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In November 2008, Day time Publishing Company's cost and quantities of paper consumed in

manufacturing its 2009 Executive Planner and Calendar as follows:

Actual Unit Purchase Price 0.0065 per page

Standard unit price 0.070 per page

Standard quality for good production 195,800

Actual quantity purchased during November 230,000

Actual quantity used in November 200,000

a. Calculate the total cost of purchase for November.


Cost of purchase for Nov. = 230,000 x .0065

= 1,495

b. Compute the material price variance(based on quantity purchased)

M.P.V = Actual Quantity purchased ( standard price – actual price )

M.P.V =230,000 (0.070 – 0.0065)

M.P.V =14,605 Favorable

c. Calculate the material quantity variance.

M.Q.V = Standard price ( Standard quantity allowed for actual production – Actual quantity used )

M.Q.V = 0.070 (195,800 – 200,000)

M.Q.V = 294 adverse

21. Joy Ride Corporation has fully automated production facility in which almost 97 percent of
overhead costs are driven by machine hours. As the company's cost accountant, you have computed
the following overhead variances for May:

The company president is concerned about the variance amounts and has asked you to show her how
the variances were computed and to answer several questions.Budgeted fixed overhead for the month
is 500,000 the predetermined variable and fixed overhead rates are respectively 10,and 20 per
machine hour.Budgeted capacity of 10,000.
a. Using the four variances approach prepares an overhead analysis in much detail as possible.

Variable overhead spending variance 17,000F

Actual hours worked 22440 x rate 10 = 224,400

Less actual variable factory overhead = 207,400

Variable overhead spending variance = 17,000 F

Variable overhead efficiency variance 20,600 F

Standard hours allowed 24500 x variable rate 10 = 245,000

Less: actual hours worked 22440? x variable rate 10 = 224400

Variable overhead efficiency variance= 20600f

Fixed Overhead spending variance 14,000 u

Budgeted fixed foh 500,000

Less actual fixed foh ? 514,000

Fixed overhead spending variance = 14,000 u

Fixed overhead volume variance 10,000 u

Budgeted hours 25000 x fixed rate 20 = 500000


Less standard hours ? 24500 x fixed rate 20 =?490000

Fixed overhead variance 10000 uf

b. What is the standard number of machine hours allowed for each unit of output?

24500 hours

c. How many actual hours were worked in May?


d. What is the total spending variance?

$3000 F
e. How would the overhead variances be closed if the three variance approach was used?

Spending variance = 3000F

Idle capacity variance=

25000-22440 x 20 = 51200 UF

Efficiency variance

24500-22440 x 30 = 61800 f

Total variance 13600 f

In one joint process, Hardahl Chemical produces three joint products and one by -product. The
following information is available for September 2008:
Product - Gallons - Sales Value at Split off per gallon- Cost after Split-Off - Final Selling price
JP-4539 4,000 $12 $3 21
JP-4587 16,000 $8 5 14
Jp-4591 12,000 15 2 19

Allocate the joint cost of 465,000 to the production based on the

a. Number of gallons
JP 4539 (4000/32000) x 465000 = 58125
JP 4587(16000/32000) x 465000 = 232500
Jp 4591(12000/32000) x 465000 = 174375
b. Sales value at split-off and
JP 4539 (4000 x 12) 48000 (48000/356000) x 465000 =62696
JP 4587(16000 x 8) 128000 (128000/356000) x 465000 =167191
Jp 4591(12000 x 15) 180000 (180000/356000) x 465000 =235113
356000 465000
c. Approximated net realizable values at split-off.
JP 4539 (4000 x 21-3) 72000 (72000/420000) x 465000 =79714
JP 4587(16000 x 14-5) 144000 (144000/420000) x 465000 =159429
Jp 4591(12000 x 19-2)204000 (204000/420000) x 465000 =225857
420000 465000
20. Washington Cannery makes three products from a single joint process. For 2008, the cannery
processed all three products beyond split off. The following data were generated for the year:
Joint Product Incremental Separate Costs Total Revenue
Candied Apples 26,000 620,000
Apple Jelly 38,000 740,000
Apple Jam 15,000 270,000
Analysis of the 2008 market data reveals that candied apple, apple jelly and apple jam, could have
been sold at split-off for 642,000,706,000 and 253,000 respectively.
A.Based on hindsight, evaluate managements production decisions in 2008.
NRV after further processing
Candied Apples 594000
Apple Jelly 702000
Apple Jam 255000
Except for Apple jam other two products should have been sold at split off point

B.How much additional profit could the company have generated in 2008 if it had made optimal
decision at split-off?
Optimal sales decision
Candied Apples 642000
Apple Jelly 706000
Apple Jam 255000
Less sales at NRV 1551000
More profit would be 52000

27. Your employer engages in numerous joint processes that produce significant quantities and types
of by-product. You have been asked to give a report to a management on the best way to account for
by-product. Develop a set of criteria for making such a choice and provide reasons for each criterion
selected. On the basis of your criteria, along with additional assumptions you wish to provide about
the nature of the company you worked for, recommend a particular method of accounting for by-
product and explain why you consider it to be better than alternatives

By product has relatively low sales value as compare to main products therefore it is
not preferred to allocate joint cost as done in the case of main product. Rather
doing this the following approached may be used .

1 Net by product income may be shown as other income by adding it in the

operating income from main product.

2 Net by product income is shown as deduction of cost of goods sold of main


3 Net realizable value of by product is shown as deduction from cost of

production of main product.

4 Treatment of by product as separate product and allocation of joint cost on

reversal cost method.

The use of the above method is depending on the sales value of by product, if the
sales value of by product is negligible say 5% of total cost then it is preferred to use
1st three methods, otherwise if it is on higher side then it is recommended to use
last method.

When I was working for a towel manufacturing industry and every order was
different form each other and small pieces of towel as duster were being produced
as by product, we were ignoring the by product and treating sale of by product as
other income.