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Theory A. The selling price of a by-product.

1. If a company obtains two salable products from the refining of one ore, the refining process B. Whether one of the joint products should be discontinued.
should be accounted for as a(n) (E) C. The variance between budgeted and actual common costs.
a. Mixed cost process. c. Extractive process. D. The inventory cost of joint products for financial reporting. CMA 0408
b. Joint process. d. Reduction process. AICPA 1177
7. The principal disadvantage of using the physical quantity method of allocating joint costs is
2. A joint process is a manufacturing operation yielding two or more identifiable products from the that (E)
resources employed in the process. The two characteristics that identify a product generated A. Costs assigned to inventories may have no relationship to value.
from this type of process as a joint product are that it B. Physical quantities may be difficult to measure.
A. Is identifiable as an individual product only upon reaching the split-off point, and it has C. Additional processing costs affect the allocation base.
relatively minor sales value when compared to the other products. D. Joint costs, by definition, should not be separated on a unit basis. CMA 1293
B. Is identifiable as an individual product before the production process, and it has relatively
significant physical volume when compared with the other products. 8. For purposes of allocating joint costs to joint products, the relative sales value method could
C. Is identifiable as an individual product only upon reaching the split-off point, and it has be used in which of the following situations?
relatively significant sales value when compared with the other products. AICPA 0582 A. B. C. D.
D. Has relatively significant physical volume when compared with the other products, and it No Costs Beyond Split-Off Yes Yes No No
can be sold immediately without any additional processing. CIA 1190 Costs Beyond Split-Off Yes No Yes No

3. Products of relatively small total value that are produced simultaneously from a common 9. For purposes of allocating joint costs to joint products, the sales price at point of sale, reduced
manufacturing process with products of greater value and quantity are by cost to complete after split-off, is assumed to be equal to the (E)
A. Scrap. C. Waste. A. Total costs.
B. By-products. D. Abnormal spoilage. Gleim B. Joint costs.
C. Sales price minus a normal profit margin at point of sale.
4. A refinery produces gasoline as its main product, with kerosene, naphtha, and fuel oil also D. Relative sales value at split-off. AICPA 0593
produced and sold as secondary products. If changes in technology should result in demand
for kerosene becoming as great as for gasoline, which of the following statements best 10. Actual sales values at the split-off point for joint products Y and Z are not known. For
describes the most likely result? (E) purposes of allocating joint costs to products Y and Z, the relative sales value method is used.
A. A by-product would become a joint product. Costs beyond the split-off increases for Product Z, while those of product Y remain constant. If
B. Scrap would become a by-product. the selling prices of finished products Y and Z remain constant, the percentage of the total joint
C. A joint product would become a by-product. costs allocated to product Y and product Z will (E)
D. Scrap would become a joint product. CIA 1191 A. Decrease for product Y and product Z.
B. Decrease for product Y and increase for product Z.
5. For the purposes of cost accumulation, which of the following are identifiable as different C. Increase for product Y ad product Z.
individual products before the split-off point? (M) D. Increase for product Y and decrease for product Z. AICPA 1189
AICPA 0587 A. B. C. D.
By-Products Yes Yes No No 11. By-products are (D)
Joint Products Yes No No Yes A. also known as scrap.
B. allocated a portion of joint production cost.
6. The primary purpose for allocating common costs to joint products is to determine C. the primary reason management undertook the production process.
