000
76%

NRV $168,000 100%
Butter(0.24$120,000) $28,800
Jam(0.76$120,000) 91,200
Total $120,000
16.a. #of Joint Allocated

Product Pounds Proportion Cost JointCost
Steaks 3,312 24% $26,400 $6,336
Roasts 6,210 45 26,400 11,880
GroundBeef 4,278
31 26,400 8,184
Total 13,800 100% $26,400
Chapter 11 65
The problem with this method is that the joint cost assigned to each product is
approximately$1.91perpound,whichmakeseverypoundofgroundbeefsoldappear
tolose$1.01.
b. #of SVat Total Allocated
Product Pounds SplitOff SV Percent JointCost
Steaks 3,312 $4.25perlb. $14,076 34% $8,976
Roasts 6,210 $3.80perlb. 23,598 57 15,048
GroundBeef 4,278 $0.90perlb. 3,850 9 2,376
Total $41,524 $26,400
Theproblemmentionedin(a)iscorrectedwiththismethodbecausethejointcost
assignedtoeachpoundofgroundbeefsoldisnowonly$0.56.
c. Sellingprice $2.10
Allocatedjointcost (0.56)
Speciallabel (0.15)
Profitdesired (0.40)
Allowableseparatecost $0.99
The$0.40perpoundshouldnotbeconsideredareal profitamountbecausethe
allocated joint cost would change simply based on the allocation method chosen.
However,thesausagesalewouldbeprofitablebecausetheincrementalrevenueof
$1.20($2.10$0.90)isgreaterthantheincrementalcostof$1.14($0.15+$0.99).
17.a. Games News Documentaries

Revenues $34,040,000 $30,720,000 $189,320,000
Separatecosts
(31,040,000) (16,320,000) (110,720,000)

NRV $3,000,000 $14,400,000 $78,600,000
%of$96,000,000total 3% 15% 82%
Jointcostallocation:
Games($24,000,0000.03) $720,000
News($24,000,0000.15) 3,600,000
Documentary($24,000,0000.82) 19,680,000

Total $24,000,000
Games News Documentaries

Revenues $34,040,000 $30,720,000 $189,320,000
Separatecosts (31,040,000) (16,320,000) (110,720,000)
Allocatedcosts (720,000) (3,600,000) (19,680,000)
Netprofit $2,280,000 $10,800,000 $58,920,000
b. Games News Documentaries

Revenues $34,040,000 $30,720,000 $189,320,000
%of$254,080,000total 13% 12% 75%
66 Chapter 11
Games($24,000,0000.13) $3,120,000
News($24,000,0000.12) 2,880,000
Documentaries($24,000,0000.75) 18,000,000

Total $24,000,000
Games News Documentaries

Revenues $34,040,000 $30,720,000 $189,320,000
Separatecosts (31,040,000) (16,320,000) (110,720,000)
Allocatedcosts
(3,120,000) (2,880,000)
(18,000,000)
Netprofit $(120,000) $11,520,000 $60,600,000
c. AsthemanageroftheGamesGroup,Iwouldbeveryconcernedabouttheeffectsof
allocatingjointcostusingthemethodin(b).Theresultoftheallocationistomakethe
GamesGroupappeartobeunprofitable.
Points(someofwhichcouldberebutted)studentsmightmakeintheirpresentations
include:
(1) The allocation of joint cost is totally arbitrary; there is no cause and effect
relationshiprepresentedintheallocationsin(b).
(2) TheGamesGroupappearstohaveadifferentdegreeoffacilitiesutilizationthanthe
NewsandDocumentaries,giventhehighrelationshipofitsseparatecoststothe
separatecostsoftheothertwogroups.Theallocationsin(b)failtoconsiderthisfact.
(3) TheGamesGroupcouldbeastartupdivisionand,assuch,maybeincurring
substantiallyhighercostsandmaynothavebeguntoreachitsrevenuepotential.
18. a. Unitsofoutputallocation:
Totalbottles=20,000+32,000+28,000=80,000
Perfume[(20,00080,000)$1,080,000] $270,000
EaudeToilette[(32,00080,000)$1,080,000] 432,000
BodySplash[(28,00080,000)$1,080,000]
378,000
Total $1,080,000
Weightbasedallocation:
Totalweight=(20,0001)+(32,0002)+(28,0003)=168,000
Perfume=20,000168,000=12%
EaudeToilette=64,000168,000=38%
BodySplash=84,000168,000=50%
Perfume($1,080,0000.12) $129,600
EaudeToilette($1,080,0000.38) 410,400
BodySplash($1,080,0000.50) 540,000
Total $1,080,000
ApproximatedNRVcomputation:
Perfume[20,000($16.50$2.50)] $280,000 30%
EaudeToilette[32,000($13.00$1.50)] 368,000 40%
BodySplash[28,000($12.00$2.00)]
280,000 30%

Chapter 11 67
Total $928,000 100%
ApproximatedNRVallocation:
Perfume($1,080,0000.3) $324,000
EaudeToilette($1,080,0000.4) 432,000
BodySplash($1,080,0000.3)
324,000
Total $1,080,000
b. Costassignedtoinventory=Allocatedjointcost+Separate costs
Unitsofoutputallocation:
Perfume[$270,000+($2.5020,000)] $320,000
EaudeToilette[$432,000+($1.5032,000)] 480,000
BodySplash[$378,000+($2.0028,000)]
434,000
Total $1,234,000
Endinginventoryvaluationbasedonunitsofoutput:
Perfume[$320,000(60020,000)] $9,600
EaudeToilette[$480,000(1,60032,000)] 24,000
BodySplash[$434,000(1,68028,000)]
26,040
Total $59,640
Endinginventoryvaluationbasedonweight:
Perfume
($129,600+$50,000)=$179,600totalcost
$179,60020,000ounces=$8.98perounce
600bottles1ounce$8.98= $5,388
EaudeToilette
($410,400+$48,000)=$458,400totalcost
1,600bottles2ounces$7.16= 22,912
BodySplash
($540,000+$56,000)=$596,000totalcost
1,6803ounces$7.10=
35,784
Total $64,084
Ending inventory valuation based on approximated NRV:

Perfume
($324,000+$50,000)=$374,000totalcost
600bottles1ounce$18.70= $11,220
EaudeToilette
($432,000+$48,000)=$480,000totalcost
1,600bottles2ounces$7.50= 24,000
BodySplash
($324,000+$56,000)=$380,000totalcost
68 Chapter 11
$380,00084,000=$4.52perounce
1,6803ounces$4.52=
22,781
Total $58,001
c. Relativetoalloftheproducts,oncethejointcostisassignedandacostper
ounceiscomputed,ScentofMoneydoesnotappeartobesellingitsproductsathigh
enoughprices.Perunitproductlossesof$2.20arebeinggeneratedonthesaleofeach
bottleofperfume,$2.00perbottleofeaudetoilette,and$1.56perbottleofbody
splash.
21.a. Fabric Yarn

