AI 4 – ADVANCED FINANCIAL ACCOUNTING AND REPORTING

Service Cost Allocation/Joint Cost Allocation

Mabait Co. has the following information:

Producing Dept. Service Dept.

Grinding Smoothing Maintenance Gen. Factory
Budgeted Overhead P175,000 P230,000 P76,000 P200,000
Direct labor hours used 7,500 30,000 - -
Machine ours used 4,000 200 - -
Hours of maintenance service used 180 900 200 720
Number of materials requisitions 200 10 30 10
Average number of employees 5 2 1 2
Maximum number of employees 6 3 1 2

Maintenance cots are distributed based on hours of maintenance services provided. General Factory costs are distributed
based on the maximum number of employees during the year.

Factory overhead will be applied to products using predetermined departmental overhead rates. The predetermined rate in
Grinding is based on machine hour, and the predetermined rate in Smoothing is based on direct labor hours.

1. What is the plantwide rate if OH is to be allocated based on direct labor hours?

2. What are the overhead rates using the direct method?
3. What are the overhead rates using step method? Use the following department distribution sequence: first Maintenance,
then General Factory.
4. What are the overhead rates using simultaneous method?

The following data pertain to Magalang Co.

Producing Dept. Service Dept.
P1 P2 S1 S2
Budgeted Overhead P410,000 P304,000 P100,000 P50,000
Number of employees 90 210 20 28
Machine hours 64,000 16,000
Direct labor hours 35,000 100,000

The following data pertain to Job 143:

P1 P2
Material cost P90 P40
Direct labor hours 1 2
Machine hours 3 1
5. Calculate predetermined OH rates for the producting departments and compute the resulting OH cost of Job 143.
6. Calculate a plantwide predetermined OH rate based on direct labor hours and compute the resulting OH cost of Job 143.

7. Lane Co. produces main products Kul and Wu. The process also yields by- product Zef. Net realizable value of by-product
Zef is subtracted from joint production cost of Kul and Wu. The following information pertains to production in July 2019
at a joint cost of P54,000:
Additional
Units Market cost after
Product produced value split-off
Kul 1,000 P40,000 P0
Wu 1,500 35,000 0
Zef 500 7,000 3,000

If Lane uses the net realizable value method for allocating joint cost, how much of the joint cost should be allocated
to product Kul?
Atlas Foods produces three supplemental food products simultaneously through a refining process costing P93,000.

The joint products, Alfa and Betters, have a final selling price of P4 per pound and P10 per pound, respectively, after
additional processing costs of P2 per pound of each product are incurred after the split-off point. Morefeed, a by-
product, is sold at the split-off point for P3 per pound.
 Alfa 10,000 pounds of Alfa, a popular but relatively rare grain supplement having a caloric value of 4,400
calories per pound.

Betters 5,000 pounds of Betters, a flavoring material high in carbohydrates with a caloric value of 11,200
calories per pound.

Morefeed 1,000 pounds of Morefeed, used as a cattle feed supplement with a caloric value of 1,000 calories
per pound.

8. Assuming Atlas Foods inventories Morefeed, the by-product, the joint cost to be allocated to Alfa, using the net realizable
value method is________.

9. Assuming Atlas Foods inventories Morefeed, the by-product, the joint cost to be allocated to Alfa, using the physical
quantity method is ______.

10. Assuming Atlas Foods inventories Morefeed, the by-product, the joint cost to be allocated to Betters using the weighted
quantity method based on caloric value per pound is ____.

11. Assuming Atlas Foods inventories Morefeed, the by-product, the joint cost to be allocated to Alfa using the gross market
value method is ______.

12. Assuming Atlas Foods does not adjust the joint cost for the value of Morefeed, the by-product, the joint cost to be
allocated to Betters using the net realizable value method is ______.

13. Dennis Mfg. Co. manufactures two joint products and it uses the net realizable value method for allocating joint costs.
Product A sells for P30 while Product B sells for P60. Joint costs for June, 2011 were:
Materials.................................................................................. P30.000
Direct labor............................................................................ 15,000
Factory overhead.................................................................. 10,000

Further processing costs after the split-off point in order to finish the products into their final form amounted to
P24.000 for Product A and P36,000 for Product B. The total units produced during the month were 2,000 for Product
A and 1,000 for Product B.

The amount of joint costs allocated to Product A was:

Comely Co. manufactures three products, R, S and T in a joint process. For every ten kilograms of raw material input, the units
of production are five (5) kgs. of R, three (3) kgs. of S, and two (2) kgs. of T.

During August, 50,000 kgs. of raw materials costing P120,000 were processed and completed with conversion cost amounting
to P200,000. The latter is allocated on the basis of market values.

To make the products saleable, further processing costs (in the form of labor and factory overhead) are incurred as follows:
Product R P30,000
Product S 20,000
Product T 30,000
The unit selling prices are:
Product R P10
Product S 12
Product T 15

14. The unit cost of Product R is:

15. assuming that all units are sold, the gross margin on sales of Product S should be:
16. if all units of Product T are sold and selling and administrative expenses are 20% of sales, net income from sale of Product
T should be:

17. Jonathan Co. manufactures products N, P and R from a joint process. The following information is available:

Products
N P R Total
Units produced 6,000 ? ? 12,000
Sales value at split off ? ? P25,000 P100,000
Joint costs P24,000 ? ? P60,000
Sales value if processed further P55,000 P45,000 P30,000 P130,000
Additional cost if processed further P9,000 P7,000 P5,000 P21,000

Assuming that joint product cost is allocated using the relative sales value at split off approach, what is the sales value
of split – off for product N?