D. not sufficient alone, in terms of sales value, for management to justify undertaking the joint Soloc 45,000 packs
process. Barfields The following additional costs are necessary for further processing to complete Soloc and in
order to obtain a selling price of P3.00 per pack during the month of April:
12. Which of the following is a by-product? Raw materials P30,000
A. fresh fish D. sawdust Direct labor 22,500
B. gold E. whole milk Factory overhead 7,500
C. lumber H&M Assuming that the by-product Soloc is processed further and transferred to the stock room at
net realizable value, with a corresponding reduction of Coco’s manufacturing costs, what should
13. The main issues concerning recognition of by-products in the accounts are similar to those for be the journal entry? RPCPA 0583
A. Joint products. C. Product costs. A. By-product inventory – Soloc 45,000
B. Scrap. D. Main products. Gleim Work-in-process – Coco 45,000
B. By-product inventory – Soloc 135,000
14. A company produces three main joint products and one by-product. The by-product’s relative Raw materials 30,000
sales value is quite low compared with that of the main products. The preferable accounting Direct labor 22,500
for the by-product’s net realizable value is as Factory overhead 7,500
A. An addition to the revenues of the other products allocated on the basis of their respective Work-in-process 75,000
net realizable values. C. Work-in-process – Soloc 6,750
B. Revenue in the period it is sold. Work-in-process – Coco 6,750
C. A reduction in the common cost to be allocated to the three main products. CIA 0585 D. Work-in-process – Soloc 60,000
D. A separate net realizable value upon which to allocate some of the common costs. Raw materials 30,000
Direct labor 22,500
15. Reporting revenue from by-product sales on the income statement as additional sales Factory overhead 7,500
revenue: (D)
A. overstates ending inventory costs of the main product Questions 17 through 20 are based on the following information. Gleim
B. allocates a proper share of production costs to the by-product The information was presented as part of Question 5 on the Practice II section of the May 1982
C. allocates costs to by-products on the basis of quantities produced Carter & Usry CPA examination.
D. reduces the main product cost by the estimated market value of the by-product Lares Confectioners, Inc. makes a candy bar called Rey that sells for $0.50 per pound. The
E. credits main product costs only when the by-product is used in further production manufacturing process also yields a product known as Nagu. Without further processing, Nagu
sells for $0.10 per pound. With further processing, Nagu sells for $0.30 per pound. During the
16. Aguilar Sweets Factory manufactures coconut candy called Coco, which is being sold for month of April total joint manufacturing costs up to the point of separation consisted of the charges
P5.00 a box. The manufacturing process also yields a product named Soloc. Without further to work-in-process presented below.
processing, Soloc sells for P1.00 per pack, but with further processing, it sells for P3.00 per Raw materials $150,000
pack. During the month of April, total joint manufacturing costs up to the point of separation Direct labor 120,000
consisted of the following charges to work-in-process: Factory overhead 30,000
Raw materials P225,000 Production for the month aggregated 394,000 pounds of Rey and 30,000 pounds of Nagu. To
Direct labor 180,000 complete Nagu during the month of April and obtain a selling price of $0.30 per pound, further
Factory overhead 45,000 processing of Nagu during April would entail the following additional costs:
During the month, the production for the two products is as follows: Raw materials $2,000
Coco 591,000 boxes Direct labor 1,500
Factory overhead 500 B. By-product inventory (Nagu) $4,000
Raw materials $2,000
16. If the joint costs of $300,000 are allocated based on relative net realizable values and Nagu is Direct labor 1,500
considered a joint product rather than a by-product, what are the journal entries for Nagu and Factory overhead 500
Rey to record the cost allocation and subsequent processing to the point at which both are in C. Work-in-process (Rey) $5,000