Finalrevenues $540,000 $420,000
Revenuesatsplitoff (360,000)
(300,000)
Incrementalrevenues $180,000 $120,000
Incrementalcosts (120,000)
(102,000)
Netbenefit(cost)offurtherprocessing $60,000 $18,000
Bothproductsshouldbeprocessedfurther.
b. Theirrelevantitemisthe$120,000jointcost.
22. Increm. Increm. Process

Product Revenues Costs Benefit/(Loss) Further?
JP#1 $50 $55 $(5) No
JP#2 $40 $25 $15 Yes
JP#3 $65 $45 $20 Yes
22. Twoouncesofeach16ounces(or12.5percent)arelosttowaste,leaving87.5percentof
totallbs.available.
a. Joint Unit Lbs.of Allocated

Products Weight TotalPounds Product Percent JointCost
Fish 0.500 75,000 37,500 57 $81,396
Oil 0.250 75,000 18,750 29 41,412
Meal 0.125 75,000
9,375 14

19,992
0.875 65,625 100 $142,800
b.
Joint Lbs.of SellingPrice Allocated
Products Product perLb. Total Percent JointCost
Fish 37,500 $4.50 $168,750 55 $78,540
Oil 18,750 6.50 121,875 39 55,692
Meal 9,375 2.00 18,750 6 8,568
$309,375 100 $142,800
Chapter 11 69
Yh6nc.Althoughanunchangingmeasure,thephysicalmeasureofpoundstreatsall
productsasequallyvaluable.Becauseofinflationandmarketpricevariability,salesvalueis
achangingmeasure; however,thismethod isabetter wayofmatching jointcosttothe
benefits fromthe production process because of the substantial differences in per pound
pricesamongthethreeproducts.
23.a. Salesvalueofmilk $377,400(68%)

Salesvalueofsourcream 177,600(32%)

Totalsalesvalue $555,000
Sincethemilkrepresents68percentofthetotalsalesvalueatsplitoff,$125,800
represents68percentofthetotaljointcost.TotaljointcostforJuneis($125,800
0.68)or$185,000.
(5) 190,000pints=95,000quartsofsourcream
Quartsofmilk 240,000(72%)
Quartsofsourcream
95,000(28%)
Totalquarts 335,000
Sincethemilkrepresents72percentofthetotalphysicalquantityproduced,$125,800
represents72percentofthetotaljointcosts.Totaljointcostis($125,8000.72)or
$174,722.
19.a. Final SplitOff Increm. Increm. Increm.

Product Revenues SalesValue Revenue Costs Profit
Candied
apples $690,000 $670,000 $20,000 $26,000 $(6,000)
Apple
jelly 775,000 730,000 45,000 32,000 13,000
Apple
jam 271,000 260,000 11,000 15,000 (4,000)
Managementshouldnothavefurtherprocessedcandiedapplesandapplejambecause
the incremental costs from further processing were greater than the incremental
revenues.Theseproductsshouldhavebeensoldatthesplitoffpoint.
b. Candiedapplesadditionalprofit $6,000
21.a.Salesvalueofblouses=Jointcostofblouse

TotalsalesvalueTotalallocatedjointcost
$80,000$600,000=X360,000
$600,000X=($80,000)($360,000)
$600,000X=$2,880,000,000,000
X=$48,000forblouses
Totaljointcost $360,000
Jointcostforjacketsandblouses($138,000+$48,000) (186,000)
70 Chapter 11
Jointcostassignedtodresses $174,000
b. Jointcost=$138,000$230,000=60%ofrelativesalesvalueatsplitoff
amounts
$174,000=0.6X
X=$290,000salesvalueatsplitofffordresses
c. Dresses Jackets Blouses

Finalsalesvalue $300,000 $268,000 $210,000
Salesvalueatsplitoff
290,000 230,000
80,000
Increaseinvalue $10,000 $38,000 $130,000
Additionalcosts (26,000) (20,000) (78,000)
Incrementalbenefit(loss) $(16,000) $18,000 $52,000
Jacketsandblousesshouldbeprocessedbeyondsplitoff.
Chapter 11 71
d. Jointcostallocatedtojackets $138,000
Additionalcosts 20,000
Totalcostfor16,000jackets $158,000
Sales(12,000$16.75*) $201,000
Costfor12,000jackets(0.75$158,000) (118,500)
Grossprofit $82,500
*$268,00016,000=$16.75perjacket
25. a. Ifthebyproductisaccountedforatthetimeofproduction,byproductinventoryis
recordedatitsnetrealizablevalueandthatamountreducesthejointcostincludedin
thegasolinescostofsales.Therefore,costofsalesofthebyproductwouldbezero.
Costofsalesforgasoline:Beginninginventoryofgasoline $ 0
Productioncoststosplitoffpoint 240,000
LessNRVofbyproduct
Salesofbyproduct $60,000
Production&Marketing (50,000)
(10,000)
Currentmanufacturingcostsofgasoline $230,000
Endinginventoryofgasoline (30,000)
Costofsalesforgasoline $200,000
b. IfGoGohadreducedthegasolinesjointcost,theaveragecostpergallonofgasoline
would have been decreased. Thus, the ending inventory value would have been
slightlyless,andthegrossmarginwouldhavebeenslightlymore.
(CPAadapted)
26. a. 2
b. 2
c. 2
d. 1
e. 1
f. 1
g. 2
h. 2
i. 2
j. 1
k. 1
l. 1
m. 1
27. Jointprocesscost $337,500

Lessnetrealizablevalueofbyproductinventory
(65,000)
Amounttobeallocated $272,500
72 Chapter 11
Prorationofamounttobeallocatedbasedonweight:
Product Bushels Proportion Allocation
Premium 16,500 0.25 $68,125
Good 43,560 0.66 179,850
Fair 5,940
0.09 24,525
66,000 1.00 $272,500
28.a. Jointcost $142,000

LessNRVofbyproduct[2,000($1.50$0.30)]
(2,400)
Approx.NRVofFillet[18,000($16$3)] $234,000 60%

