Joint Product & By-Product Accounting - 1 File Download

Chapter 15Chapter 15

Joint Product &Joint Product &

By-Product AccountingBy-Product Accounting

InIn the process othe process of manufacturing onf manufacturing one or more produe or more products, a company may acts, a company may also produce othlso produce other er

products which may either be joint pro products which may either be joint products or by-products dependducts or by-products depending upon their importance toing upon their importance to

the firm.the firm.

The problemsThe problems encountereencountered in the CPA examd in the CPA examinations relative to joininations relative to joint products and by-productst products and by-products

accounting are the following:accounting are the following:

1.1. AllocAllocation ation of joinof joint (comt (commonmon) cost) costs at the s at the poinpoint of splt of split-off.it-off.

2.2. AccAccouountinting ng for for by-by-proproducducts.ts.

ALLOCATION OF JOINT (COMMON) COSTSALLOCATION OF JOINT (COMMON) COSTS

The allocation of the joint costs among the individual products produce is to be made at theThe allocation of the joint costs among the individual products produce is to be made at the

split-off point, which is the point where the joint split-off point, which is the point where the joint products are separated from each other.products are separated from each other.

The following methods are usually used in allocating joint costs:The following methods are usually used in allocating joint costs:

1.1. RelRelatiative ve marmarkeket t (sa(salesles)) valvalue ue metmethodhod.. The application of this method will depend onThe application of this method will depend on

whether the products are sold at whether the products are sold at the point of separation or the point of separation or whether additional costs arewhether additional costs are

incurred as a result of additional processing. The following procedures should beincurred as a result of additional processing. The following procedures should be

remembered by the candidate:remembered by the candidate:

a.a. Sale value at point of split-off.Sale value at point of split-off. If the products are sold at the point of If the products are sold at the point of

separation, cost is allocated to each product based on the relative market valueseparation, cost is allocated to each product based on the relative market value

at that point (split-off point).at that point (split-off point).

b.b. Sale value after further processing.Sale value after further processing. Joint cost is to be allocated on the basis of Joint cost is to be allocated on the basis of

each product’s net realizable value. Net realizable value is the differenceeach product’s net realizable value. Net realizable value is the difference

between the final sales value and the actual cost to complete and sell. (Furtherbetween the final sales value and the actual cost to complete and sell. (Further

processing cost).processing cost).

2.2. PhysicPhysical al MeasMeasures ures (Uni(Units Prts Produceoduced) d) MethMethod.od. This method allocates joint costs toThis method allocates joint costs to

products based on a physical measure of units. If the allocation is based on physicalproducts based on a physical measure of units. If the allocation is based on physical

quantities, each unit of each product is assigned at the same value regardless of thequantities, each unit of each product is assigned at the same value regardless of the

nature or value of the product.nature or value of the product.

ACCOUNTING FOR BY-PRODUCTSACCOUNTING FOR BY-PRODUCTS

By-products are those products of limited sales value produced simultaneously with products of By-products are those products of limited sales value produced simultaneously with products of

greater sales value known as main or joint products.greater sales value known as main or joint products.

The methods of accounting for by-products fall into the following categories:The methods of accounting for by-products fall into the following categories:

1.1. By-By-proproducducts ats are rre recoecognignized wzed whenhen sold.sold. Under this method no income is recorded fromUnder this method no income is recorded from

them until they are sold. Net by-product income equalsthem until they are sold. Net by-product income equals actual actual sales revenue less anysales revenue less any

actual actual additional processing costs and marketing and administrative expenses. Net by-additional processing costs and marketing and administrative expenses. Net by-

product income may be shown in the income statement as:product income may be shown in the income statement as:

a.a. AdditAddition tion to incoo income, eime, either ather as “ots “other saher sales” oles” or “otr “other inher incomecome”.”.

b.b. A deduA deductioction from n from cost cost of goof goods sods sold of old of the mathe main prin producoduct.t.