finished goods inventory? (D) Raw materials 2,000
A. Finished goods (Rey) $292,574 Direct labor 1,500
Work-in-process (Nagu) 7,426 Factory overhead 500
Work-in-process (Nagu) $300,000 By-product inventory (Nagu) $9,000
Work-in-process Nagu $4,000 D. By-product inventory (Nagu) $9,000
Raw materials $2,000 Raw materials $2,000
Direct labor 1,500 Direct labor 1,500
Factory overhead 500 Factory overhead 500
Finished goods (Nagu) $11,426 Work-in-process (Rey) 5,000
Work-in-process (Nagu) $11,426
B. Work-in-process (Nagu) $4,000 18. Select the proper journal entry for Nagu, if it is recorded as inventory at sales value without
Raw materials $2,000 further processing, with a corresponding reduction of Rey’s manufacturing costs. (E)
Direct labor 1,500 A. By-product inventory $3,000
Factory overhead 500 Finished goods $3,000
C. Work-in-process (Nagu) $4,967 B. By-product inventory $3,000
Work-in-process (joint) $4,967 Work-in-process $3,000
Work-in-process (Nagu) $4,000 C. Work-in-process $3,000
Raw materials $2,000 By-product inventory $3,000
Direct labor 1,500 D. Cost of goods sold $3,000
Factory overhead 500 By-product inventory $3,000
D. Finished goods (Rey) $295,033
Work-in-process (Nagu) 4,967 19. What are the journal entries for Nagu if it is processed further and transferred to finished
Work-in-process (joint) $300,000 goods, with joint costs being allocated between Rey and Nagu based on relative sales value at
Work-in-process (Nagu) $4,000 the split-off point? (D)
Raw materials $2,000 A. Work-in-process (Nagu) $4,500
Direct labor 1,500 Work-in-process (Rey) $4,500
Factory overhead 500 Work-in-process (Nagu $4,000
Finished goods (Nagu) $8.967 Raw materials $2,000
Work-in-process $8,967 Direct labor 1,500
Factory overhead 500
17. What is the journal entry for Nagu if it is further processed as a by-product and recorded as B. Work-in-process (Nagu) $8,500
inventory at net realizable value, which reduces Rey’s manufacturing costs? (M) Work-in-process (Rey) $8,500
A. By-product inventory (Nagu) $3,000 Finished goods (Nagu) $8,500
Work-in-process $3,000 Work-in-process (Nagu) $8,500
C. Finished goods (Nagu) $8,500 a. $231,116 and $148,884 c. $227,202 and $152,798
Work-in-process (Nagu $8,500 b. $224,200 and $155,800 d. $230,626 and $149,374
D. Work-in-process (Rey) $4,500
Work-in-process (Nagu) $4,500 4. When using the physical-volume method, what is Mr. DirtOut's approximate production cost
Work-in-process (Rey) $4,000 per unit? (M)
Raw materials $2,000 a. $1.52 c. $1.57
Direct labor 1,500 b. $1.54 d. $1.61
Factory overhead 500
Finished goods (Rey) $8,500 THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 39 THROUGH 42. Horngren
Work-in-process (Rey) $8,500 Yakima Manufacturing purchases trees from Cascade Lumber and processes them up to the
splitoff point where two products (paper and pencil casings) are obtained. The products are then
Problems sold to an independent company that markets and distributes them to retail outlets. The following
1. A company uses the weighted average method to assign joint products. Weight factors used information was collected for the month of November:
to assign joint costs to its three joint products were: Product A, 4 points; Product B, 7 points; Trees processed: 50 trees (yield is 30,000 sheets of paper and 30,000 pencil
and Product C, 8 points. Units produced were: Product A, 10,000; Product B, 5,000; and casings and no scrap)
Product C, 3,125. The amount of the joint costs of $100,000 that would be allocated to Production: Paper 30,000 sheets
Product C are: pencil casings 30,000
A. $42,105 C. $25,000 Sales: Paper 29,000 at $0.04 per page
B. $17,241 D. $30,000 Carter & Usry pencil casings 30,000 at $0.10 per casing
Cost of purchasing 50 trees and processing them up to the splitoff point to yield 30,000 sheets of
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 47 THROUGH 49. Horngren paper and 30,000 pencil casings is $1,500.
The Oxnard Corporation processes a liquid component up to the splitoff point where two products, Yakima’s accounting department reported no beginning inventories and ending inventory of 1,000
Mr. DirtOut and Mr. SinkClean, are produced and sold. The following material was collected for the sheets of paper.
month of January. There was no beginning inventory.