Approx.NRVofSmoked[20,000($13.00$5.20)] 156,000
40%
TotalNRV $390,000
Costallocation:
Fillet(0.6$139,600) $83,760
Smoked(0.4$139,600) 55,840
Totalcostallocation $139,600
b. SeparatecostsforFillet =18,000$3.00=$54,000
SeparatecostsforSmoked =20,000$5.20=$104,000
Fillet Smoked
Jointcost $83,760 $55,840
Separatecosts 54,000
104,000
Totalcosts $137,760 $159,840
Dividebypounds 18,000 20,000
Costperpound(rounded) $7.65 $7.99
Inventoryvalues:
Fillet(4,000$7.65) $30,600
Smoked(2,400$7.99) 19,176
Remnants(350$1.20)
420
Totalinventoryvalue $50,196
29. Becausethebyproducthassubstantialvalue,thebyproductshouldbeaccountedfor
usingNRVratherthanrealizedvalue,whichwouldresultindistortedcostinformation.
Whetherthedirectorindirectmethodisusedwouldbedependentonthetimingofthe
saleofbyproductandjointproducts.Ifbothproductgroupssellshortlyaftertheyare
produced,thenthechoiceofmethodislessimportant.However,ifthebyproducttends
tosellinadifferentperiodthantherelatedjointproducts,useofthedirectmethodwould
provideastrongermatchbetweencostsandbenefits.
30.a. Totaljointcost $20,000,000

Revenuefromtours $800,000
Chapter 11 73
Expensesoftours
(480,000)
(320,000)
Jointcosttobeallocated $19,680,000
GreedyCEOs Sequel
Grossrevenues $10,000,000 $58,000,000
Separatecosts (6,800,000) (41,200,000)

Netrealizablevalue $3,200,000 $16,800,000
NRV Allocation
GreedyCEOs $3,200,000 16% $3,148,800
Sequel 16,800,000
84%
16,531,200
$20,000,000 100% $19,680,000
b. GreedyCEOs Sequel
Grossrevenues $10,000,000 $58,000,000
Separatecosts (6,800,000) (41,200,000)

Netrealizablevalue $3,200,000 $16,800,000
Jointcost (3,148,800) (16,531,200)

Netprofit $51,200 $268,800
31.Totalsalesvalue(1,200$335) $402,000
Lesscosts(1,200$250) (300,000)

Reductionofjointcost $102,000
Thegrossmarginforthemajorproductswilldecreaseby$102,000,butnetincomewill
remainthesame.
32.a. Salesoflumber(160,000$10) $1,600,000

Costofsales:
Productioncosts $664,000
Byproductrevenue
(40,000pounds100=400bags;400$4)
(1,600)
(662,400)
Grossmargin $937,600
b. Saleswouldincreaseto$1,601,600whilecostofsaleswouldbe$664,000,
resultinginthesamegrossmarginof$937,600.
33. Salesofbyproduct $20,250

Costofbyproductsales(135,000$0.06)
(8,100)
Netrealizablevalueofbyproduct $12,150
a. ZeenaFoods
IncomeStatement
ForMonthEndedMay31,2013
Salesrevenue(jointproducts) $319,000
74 Chapter 11
Costofgoodssold:
Jointcost(90%$82,000) $73,800
Separatecosts(90%$48,000) 43,200
Byproducts 8,100 (125,100)
Grossprofit $193,900
Nonfactoryexpenses (47,850)
Incomefromoperations $146,050
Otherrevenues(byproductsales) 20,250
Netincomebeforetaxes $166,300
b. ZeenaFoods
IncomeStatement
Salesrevenue(jointproducts) $319,000
Costofgoodssold($73,800+$43,200) (117,000)
Incomefromoperations $154,150
Otherincome(byproductsales) 12,150
c. Jointcost $82,000
NRVofbyproduct (12,150)
Jointcosttoallocate $69,850
ZeenaFoods
IncomeStatement
Salesrevenue $319,000
Costofgoodssold[(90%$69,850)+$43,200] (106,065)

d. The approach in (c) is better than either (a) or (b) because it consistently
matchestheNRVofthebyproductwiththecostsofthejointproductionoperations
thatproducedthebyproduct.
34.a. EstimatedOH $415,200

EstimatedNRVofbyproduct (9,200)
EstimatedOHtobecovered $406,000
Dividedbyestimatedbillablehours 70,000
PredeterminedOHrateperbillablehour $5.80
b. Cash 9,700
ManufacturingOverhead 9,700
Torecordsaleofbyproduct
c. TotalactualOH $410,500
TotalactualNRVofbyproduct (9,700)
Chapter 11 75
TotaladjustedactualOH $400,800
TotalappliedOH(70,900$5.80) (411,220)

Overappliedoverhead $10,420
35. a. $315,00045,000=$7perDLH
b. DM $890
DL($20125) 2,500
OH($7125) 875
Total $4,265
c. Cash 93
ManufacturingOverhead 93
Torecorddisposalvalueofspoiledwork
incurredonJobXX(stainedglasswindow)
d. OH rate = ($297,200 + $25,200) 45,000 = $7.16 (rounded)
DM $890
DL($20125) 2,500
OH($7.16125)
895
Total $4,285
Scrapsalesvalue (93)
Totalcostofjob $4,192
36. a. Cash 8,500

WorkinProcessInventoryHedgeFund 8,500
TorecordsaleofHedgeFundmodel
b. Cash 8,500
ManufacturingOverhead 8,500
TorecordsaleofHedgeFundmodel
c. TheNRVapproachispreferablebecauseitallowsMaeDofftoreducethecostofthe
HedgeFundExtraordinairebuildingtoascertainamorereasonableprofitamount.
37.a. JointServices IncreaseinRevenues AllocatedCost

Rental $770,000 0.88 $28,600
Sales
105,000 0.12 3,900
Totals $875,000 1.00 $32,500
b. JointServices IncreaseinNetIncome AllocatedCost

Rental $104,500 0.55 $17,875
Sales 85,500 0.45
14,625
Totals $190,000 1.00 $32,500
c. The allocation based on increase in net income may be better because it

matchestheadvertisingcosttothedirectnetbenefitoftheadvertising.
76 Chapter 11
38. a. Trainingcost=$120,0006,000=$20perhour
Overheadcost=$55,5006,000=$9.25perhour
CostAssignment: Children Adults

Directcosts(4,000$20;2,000$20) $80,000 $40,000
Overheadcost(4,000$9.25;2,000$9.25) 37,000 18,500

Totalcostassigned $117,000 $58,500
b. Applicationrate=$55,500[($354,000)+($652,000)]
=$55,500($140,000+$130,000)
=$55,500$270,000
=$0.21perdollarofsalesvalue(rounded)
CostAssignment:
Children Adults
Directcosts(4,000$20;2,000$20) $80,000 $40,000
Overheadcost($140,0000.21;$130,0000.21) 29,400 27,300