2.2. By-By-proproducducts ats are rre recoecognignized wzed whenhen produce produced.d. Under this category the cost of the by-Under this category the cost of the by-

product is computed by using the following methods:product is computed by using the following methods:

a.a. Net realizable value method.Net realizable value method. Under this, theUnder this, the expected expected sales value of the by-sales value of the by-

productproduct produced produced is reduced by theis reduced by the expected expected additional processing cost andadditional processing cost and

marketing and administrative expenses. The resulting net realizable value of themarketing and administrative expenses. The resulting net realizable value of the

by-product is deducted from theby-product is deducted from the total production coststotal production costs of the main product.of the main product.

b.b. Reversal cost method.Reversal cost method. The expected value of the by-product produced isThe expected value of the by-product produced is

reduced by the expected additional processing costsreduced by the expected additional processing costs and and normal gross profit of normal gross profit of

the by product (or by the marketing and administrative expenses and netthe by product (or by the marketing and administrative expenses and net

income). This method is called the reversal cost method because you have toincome). This method is called the reversal cost method because you have to

work backward from the gross revenue to arrive at the estimatedwork backward from the gross revenue to arrive at the estimated joint joint cost of cost of

the by-product at the by-product at the point of split-off. The joint costthe point of split-off. The joint cost allocated to the pallocated to the productionroduction

of the by-product is deducted from the total production cost of the mainof the by-product is deducted from the total production cost of the main

product, and charge to a by-product inventory account. Proceeds from the saleproduct, and charge to a by-product inventory account. Proceeds from the sale

of by-productsof by-products are treated the saare treated the same as sales of the mame as sales of the main product.in product.

PROBLEMS

1. Tomasa Inc. manufactures products X, Y and Z from a joint process. Joint product costs

were P60,000. Additional information is as follows:

Sales Value and Additional

Costs if processed further

Products Units Produced Final Sales Values Additional Costs

X 6,000 P49,000 P9,000

Y 4,000 42,000 7,000

Z 2,000 30,000 5,000

What is the total costs allocated to product X?

Physical Measure Relative Sales Values

a. P30,000 P28,000

b. 29,000 27,000

c. 30,000 21,000

d. 39,000 33,000

2. Camille Company manufactures products W, X, Y and Z from a joint process. Additional

information is as follows:

If processed further

Products Units Produced Value at

Split-off

Additional

Costs

Sales

Value

W 6,000 P80,000 P7,500 P90,000

X 5,000 60,000 6,000 70,000

Y 4,000 40,000 4,000 50,000

Z 3,000 20,000 2,500 30,000

18,000 P200,000 P20,000 P240,000

Assuming that total joint costs of P160,000 were allocated using the relative-sales value

at split-off approach, what were the joint costs allocated to each product?

W X Y Z

a. P40,000 P40,000 P40,000 P40,000

b. 53,333 44,444 35,556 26,667

c. 60,000 46,667 33,333 20,000

d. 64,000 48,000 32,000 16,000

3. Solomon Inc. manufactures products F, G and H from a joint process. Additional


Products

F G H Total

Units produced 8,000 4,000 2,000 14,000

Joint cost ? ? 18,000 120,000

Sales value at split-off P120,000 ? ? 200,000

Additional costs if processed further 14,000 10,000 6,000 30,000

Sales value if processed further 140,000 60,000 50,000 250,000

Assuming that joint product costs are allocated using the relative sales-value at split-off

approach, what were the joint costs allocated to product G?

a. P28,000

b. 30,000

c. 34,000

d. 51,000

4. A company produces two joint products, A and B. For the month of March, the joint

production costs were P120,000. Further processing costs beyond split-off point

required to make the products into marketable form and other related data follow:

A B

Additional processing costs P100,000 P140,000

Units after split-off 1,600 800

Unit selling price 200 400

The company uses the net realizable value method for allocating joint product costs. For

the month of March, the joint costs allocated to A amounted to

a. P66,000

b. 72,000

c. 60,000

d. 80,000

5. Kamagong Inc. produces two joint products, PEI and VEL. The joint production costs for

March 2013 were P15,000. During March 2013, further processing costs beyond the

split-off point, needed to convert the products into salable form were P8,000 and

P12,000 for 800 units of PL and 400 units VEL, respectively. PEL sells for P25 per unit and

VEL sells for P50 per unit. Assuming that Kamagong uses the net realizable value

method for allocating joint product costs, what were the joint costs all allocated to

product PEL for March 2013?

a. P5,000

b. 6,000

c. 9,000

d. 10,000

6. 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, 2013 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:

a. P33,000

b. 27,500

c. 22,000

d. 32,000

7. Adan Inc. purchases its major raw material from Eva Co. and processes them up to split-

off point, where two products (AA and CC) are obtained. The products are then sold to

an independent company that markets and distributes them to retail outlets. For the

month just ended the following data were made available:

Raw material purchased 25,000 Units

Production

AA 15,000 Units

CC 15,000 Units

Sales

AA 14,500 units@P2

CC 15,000 units@P5

The cost of purchasing 25,000 units raw materials and processing them up to the split-

off point to yield equal number of production of AA and CC of 15,000 units each

amounted to P37,500. There were no beginning inventories but there were 500 units of