Direct materials processed: 250,000 gallons (242,500 gallons of good product) 5. What is the sales value at the splitoff point for paper? (E)
Production: Mr. DirtOut 147,500 gallons a. $120 c. $1,200
Mr. SinkClean 95,000 gallons b. $1,160 d. $1,950
Sales: Mr. DirtOut 140,500 at $110 per gallon
Mr. SinkClean 91,000 at $ 100 per gallon 6. What is the sales value at the splitoff point of the pencil casings? (E)
The cost of purchasing 250,000 gallons of direct materials and processing it up to the splitoff point a. $300 c. $3,000
to yield a total of 242,500 gallons of good product was $380,000. b. $1,480 d. $3,750

2. What are the physical-volume proportions to allocate joint costs for Mr. DirtOut and Mr. 7. If the sales value at splitoff method is used, what are the approximate joint costs assigned to
SinkClean, respectively? (E) ending inventory for paper? (M)
a. 59.00% and 41.00% c. 39.18% and 60.82% a. $14.29 c. $435.00
b. 60.82% and 39.18% d. 59.79% and 40.21% b. $50.00 d. $750.00

3. When using a physical-volume measure, what is the approximate amount of joint costs that will 8. If the sales value at splitoff method is used, what is the approximate production cost for each
be allocated to Mr. DirtOut and Mr. SinkClean? (E) pencil casing? (M)
a. $0.0250 c. $0.0335 Units of Production Further Processing Cost Sales Price Per Unit
b. $0.0255 d. $0.0357 #111 60,000 P960,000 P 20
#444 20,000 168,000 40
9. A company processes a raw material into products F1, F2, and F3. Each ton of raw material $777 20,000 520,000 100
produces five units of F1, two units of F2, and three units of F3. Joint processing costs to the The product line that will have the least contribution to margin on a unit basis is (M)
split-off point are $15 per ton. Further processing results in the following per-unit figures: a. Product #111, at P(3.00) c. Product #444, at P26.00
F1 F2 F3 b. Product #444, at P17.60 d. Product #777, at P39.00 RPCPA 0594
Additional processing costs per unit $28 $30 $25
Selling price per unit 30 35 35 13. Bergen Productions produced two different movies from the same original footage (joint
If joint costs are allocated based on the net realizable value of finished product, what products). The company also generated revenue from admissions paid by touring the movie
proportion of joint costs should be allocated to F1? (M) production set. Bergen regards the net income from tours as a by-product of movie
a. 20% c. 33-1/3% production. The firm accounts for this income as a reduction in the joint cost before that join
b. 30% d. 50% CIA 0586 cost is allocated to movies. The following information pertains to the two movies:
Products Total Receipts Separate Costs
10. FUNDADOR, Inc. makes two products, Wet and Dry, from a joint operating process. For the Movie 1 P4,000,000 P2,400,000
month of May, 19x5, the total joint costs of processing was P120,000 and the costs of further Movie 2 27,000,000 18,600,000
processing after the point of split-off, as well as other relevant data, are shown below: Tours 300,000 140,000
Wet Dry The joint costs incurred to produce the two movies was P8,000,000. Joint cost is allocated
Unit after split-off 1,600 800 based on net realizable value.
Sales price per unit P200 P400 How much profit was generated by each movie?
Further process costs P100,000 P140,000 RESA 1003 A. B. C. D.
The company uses the net realizable value method for allocating the joint costs of processing. Movie 1 P 320,000 P1,600,000 P0 P 345,600
For the month of May, 19x5, the joint costs allocated to product Wet was Movie 2 1,680,000 400,000 0 1,814,400
a. P60,000 c. P72,000
b. P66,000 d. P80,000 RPCPA 0595, CPAR 0504 14. The following information pertains to a by-product called Moy:
Sales in 2000 5,000 units Selling costs per unit 2
11. Tucariz Company processes Duo into two joint products, Big and Mini. Duo is purchased in Selling price per unit $6 Processing costs 0
1,000 gallon drums for $2,000. Processing costs are $3,000 to process the 1,000 gallons of
Inventory of Moy was recorded at net realizable value when produced in 1999. No units of Moy
Duo into 800 gallons of Big and 200 gallons of Mini. The selling price is $9 per gallon for Big
were produced in 2000. What amount should be recognized as profit on Moy’s 2000 sales?
and $4 per gallon for Mini. Big can be processed further into 600 gallons of Giant if $1,000 of
(M)
additional processing costs are incurred. Giant can be sold for $17 per gallon. If the net-
a. $0 c. $20,000
realizable-value method were used to allocate costs to the joint products, the total cost of
b. $10,000 d. $30,000 AICPA 0592
producing Giant would be
a. $5,600. c. $5,520.
15. Marvin Company produces Products A and B from a process that also yields a by-product Y.
b. $5,564. d. $4,600.