Totalcostassigned(offduetorounding) $109,400 $67,300
c. BothmethodsresultinhigherchargestotheChildrensgroup.Thetraining
hoursmethodwouldbeappropriateifhoursspentwithclientswereconsideredthe
mostimportantcostdriver.However,itisalsoappropriatetoassigncostsbasedonan
abilitytobearsuchasoccurswhencostsareassignedusingthesalesvaluemethod
ofallocation.Basedontheinformationinthisproblem,itseemsthatthesellingprice
per hour for childrens lessons is too low. There is probably a higher need for
supervision,greaterratesforinsurance,andmoreequipmentdamageforchildrenthan
foradults.
39.a. JointActivity Percent JointCostAllocated

Fundraising 0.10 $26,100
Program 0.90 234,900

Total 1.00 $261,000
b. JointActivity Percent JointCostAllocated

Fundraising 0.02 $5,220
Program 0.98 255,780

Total 1.00 $261,000
Chapter 11 77
PROBLEMS
41. Eachstudentwillhaveadifferentanswer.Nosolutionisprovided.Onegoodsourceof
informationisCornFarmersSmileasEthanolPricesRise,butExpertsonFoodSupplies
Worryathttp://www.public.iastate.edu/~yikes/iowa_corn.html.
42.a. Jointcostallocation:
Forever($238,365$317,820)$76,950 $57,712.50
Fantasy($79,455$317,820)$76,950 19,237.50

Total $76,950.00
Totalcost:
Forever=$57,712.50+$3,180.00=$60,892.50
Fantasy=$19,237.50+$2,940.00+$4,680.00+$6,195.00=$33,052.50
b. WorkinProcessInventoryCombining 59,715.00
RawMaterialInventory 42,000.00
WagesPayable 11,340.00
ManufacturingOverhead 6,375.00
WorkinProcessInventoryHeating 59,715.00
WorkinProcessInventoryCombining 59,715.00
FinishedGoodsInventoryForever 60,892.50
FinishedGoodsInventoryFantasy 33,052.50
78 Chapter 11
c. WorkinProcessCombining
DM 42,000 ToHeating 59,715
DL 11,340
OH 6,375
Bal. 0
WorkinProcessHeating
DM 9,150 ToFGForever 60,892.50
DL 3,225 ToFGFantasy 33,052.50
OH 4,860
Prev.Dept. 59,715
DM 3,180
DM 2,940
DL 4,680
OH 6,195
Bal. 0
FGInv.Forever
FGInv.Fantasy
Beg.XXX Beg.XXX
CGM60,892.50 CGM33,052.50
43.a. Oil(5,000,000bushels11lbs.) 55,000,000 20%

Meal(5,000,000bushels44lbs.) 220,000,000 80%
Total 275,000,000
Oil(0.20$49,800,000) $9,960,000
Meal(0.80$49,800,000)
39,840,000
Total $49,800,000
b. Costofgoodssold(inmillions):
Oil(0.60$9,960,0000) $5,976,000
Meal(0.75$39,840,000)
29,880,000
Total $35,856,000
c. Endingfinishedgoods(inmillions):
Oil(0.40$9,960,000) $3,984,000
Meal(0.25$39,840,000)
9,960,000
Total $13,944,000
Skim(1,555,5001,830,000)$872,000 $741,200
Cream(274,5001,830,000)$872,000 130,800

Total $872,000
Chapter 11 79
b. Skim[($741,200+$67,660)1,555,500]=$808,8601,555,500=$0.52;$0.52
(1,555,5001,550,000)=$0.525,500=$2,860
Cream[($130,800+$83,310)274,500]=$214,110274,500=$0.78;$0.78
(274,500274,000)=$0.78500=$390
Totalfinishedgoodsinventory=$2,860+$390=$3,250
Beginningfinishedgoodsinventory $0
Costofgoodsmanufactured 1,022,970
Goodsavailableforsale $1,022,970
Endingfinishedgoodsinventory (3,250)
Costofgoodssold $1,019,720
Sales($1,472,500+$282,220) $1,754,720
Costofgoodssold (1,019,720)
c. The dairy could test the fat content of the milk before purchaseand only
purchasemilkthat,whenprocessed,wouldresultinminimalloss.
45.a.Relativesalesvalue:
Oil($0.5055,000,000) $27,500,000 38%(rounded)
Meal($0.20220,000,000)
44,000,000 62%(rounded)

Total $71,500,000 100%
Oil(0.38$49,800,000) $18,924,000
Meal(0.62$49,800,000)
30,876,000
Total $49,800,000
b.Costofgoodssold:
Oil(0.60$18,924,000) $11,354,400
Meal(0.75$30,876,000)
23,157,000
Total $34,511,400
c.Endingfinishedgoods:
Oil(0.40$18,924,000) $7,569,600
Meal(0.25$30,876,000)
7,719,000
Total $15,288,600
d. Eachmethodallocatesadifferentamountofjointcosttothejointproducts
andresultsinadifferentperunitcostforeachproduct.InProblem43,usingthe
physical measure assigned more joint cost to the meal. This problems allocation
resultedinalowercostofgoodssoldamountandahighervalueinendinginventory.
46. a. Skim:$1,472,5001,550,000gallons=$0.95pergallon
Cream:$282,220274,000gallons=$1.03pergallon
80 Chapter 11
b. Relativesalesvalues:
Skim($0.951,555,500) $1,477,725 84%(rounded)
Cream($1.03274,500) 282,735 16%(rounded)

Total $1,760,460 100%
Skim(0.84$872,000) $732,480
Cream(0.16$872,000)
139,520
Total $872,000
c. Skim[($732,480+$67,660)1,555,500]=$800,1401,555,500=$0.51(rounded);
$0.51(1,555,5001,550,000)=$0.515,500=$2,805
Cream[($139,520+$83,310)274,500]=$222,830274,500=$0.81(rounded);
$0.81(274,500274,000)=$0.81500=$405
Totalfinishedgoodsinventory=$2,805+$405=$3,210
Beginningfinishedgoodsinventory $0
Costofgoodsmanufactured 1,022,970
Goodsavailableforsale $1,022,970
Endingfinishedgoodsinventory (3,210)
Costofgoodssold $1,019,760
Sales($1,472,500+$282,220) $1,754,720
Costofgoodssold (1,019,760)

Checking:$800,000($1,914,000$3,300,000) =$464,000
Creditcards:$800,000($1,386,000$3,300,000) =336,000
Total $800,000
b. Checking CreditCards Total

Revenues $1,914,000 $1,386,000 $3,300,000
Jointcost (464,000) (336,000) (800,000)
Separatecosts (850,000)
(380,000) (1,230,000)

Grossmarginunadjusted $600,000 $670,000 $1,270,000
Identitytheftinsurancerevenue 26,000
Overallgrossmargin $1,296,000
c. $800,000$26,000=$774,000
Checking:$774,000($1,914,000$3,300,000) =$448,920
CreditCards:$774,000($1,386,000$3,300,000) =325,080
Chapter 11 81
Total $774,000
Thegrossmarginwillbethesamebecausethejointcostsofthetwojointproductsare
$26,000lessthanin(b).
48.a. Peaches $15,000

