Joint and By-Product Costing Activity Answers (PROBLEM 1-5 , per Product 1, point

for allocation) (PROBLEM 6-8, Decision if correct, give 3 points)

PROBLEM 1
A company produces three products - A, B, and C - using a joint process. The joint
process results in 1000 units of Product A, 2000 units of Product B, and 3000 units of
Product C. The joint cost of the process is $500,000. Allocate the joint cost to each
product using the physical unit method.

The total number of physical units produced by the joint process is 6,000 (1000 units of
Product A + 2000 units of Product B + 3000 units of Product C).

The joint cost per unit is $83.33 ($500,000 / 6,000 units).

Using the physical unit method, the joint cost allocated to Product A is $83,330 (1000
units x $83.33 per unit), to Product B is $166,660 (2000 units x $83.33 per unit), and to
Product C is $250,010 (3000 units x $83.33 per unit).

PROBLEM 2
A company produces three products - X, Y, and Z - using a joint process. The joint cost
of the process is $800,000. The products are sold at the split-off point, and their sales
values are X: $10, Y: $20, and Z: $30 per unit. Allocate the joint cost to each product
using the sales value at split-off method.

The total sales value at split-off point is $60 per unit (10 + 20 + 30).
The sales value proportion of each product is:
1. Product X: 16.67% ($10 / $60)
2. Product Y: 33.33% ($20 / $60)
3. Product Z: 50% ($30 / $60)

Using the sales value at split-off method, the joint cost allocated to Product X is $133,333
($800,000 x 16.67%), to Product Y is $266,667 ($800,000 x 33.33%), and to Product Z is
$400,000 ($800,000 x 50%).

PROBLEM 3
A company produces two products - P and Q - using a joint process. The joint cost of the
process is $1,000,000. The products are sold after further processing. The net realizable
value (NRV) of each product after further processing is P: $30, and Q: $60. Allocate the
joint cost to each product using the NRV method.

Net Realizable Value Method:

The total NRV is $90 per unit (30 + 60).
The NRV proportion of each product is:
Product P: 33.33% ($30 / $90)
Product Q: 66.67% ($60 / $90)

Using the NRV method, the joint cost allocated to Product P is $333,333 ($1,000,000 x
33.33%), and to Product Q is $666,667 ($1,000,000 x 66.67%).

PROBLEM 4
A company produces two products - R and S - using a joint process. The joint cost of the
process is $500,000. The company expects to sell R for $60 per unit and S for $90 per
unit. The company has a gross margin percentage of 30%. Allocate the joint cost to each
product using the constant gross margin percentage NRV method.

The total expected revenue from the sale of the products is $150 per unit (60 + 90).

The expected gross margin percentage is 30%.

The joint cost allocated to Product R is $200,000 (($60 / $150) x $500,000), and to
Product S is $300,000 (($90 / $150) x $500,000).

PROBLEM 5
A company produces three products - M, N, and O - using a joint process. The joint cost
of the process is $1,500,000. The products are sold after further processing. The sales
values of the products after further processing are M: $40, N: $60, and O: $100 per unit.
Allocate the joint cost to each product using the relative sales value method.

The total sales value of the products after further processing is $200 per unit (40 + 60 +
100).

The sales value proportion of each product is:

Product M: 20% ($40 / $200)
Product N: 30% ($60 / $200)
Product O: 50% ($100 / $200)

Using the relative sales value method, the joint cost allocated to Product M is $300,000
($1,500,000 x 20%), to Product N is $450,000 ($1,500,000 x 30%), and to Product O is
$750,000 ($1,500,000 x 50%).

PROBLEM 6
A company produces 5,000 units of a product at a cost of $30 per unit. The company has
an opportunity to sell the product at split-off point for $50 per unit or process it further at
a cost of $10 per unit and sell it for $70 per unit. Should the company sell the product at
split-off point or process it further?
Sell the product at split-off point for $50 per unit.
Reason: The additional processing cost of $10 per unit will result in a total cost of $40
per unit. Since the selling price after processing is $70 per unit, the company will only
make a profit of $30 per unit. On the other hand, if the company sells the product at split-
off point for $50 per unit, it will make a profit of $20 per unit, which is higher than the
profit after processing.

PROBLEM 7
A company produces 20,000 units of a product at a cost of $40 per unit. The company
has an opportunity to sell the product at split-off point for $50 per unit or process it
further at a cost of $15 per unit and sell it for $70 per unit. The processing will result in
15,000 units of a by-product that can be sold for $5 per unit. Should the company sell the
product at split-off point or process it further?

Process the product further and sell it for $70 per unit.

Reason: The additional processing cost of $15 per unit will result in a total cost of $55
per unit. Since the selling price after processing is $70 per unit, the company will make a
profit of $15 per unit. In addition, the by-product generated can be sold for $5 per unit,
which will further increase the profit. Therefore, processing the product further is the
better option.

PROBLEM 8 (Not part of Items, but if you can answer it correctly, you’ll get the points)
A company produces 50,000 units of a product at a cost of $60 per unit. The company
has an opportunity to sell the product at split-off point for $80 per unit or process it
further at a cost of $20 per unit and sell it for $100 per unit. Processing the product
further will require an additional investment of $500,000 in equipment, which has a
useful life of 5 years and no salvage value. The company uses straight-line depreciation
and has a tax rate of 30%. The company can also sell the scrap generated from processing
the product further for $10,000. Should the company sell the product at split-off point or
process it further?

Process the product further and sell it for $100 per unit.

Reason: The additional processing cost of $20 per unit will result in a total cost of $80
per unit. Since the selling price after processing is $100 per unit, the company will make
a profit of $20 per unit. In addition, the scrap generated from processing the product
further can be sold for $10,000. Therefore, processing the product further is the better
option.

Note: In the difficult problem, the equipment investment cost is not relevant because it is
a sunk cost (i.e., already incurred and cannot be recovered). Only the incremental costs
and revenues that will change as a result of the decision to process further should be
considered