AA at the end of the month, using the sales value at split-off method the approximate

weighted cost proportions (may be rounded) of AA and CC were:

a. AA, 29% and CC, 71%

b. AA, 33% and CC, 67%

c. AA, 49% and CC, 51%

d. AA, 50% and CC, 50%

8. Kasoy Manufacturing Company manufactures two products, AA and BB. Initially, they

are processed from the same materials and then, after split-off, they are further

processed separately. Additional information is as follows:

AA BB Total

Final sales price P9,000 P6,000 P15,000

Joint costs prior to split-off ? ? 6,600

Costs beyond split-off point 3,000 3,000 6,000

Using the relative-sales-value approach, what are the assigned joint costs of AA and BB

respectively?

a. P3,000 and P3,300

b. 3,960 and 2,640

c. 4,400 and 2,200

d. 4,560 and 2,040

9. Vivien Company manufactures products N, P and R from a joint process. The following

information is available:

N P R Total

Units produced 12,000 ? ? 24,000

Sales value at split-off point ? ? P50,000 P200,000

Joint costs P48,000 ? ? 120,000

Sales value if processed further 110,000 P90,000 60,000 260,000


Assuming that joint product costs are allocated using the relative-sales-value at split-off

point approach, what was the sales at split-off for products N and P?

Product N Product P

a. P66,000 P84,000

b. 80,000 70,000

c. 98,000 84,000

d. 100,000 50,000

10. Cebu Inc. manufactures product P, Q and R from a joint process. Additional information

is as follows:

Products

P Q R Total

Units produced 4,000 2,000 1,000 7,000

Joint cost P36,000 ? ? P60,000

Sales value at split-off ? ? P15,000 100,000

Additional costs if processed further 7,000 P5,000 3,000 15,000


Assuming that joint costs are allocated using the relative sales value at split-off

approach, what was the sales value at split-off for Product P?

a. P58,333

b. 59,500

c. 60,000

d. 63,000

11. Korina Company manufactures products S and T from a joint process. The sales value at

split-off was P50000 for 6,000 units of Product S and P25,000 for 2,000 units of Product

T. Assuming that the portion of the total joint costs properly allocated to Product S using

the relative-sales-value at split-off approach was P30,000, what were the total joint

costs?

a. P40,000

b. 42,500

c. 45,000

d. 60,000

12. Sisa Company manufactures Product J and Product K from a joint process. For Product J,

4,000 units were produced having a sales value at split-off of P15,000. If Product J were

processed further, the additional costs would be P3,000 and the sales value would be

P20,000. For product K, 2,000 units were produced having a sales value at split-off of

P10,000. If Product K were processed further, the additional costs would be P1,000 and

the sales value would be P12,000. Using the relative sales value at split-off approach,

the portion of the total joint product costs allocated to Product J was P9,000. What

were the total joint product costs?

a. P14,400

b. 15,000

c. 18,400

d. 19,000

13. Stella Corporation manufactures products R and S from a joint process. Additional


Products

R S Total

Units produced 4,000 6,000 10,000

Joint cost P36,000 P54,000 P90,000

Sales value at split-off ? ? ?

Additional costs if processed further 3,000 26,000 29,000

Sales value if processed further 63,000 126,000 189,000

Additional margin if processed further 12,000 28,000 40,000

Assuming that joint costs are allocated on the basis of relative-sales-value at split-off,

what was the sales value at split-off for Product S?

a. P72,000

b. 82,000

c. 98,000

d. 100,000

14. Bacolod Company manufactures Products F, G and W from a joint process. Joint costs

are allocated on the basis of relative sales value at split-off. Additional information for

the June 2013 production activity is as follows:

Products

F G W Total

Units produced 50,000 40,000 10,000 100,000

Joint cost ? ? ? 450,000

Sales value at split-off P420,000 P270,000 P60,000 P750,000



Assuming that the 10,000 units of Product W were processed further and sold for

P78,000, what was Bacolod gross profit on this sale?

a. P21,000

b. 28,500

c. 30,000

d. 66,000

15. Luzon Company manufactures three products, R, S and T, in a joint process. For every

ten kilos of raw materials input, the output is five kilos of R, three kilos of S, and two

kilos of T.

During August, 50,000 kilos of raw materials costing P120,000 were processed and

completed, with joint conversion costs of P200,000. Conversion costs are to be allocated

to the products on the basis of market values.