Labor 700
Overhead(40%oflabor)
280
Jointcost $15,980
b.
c. Joint Sales Addl NRVat Joint

Product Value Cost SplitOff Percent* Cost*
Premium $30,000 $1,500 $28,500 73 $11,665
Good 15,000 4,200 10,800
27
4,315
$39,300 100 $15,980
*
rounded
d. RawMaterialInventory 15,000
Cash(A/P) 15,000
Torecordpurchaseofpeaches
WorkinProcessInventoryClean&Sort 15,980
RawMaterialInventory 15,000
WagesPayable 700
Torecordjointprocessingcost
WorkinProcessInventoryPackaging(Premium) 11,665
WorkinProcessInventoryCutting(Good) 4,315
82 Chapter 11
TotransferjointcosttoPackagingandCutting
Variousaccounts 2,000
Torecordcuttingandcanningcostsforgoodpeaches
WorkinProcessInventoryPackaging(Good) 6,315
TomovegoodpeachesfromCuttingtoPackaging
Torecordpackaginganddeliverycosts
FinishedGoodsInventory(Premium) 13,165
WorkinProcessInventoryPackaging
(Premium) 13,165
Torecordcompletedproductionofpremiumpeaches
FinishedGoodsInventory(Good) 8,515
Torecordcompletedproductionofgoodpeaches
Cash 4,500
Variousaccounts 500
OtherIncome 4,000
Torecordsaleoffairpeaches
e. Totalcost $15,980
EstimatedNRVofscrap (4,000)
Jointcosttoallocate $11,980
Joint Sales Addl NRVat Joint

Product Value Cost SplitOff Percent* Cost*
Premium $30,000 $1,500 $28,500 73 $8,745
Good 15,000 4,200 10,800
27
3,235
$39,300 100 $11,980
*
rounded
f. RawMaterialInventory 15,000
Cash(A/P) 15,000
Torecordpurchaseofpeaches
RawMaterialInventory 15,000
WagesPayable 700
Chapter 11 83
Torecordjointcost
WorkinProcessInventoryPackaging(Fair) 4,000
Torecognizebyproduct
Toallocatejointcost
Torecordcuttingcostforgoodpeaches
TomovegoodpeachesfromCuttingtoPackaging
WorkinProcessInventoryPackaging(Fair) 500
Torecordpackagingcost
FinishedGoodsInventory(Premium) 10,245
FinishedGoodsInventory(Good) 7,435
FinishedGoodsInventory(Fair) 4,500
WorkinProcessInventoryPackaging(Fair) 4,500
Tomovecompletedproductiontofinishedgoods
49. a. 2,500($2.50$1.00)=2,500$1.50=$3,750
b. $36,000+$43,750+$3,000$3,750=$79,000
c. CGSforapparel=BI+PurchasesEI
=$35,000+$181,350$21,500
= $194,850
PersonalTraining Apparel
Grossrevenues $753,000 $289,000
Separatecosts:
Costofgoodssold (194,850)
Labor (231,000) (33,250)
Supplies (151,300) (700)
Equipmentdepreciation (165,000) (1,200)
Administration (103,000)
(3,700)
84 Chapter 11
Netrealizablevalue $102,700 $55,300

65% 35%
d. PersonalTraining($79,0000.65)=$51,350
Apparel($79,0000.35) = $27,650
e. PersonalTraining Apparel
Grossrevenues $753,000 $289,000
Separatecosts:
CostofGoodsSold (194,850)
Labor (231,000) (33,250)
Supplies (151,300) (700)
Equipmentdepreciation (165,000) (1,200)
Administration (103,000) (3,700)
Jointcost
(51,350) (27,650)
Operatingincome $51,350 $27,650
50. a. Jointcost=$44,200+$33,800=$78,000
Salesvalueoforangejuice=$5.2522,400=$117,600
Salesvalueofmarmalade=$3.4526,880=$92,736
Salesvalueofpulp=$0.056,720=$336
b. 56,000gallonsofoutputinDept.1:
TransferredtoDept.2(40%)=22,400gallons
TransferredtoDept.3(60%)=33,600gallons
c. 33,600gallonsofinputtoDept.3:
Pulp(20%)=6,720gallons
Marmalade(80%)=26,880gallons
Chapter 11 85
d. Salesvalue(6,720$0.05) $336
Distributionexpense (90)
NRV $246
e. Joint Sales Total Separate

Product Gallons Price Sales Costs NRV
Juice 22,400 $5.25 $117,600 $9,620 $107,980
Marmalade 26,880 3.45 92,736 6,204* 86,532
*$6,450$246
f. Joint Joint
Product NRV Percent Cost
Juice $107,980 56%(rounded) $43,680
Marmalade
86,532
44%(rounded)
34,320
$194,512 100% $78,000
g. Joint Joint Separate TotalInv. Valueof

Product Cost Costs Cost% End.Inv.
Juice $43,680 $9,620 $53,3000.15 $7,995.00
Marmalade $34,320 $6,204 $40,5240.15 $6,078.60
51.a. ByProductInventoryCorma 150,000

WorkinProcessInventoryZilla(5,000$30) 150,000
Torecordcompletedproductionofbyproduct
b. ByProductInventoryCorma(5,000$45) 225,000
WorkinProcessInventoryZilla 175,000
(Alternative)
WorkinProcessInventoryCorma 50,000
Torecordproductionofbyproduct
TorecordreductionofmainproductforNRVof
byproduct
ByProductInventoryCorma 225,000
c. SalesvalueofZillaatsplitoff(705,000$3.50) $1,225,000 (89%)*

SalesvalueofCormaatsplitoff(5,000$30) 150,000 (11%)*
$1,375,000
86 Chapter 11
*
rounded
Totaljointcosts $875,000
ProportionofCormasalesvalueatsplitoff 0.11
JointcostassignabletoCorma $96,250
Toallocatejointcost
TorecordseparateprocessingcostsofCorma
FinishedGoodsInventoryCorma 146,250
TorecordcompletedproductionofCorma
52.a. Jointprocesscost:
Directmaterial $40,000
Directlabor 23,400
Overhead 10,000

Total $73,400
LessbyproductNRV
(4,600)
Amounttobeallocated $68,800
Allocationonthebasisofsalesvalueatsplitoff:
Product SalesValue Proportion* Allocation
Tenderloin $132,000 0.55 $37,840
Roast 86,000 0.36 24,768
Ham
22,400 0.09 6,192
$240,400 1.00 $68,800
*
rounded
Allocationonthebasisofpoundsproduced:
Product Pounds Proportion* Allocation
Tenderloin 8,600 0.26 $17,888
Roast 13,400 0.41 28,208
Ham 10,800 0.33 22,704