The by-product requires additional processing before it can sold. The cost assigned to the by-
product is its market value minus additional costs incurred after split-off information
12. It costs BASIC PRODUCTS Corp. P1,400,000 to process a raw material to produce three
concerning a batch produced in May at a joint cost of P40,000 is as follows:
chemicals, #111, #444, and $777. The joint cost is allocated to the three products based on
the relative market value of each final product produced. Production and related data follow: Product Units Produced Market Value Costs after Split-off
A 800 P44,000 P4,500 costs are allocated to joint products to achieve the same gross profit rate for each joint
B 700 32,000 3,500 product. Net revenue from by-product is deducted from joint production costs of the main
C 300 4,000 1,000 products.
How much of joint cost should be allocated to the joint products. The gross profit for main products (1) White and (2) Blue are:
A. P35,000 C. P37,000 A. (1) P 0 and (2) P60,000 C. (1) P24,000 and (2) P36,000
B. P36,000 D. B. (1) P 24,000 and (2) P24,000 D. (1) P36,000 and (2) P24,000 CPAR 0503
P39,000 CPAR 1004
19. Alphabet Company manufactures Products A and B from a joint process that also yields a by-
16. Kode Co. manufactures a major product that gives rise to a by-product called May. May’s only product, X. Alphabet accounts for the revenues from its by-product sales as a deduction from
separable cost is a $1 selling cost when a unit is sold for $4. Kode accounts for May’s sales the cost of goods sold of its main products. Additional information is as follows:
by deducting the $3 net amount from the cost of goods sold of the major product. There are A B X Total
no inventories. If Kode were to change its method of accounting for May from a by-product to Units produced 15,000 9,000 6,000 30,000
a joint product, what would be the effect on Kode’s overall gross margin? (M) Joint costs $264,000
a. No effect. Market value at split-off $290,000 $150,000 $10,000 $450,000
b. Gross margin increases by $1 for each unit of May sold. Assuming that joint product costs are allocated using the market value at the split-off
c. Gross margin increases by $3 for each unit of May sold. approach, the joint cost allocated to Product B would be: (D)
d. Gross margin increases by $4 for each unit of May sold AICPA 0595 A. $136,540 D. $86,591
B. $79,200 E. $99,000
17. Lane Co. produces main products Kul and Wu. The process also yields by-product Zef. Net C. $88,000 Carter & Usry
realizable value of by-product Zef is subtracted from joint production cost of Kul and Wu. The
following information pertains to production in July 2008 at a joint cost of $54,000: 20. A cheese company produces natural cheese from cow’s milk. As a result of the process, a
Product Units produced Market value Additional cost after split-off secondary product, whey, is produced in the proportion of one pound for each pound of
Kul 1,000 $40,000 $0 cheese. The following are the standards for 1,000 pounds of milk:
Wu 1,500 $35,000 0 Input: 1,000 pounds of milk at $0.20/pound
Zef 500 $7,000 3,000 40 hours of labor at $10/hour
If Lane uses the net realizable value method for allocating joint cost, how much of the joint cost Overhead applied equaling 100% of direct labor cost
should be allocated to product Kul? Output: 450 pounds of cheese
A: $18,800 C: $26,667 450 pounds of whey
B: $20,000 D: $27,342 Wiley 2011 The following prices and demand are expected:
Price per Pound Demand in Pounds
18. Marlon Company produces joint products White and Blue together with by-product Red. Cheese $2.00 450
White is sold at split-off, but Blue and Red undergo additional processing. Production data Whey 0.80 375
pertaining to these products for the year ended December 31, 2003 are as follows Given that the company allocates common costs on the basis of NRVs, the allocated common
White Blue Red Total costs per 1,000 pounds of milk (rounded) are (D)
Joint costs P236,000 CIA 1184 a. b. c. d.
Separable costs P210,000 P5,000 215,000 Cheese $450 $500 $714 $750
Production in pounds 50,000 40,000 10,000 100,000 Whey $150 $500 $286 $250
Sales price per pound P4.00 P7.50 P1.10
There are no beginning or ending inventories. No materials are spoiled in production. Joint