32,800 1.00 $68,800
*
rounded
Computation of EI values under each allocation base:
SalesValueApproach:
Product Allocation Units UnitCost* UnitsinEI EIValue
Tenderloin $37,840 6,440 $5.88 1,000 $5,880
Roast 24,768 16,740 1.48 2,600 3,848
Chapter 11 87
Ham 6,192 8,640 0.72 1,000 720
PhysicalPoundsApproach:
Product Allocation Units UnitCost* UnitsinEI EIValue
Tenderloin $17,888 6,440 $2.78 1,000 $2,780
Roast 28,208 16,740 1.69 2,600 4,394
Ham 22,704 8,640 2.63 1,000 2,630
b. (1) Forfinancialstatementpurposes,thesalesvalueallocationapproachassignsjoint
cost according to the relative market values of the products, while the physical
measureallocationapproachtreatseverypoundofoutputasequallyworthyand,
thus,assignsthesamecostperpoundtoalloutputsandignoresthatsomeproducts
haveahighersellingpricethanothers.Poundsare,however,anunchangingmeasure
of output, while the value of money changes as the purchasing power of the
monetaryunitchanges.
(2)Becausejointcostissunkoncethejointprocesshasbeenconducted,theallocated
cost and the bases used to allocate that cost are irrelevant to decisions about
processing beyond the splitoff point. However, using an inappropriate base to
allocate joint cost could make it appear that certain products are not worth
producingbecausetheallocationwouldmaketheproductsappeartobeunprofitable.
53.a. Totaljointcost:
Directmaterial $37,500
Directlabor 12,000
Overhead 11,000

$60,500
Salesvalueofscrap($0.453,600lbs.)
(1,620)
b. Robes BeachTowels
Revenues $20.00 $7.00
Separatecosts (6.80) (1.60)
NRVperunit $13.20 $5.40
Multiplyby#ofunitsproduced 6,000 12,000
TotalNRV $79,200 $64,800
NRV% 55% 45%
Jointcostassignabletorobes(55%$58,880) $32,384
Jointcostassignabletotowels(45%$58,880) 26,496

$58,880
WorkinProcessInventoryRobes 32,384
WorkinProcessInventoryTowels 26,496
WorkinProcessInventoryCutting 58,880
Toallocatejointcoststorobesandtowels
FinishedGoodsInventoryScrap 1,620
WorkinProcessInventoryCutting 1,620
88 Chapter 11
Torecordproductionofscrap
c. Robes BeachTowels
Allocatedjointcost $32,384 $26,496
Separatecosts:
$6.806,000 40,800
$1.6012,000 19,200

Totaltofinishedgoods $73,184 $45,696
54.a. Sales
Units Sales Valueat Joint Allocated
Product Produced Price SplitOff % Costs JointCosts
Alpha 2,500 $100 $250,000 31.25% $720,000 $225,000
Beta 5,000 80 400,000 50.00 720,000 360,000
Gamma 7,500 20 150,000
18.75
720,000
135,000
Total $800,000 100.00% $720,000
b. JointcostsofBeta[from(a)] $360,000
Additionalprocessingcosts 150,000

TotalcostofBeta $510,000
c. Alphashouldnotbeprocessedfurther:
Incrementalrevenue[($150$100)$2,500] $125,000
Incrementalprocessingcost (150,000)
Declineinincomeifprocessedfurther $(25,000)
Netrealizablevalueofproducts:
Units Selling Processing NetRealizable
Produced Price Revenue Costs Value
Alpha
(soldatsplitoff) 2,500 $100 $250,000 $0 $250,000
Beta
(processedfurther) 5,000 115 575,000 150,000 425,000
Gamma
(processedfurther) 7,500 30 225,000 100,000 125,000
Jointcosts $720,000
NetrealizablevalueofGamma (125,000)
Jointcoststobeallocated $595,000
Allocationofjointcosts:
NetRealizable Joint Processing Final
Product Value % Cost Allocation Costs Cost
Alpha $250,000 37% $595,000 $220,150 $0 $220,150
Beta 425,000
63
595,000 374,850

150,000 524,850

Totals $675,000 100% $595,000 $150,000 $745,000
(CIAadapted)
55. a. Withmanyscrapandwastematerialsitisoftenanissueofwhoistobearthecost.
Undoubtedly,theresultingcostsinthiscasetothefirmsandsocietyfarexceededthe
Chapter 11 89
costtheindividualorfirmwouldhaveincurredtoproperlydisposeofthehazardous
wastematerials.
If caught, those involved with this type of illegal disposal of materials could be
subjecttodamageclaims,verylargefines,andprisontime.Furthermore,itislikely
thatthecostsofthecleanupwouldbeimposedonthem.
b. Firmshaveanobligationtoensureproperwastedisposalandtoeducatetheir
employeesinpropermethodsofwastedisposal.Employeesshouldbemadeawareof
therisksassociatedwithimproperdisposalincludingthelegalrepercussions.Thus,
theleastexpensiveandmosteffectivewaytocontrolwasteisforeachfirmtoassume
responsibilityforitsownwaste.
Beyond internal measures, the larger society can assume a greater oversight role
throughincreasedregulationandmonitoringofwastecontrolefforts.Muchofthis
activity is currently monitored by the EPA, but the role of this agency could be
expanded.Further,lawscouldbetightened,andthepenaltystructureforimproper
disposalofwastematerialscouldbeimproved.Lastly,wasterecyclingopportunities
for manufacturing firms could be improved, and companies could pursue other
alternativestoreducethecostsofwastedisposal.
c. Thevendor/manufacturermustbearsomeoftheresponsibilityforproperuse
anddisposalofitsproducts.Manufacturersshouldhavesuperiorknowledgeabout
chemicalpropertiesandtherisksassociatedwiththeirproductscomponents.Further,
whilegivingdueconsiderationtorelativecost,manufacturershaveanobligationto
makeproductswithmaterialsandcomponentsthataretheleasttoxicandthemost
convenient to recycle. If product materials are extraordinarily toxic to the
environment,manufacturersshouldbedirectlyresponsibleforproperwastedisposal.
56. Eachstudentwillhaveadifferentanswer.However,someinformationonvariousby
productsfollows.
PorkByProducts:insulinfortheregulationofdiabetes;valvesforhumanheartsurgery;
suedeforshoesandclothing;andgelatinformanyfoodandnonfooduses.Swineby
product are also important parts of such products as water filters, insulation, rubber,
antifreeze,certainplastics,floorwaxes,crayons,chalk,adhesives,andfertilizer.Sincethe
firstoperationin1971,tensofthousandsofpigheartvalveshavebeenusedtoreplace
humanheartvalvesweakenedbydiseaseorinjury.
Wheat/Soybean/CottonseedByProducts:livestock,poultry,andfish/shrimpfeed
RiceByProducts:petfoods;riceflour
LumberByProducts:animalbedding,sawdust(andparticleboard),woodchips,mulch;
slabsandchipsproducepaper;firewood
Fish ByProducts: used in organic farming, fish meal production, and production of
formulatedbait(crab,crawfish,andlobster),andformulatedfood(aquaculture).Skins
fromcarphavebeenusedtomakeleatherproducts.
AnimalByProducts:
90 Chapter 11
Gluemadefromcowhideispreferredwhenbindingbooksbecauseanimalgluecan
withstandhightemperaturesandhastheabilitytodissolveinwater,makingrecycling
possible.
Plasticandrubberaremadeusingfattyacidswhichcomefromanimalandvegetable
fats.
Animal gelatins are an ingredient in a wide range of foods like candies,
marshmallows, flavorings and of course JellO. Gelatin is also a common food
stabilizer initems suchas mayonnaise andice cream, lite products,and frozen
foods.Gelatinsareusedtoclarifybeverageslikefruitjuices,beerandwine.
Purifiedboneashisusedtorefinesugarandtomakechina.
Animalfatsareusedinmakingmaplesyrup.
Plastic,cardboardandpapercontainers,cellophaneandwaxpaperallinvolveanimal
products,asdoplywood,drywall,andinsulation.
Freonforairconditioningandrefrigeratorscontainsaderivativefromanimalfat.
Eggwhitesareusedinceramictileandcatalaseenzymeisusedtomakefoamrubber.
Laundry detergents and fabric softeners contain animal products, as do many
disinfectants,householdcleaners,andpolishes.
Animals provideingredients forcoldandallergy medicines aswellasthegelatin
capsulestheycomein.Stomachremedies,vitamins,andmineralsupplementsarealso
derived from animals. Cortison and treatments for anemia, emphysema, malaria,
stroke,andheartattacksareanimalbased.
Latexsurgicalglovescontaintallow,xrayfilmcontainsgelatin,andwoolgreaseis
usedtomakethermometersheatsensitive.
Sheepwoolgivesbaseballstheirbounce.Gelatinhelpsgolfballsrollstraight.
Leather,foamrubber,andplasticsareusedinmosttypesofsportsequipment.
Sheepintestinesareusedtostringsometypesofsportsracquets,andpoultryfeathers
arethoughttomakethebestdartsandfishinglures.
Animalproductsareusedinmakingelectricalcircuitry,inktonerstoprintontocopy
paper,andpaper.Steelballbearings,lubricants,andfireextinguisherscontainanimal
products.Animalproductsareusedinbrushes,artsupplies,andininstrumentssuch
asdrumsandpianos.
57. The purpose, audience, and content criteria are met, and the joint costs should be
allocated. The purpose criterion is met because the materials call for recipient action
(encouraging parents to counsel their children and informing the parents on drug abuse
detection) that will help accomplish the entitys mission. This same call for action means
that the materials meet the content criterion. The audience criterion is met because the
audience (high school students parents) was chosen because of an actual or potential
need for the action called for by the program component.
(American Institute of Certified Public Accountants, Statement of Position 98-2: Accounting for Costs of
Activities of Not-for-Profit Organizations and State and Local Governmental Entities That Include Fund
Raising (March 11, 1998); Section 10,730; http://www.fasb.org/cs/BlobServer?blobcol=urldata&blobtable=
MungoBlobs&blobkey=id&blobwhere=1175820927486&blobheader=application%2Fpdf)
(AICPA adapted)
58. a. The purpose, audience, and content criteria are met, and the entire $24,000 should be
allocated. The activity calls for specific action by the recipient (exercising) that will
Chapter 11 91
help accomplish the entitys mission. The purpose criterion is met based on the other
evidence, because (a) performing such programs helps accomplish Entity Ds mission,
and (b) the objectives of the program are documented in a letter to the public relations
firm that developed the brochure. The audience criterion is met because the audience
(residents over 65) is selected based on its need to use or reasonable potential for use
of the action called for by the program component. The content criterion is met
because the activity calls for specific action by the recipient (exercising) that will help
accomplish the entitys mission (increasing the physical activity of senior citizens),
and the need for and benefits of the action are clearly evident (explains the importance
of exercising).
b. The cost of the first brochure should be split between fundraising and program; the
cost of the second brochure should be charged entirely to program.
c. The content and audience criteria are met. The purpose criterion is not met,
however, because a majority of compensation or fees for the fund-raising consultant
varies based on contributions raised for this discrete joint activity. All costs should be
charged to fund raising, including the costs of the second brochure and any other costs
that otherwise might be considered program or management and general costs if they
had been incurred in a different activity.
(American Institute of Certified Public Accountants, Statement of Position 98-2: Accounting for Costs
of Activities of Not-for-Profit Organizations and State and Local Governmental Entities That Include
Fund Raising (March 11, 1998); Section 10,730; http://www.fasb.org/cs/BlobServer?blobcol=urldata&
blobtable=MungoBlobs&blobkey=id&blobwhere=1175820927486&blobheader=application%2Fpdf)
(AICPA adapted)
59. The purpose, audience, and content criteria are not met. All costs should be charged to
fund-raising.The purpose criterion is not met because the activity has no call for specific
action; the program onlyeducates the audience about causes (describing its programs and
showing theneedy children). (Although the executive producer will bepaid $5,000 if the
activity raises over $1,000,000, that amount would not be a majority of the executive
producers total compensation for this activity; as such, this compensation is not
relevant.) Also, the operating policies and internal management memoranda state that
these programs are designed to educate the public about the needs of children in
developing countries with no call for specific action by recipients and to raise
contributions, indicate that the purpose is fund-raising.The audience criterion is not met
because the audience is a broadsegment of the population of a country that is not in need
of or has no reasonablepotential for use of the program activity.The content criterion is
not met because the activity does not call forspecific action by the recipient that will help
accomplish the entitys mission.
(American Institute of Certified Public Accountants, Statement of Position 98-2: Accounting for Costs of
Activities of Not-for-Profit Organizations and State and Local Governmental Entities That Include Fund
Raising (March 11, 1998); Section 10,730; http://www.fasb.org/cs/BlobServer?blobcol=urldata&blobtable=
MungoBlobs&blobkey=id&blobwhere=1175820927486&blobheader=application%2Fpdf)
(AICPA adapted)
60. a. Yes,itwouldmeettheaudiencecriterionbecausetheattendeeswereselfselected
andwerenotinvitedbasedontheirabilityorlikelihoodtocontribute.
b. Asking attendees to take a quiz about diabetes, volunteer to distribute pamphlets

aboutthediseasetolocalbusinesses,writeletterstotheirinsurancecompaniesabout
92 Chapter 11
additionalcoverageavailability,andparticipateintheMedicareAdvocacyProgramto
gatherinformationandidentifyproblemsencounteredbybeneficiariesandproviders
wereallcallsforaction.
c. Program(0.65$360,000) $234,000
Management/general(0.25$360,000) 90,000
Fundraising(0.10$360,000)
36,000
Total $360,000
d. Other than time, and assuming that no one type of discussion prevailed over the
others,thejointcostcouldbeallocated1/3,1/3,and1/3,whichwouldberationaland
systematic.
e. Allofthe$430,000wouldbeallocatedtofundraisingbecausethecompensationtest
ofthepurposecriterionwasviolatedinthattheconsultantsfeewasbasedonthe
quantityofmoneyraisedbythelecture.
61. Each student will have a different answer. No solution is provided. However, the
followinginformationmaybeappropriate:
Thecosttoraiseadollarappearstoreflecttherelativeimportanceofcapitalcampaigns
toeachsector.Hospitalsoftenhavethemostcapitalfundraisingactivitiesand,often,the
lowestfundraisingcost.Education andhumanservices haveamix ofoperating and
capitalfundraisingandseemtofallinthemiddleoftherange.Highereducationratios
arelowerthannonhighereducation,ashigheredismorecapitalcampaignintensive.
Artsandcultureandnonhospitalhealtharetypicallyraisingmostlyoperatingfundsand
thuswouldhavethehighestfundraisingcost.
62. a. The income statement provided is incomplete if the Center for Entrepreneurship
producesjointproducts.Oneoftwoapproacheswouldmaketheincomestatement
more accurate. First, part of the costs shown on the income statement could be
assigned to fundraising using one of the methods discussed in the chapter. The
remaining costs would be those reasonably allocated only to the executive
development activity. An alternative approach would be to add to the revenues
reportedontheincomestatementaportionoftheproceedsgeneratedbyallofthe
fundraisingactivitiesofthecollege.
b. TheCenterforEntrepreneurshipshouldcontinueitsoperationsifyoucanpersuade
thedeanthattheCenterproducesanetfinancialbenefitforthecollegeratherthana
$250,000loss.Asoutlinedinthesolutionto(a),oneoftwoapproachescouldbe
taken.ThefirstapproachistoarguethatsomeportionofthecostsincurredbytheCenter
shouldappropriatelybeallocatedagainstresourcesgeneratedthroughfundraisingrather
thanchargedagainstfeesgeneratedfromexecutivedevelopmentactivity.Forexample,
onecouldeffectsuchanallocationusingamonetarymeasuresuchastotalcashandfair
marketvalueofotherassetsgeneratedbythecenterfromfundraising andfees.To
presentacredibleargument,thecashandfairmarketvalueofotherassetsderived
from fundraising would be limited to contributions to the college from parties
primarilyassociatedwiththecollegethroughtheCenter.Theresultofthisapproach
wouldbetoassignaportionoftheCenterstotalcoststofundraisingandaportionto
Chapter 11 93
executivedevelopment.Ifmorethan$250,000ofcostscanbejustifiablychargedto
fundraising, the executive development program will be profitable. In short, this
approachallocatessomecostsoutoftheCenterandtofundraising.Thealternative
approachwouldbetokeepallcostsintheCenterandtoallocatesomeofthecashand
fairmarketvalueofotherpropertyraisedthroughfundraisingtotheCenter.This
approachwouldrequireonetocrediblydemonstratethataportionofthetotalvalueof
cashandpropertyraisedforthecollegefromfundraisingshouldbeassignedtothe
Center.TheCentersportionofthetotalvalueofcashandpropertyraisedthrough
collegefundraisingwouldbeestablishedbydemonstratingwhichcontributorswere
primarilyconnectedtothecollegeoruniversitythroughrelationshipswiththeCenter.
With this approach, the Centers costs would be as reported in the condensed
statement, but reported revenues would increase by the amount allocated to the
Center. Ifthe allocated revenues exceed $250,000,the Center would reportanet
profitandshouldremaininoperation.

Ch11 Raiborn SM

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Ch11 Raiborn SM

Uploaded by

Copyright:

Available Formats

Chapter 11 59

COST ALLOCATION FOR JOINT PRODUCTS AND

c. Four categories of output may be obtained from joint production. Joint

12. #of SVat

b. JP4539 4,500$14=$63,000 0.14$558,000=$78,120

JP4539 4,500($24$4)=$90,000 0.17$558,000=$94,860

15.a.Final Sales SplitOff Increm. Increm. Increm.

16.a. #of Joint Allocated

17.a. Games News Documentaries

%of$96,000,000total 3% 15% 82%

Games News Documentaries

b. Games News Documentaries

Games News Documentaries

Total $928,000 100%

Ending inventory valuation based on approximated NRV:

21.a. Fabric Yarn

22. Increm. Increm. Process

a. Joint Unit Lbs.of Allocated

23.a. Salesvalueofmilk $377,400(68%)

19.a. Final SplitOff Increm. Increm. Increm.

c. Dresses Jackets Blouses

27. Jointprocesscost $337,500

28.a. Jointcost $142,000

Approx.NRVofFillet[18,000($16$3)] $234,000 60%

30.a. Totaljointcost $20,000,000

32.a. Salesoflumber(160,000$10) $1,600,000

33. Salesofbyproduct $20,250

34.a. EstimatedOH $415,200

36. a. Cash 8,500

37.a. JointServices IncreaseinRevenues AllocatedCost

b. JointServices IncreaseinNetIncome AllocatedCost

c. The allocation based on increase in net income may be better because it

CostAssignment: Children Adults

39.a. JointActivity Percent JointCostAllocated

b. JointActivity Percent JointCostAllocated

43.a. Oil(5,000,000bushels11lbs.) 55,000,000 20%

b. Checking CreditCards Total

48.a. Peaches $15,000

c. Joint Sales Addl NRVat Joint

Joint Sales Addl NRVat Joint

Netrealizablevalue $102,700 $55,300

e. Joint Sales Total Separate

g. Joint Joint Separate TotalInv. Valueof

51.a. ByProductInventoryCorma 150,000

c. SalesvalueofZillaatsplitoff(705,000$3.50) $1,225,000 (89%)*

Ham 6,192 8,640 0.72 1,000 720

b. Asking attendees to take a quiz about diabetes, volunteer to distribute pamphlets

You might also like