To make the products salable, further processing which does not require additional raw

materials was done at the following costs:

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

What are the unit cost of Product R, S and T?

R S T

a. P7.12 P8 10.20

b. 8 7.12 10.20

c. 10 8 10

d. 25.32 7.12 10

16. It costs Visaya Corp. P1,400,000 to process a main material to produce three chemicals:

#111, #777 and #999. This joint cost is allocated to the product lines based on the

relative market values of the products produced. Additional data are summarized

below:

Units of

Production

Additional

Processing Cost

Unit Sales Price at

Split-off

#111 60,000 960,000 P20

#777 20,000 168,000 40

#999 20,000 520,000 100

The product costing line that will have the least per unit contribution margin (after

accounting for share in joint and additional processing costs) is:

a. #111 at P(3)

b. #777 at 17.60

c. #111 at 13

d. #111 at (10.48)

17. Mindanao producers manufactures three joint products, JKA, JKB and JKC and a by-

product JJD, all in a single process. Results for July were as follows:

Materials used 10,000 kgs. P24,000

Coversion cost P28,000

Output:

No. of Kilos Product Sales Value per Kilo

4,000 JKA P11

3,000 JKB 10

1,000 JKC 26

2,000 JJD 1

The revenue from the by-product is credited to the sales account. Process costs are

apportioned on a relative sales value approach. What was the cost per kilogram of JKA

for the month?

a. P5.72

b. 5.50

c. 5.61

d. 5.20

18. Payaso Inc. produces chemicals Koo and Lam. The processing also yields a by-product,

Wiz, another chemical. The joint costs of processing is reduced by the net realizable

value of Wiz. For the month of March, the joint costs were registered at P3,840,000.

Below are additional data:

In Thousands

Product Production Market Value

Koo 2,000 P3,000

Lam 3,000 2,000

Wiz* 1,000 420

*An additional P180,000 were spent to complete the processing of Wiz.

Assuming that the company uses the net realizable value method for allocating joint

costs, the allocated costs to Koo would amount to:

a. P2,160,000

b. 1,800,000

c. 2,208,000

d. 2,700,000

19. Abel Corp. manufactures a product that yields the by-product, “Yum”. The only cost

associated with Yum are selling costs of P.10 for each unit sold. Abel accounts for sales

of Yum by deducting Yum’s separable costs from Yum’s sales, and then deducting this

net amount from the major product’s cost of goods sold. Yum’s sales were 100,000 units

at P1 each. If Abel changes its method of accounting for Yum’s sales by showing the net

amount as additional sales revenue, then Abel’s gross margin would:

a. Increase by P90,000

b. Increase by 100,000

c. Increase by 110,000

d. Be unaffected

20. Panday Company, which began operations in 2013, produces gasoline and a gasoline by-

product. The following information is available pertaining to 2013 sales and production:

Total production costs to split-off point P120,000

Gasoline sales 270,000

By-product sales 30,000

Gasoline/Inventory 15,000

Additional by-product costs:

Marketing 10,000

Production 15,000

Panday accounts for the by-product at the time of production. What are Panday’s 2013

costs of sales for gasoline and the by-product?

Gasoline By-product

a. P105,000 P25,000

b. 115,000 0

c. 108,000 37,000

d. 100,000 0

21. Bataan Co. produces main products JJ and MM. the process also yields by-product BB.

Net realizable value of by-product BB is subtracted from joint production cost of JJ and

MM. the following information pertains to production in July 2013 at a joint cost of

P54,000.

Product Units produced Production Market Value

JJ 1,000 P40,000 P0

MM 1,500 35,000 0

BB 500 7,000 3,000

If Bataan uses the net realizable value method for allocating joint cost, how much of the

joint cost should be allocated to product JJ?

a. P18,800

b. 20,000

c. 26,667

d. 27,342

22. Aguilar Sweets Factory manufactures a coconut candy, Coco, which is sold for P5 a box.

The manufacturing process also results in a by-product, Soloc. Without further

processing, Soloc sells for P1 per pack; with further processing, it sells for P3 per pack.

During the month of April, the total joint manufacturing costs up to the point of

separation consisted of the following charges to work in process:

Raw materials P225,000

Direct labor 100,000


During the month, the production for the two products was as follows; Coco, 591,000

boxes, Soloc, 45,000 packs.

The following additional costs are necessary for further processing to complete Soloc, in

order to obtain a selling price of P3 per pack, during the month of April:

Raw materials P30,000

Direct labor 22,500


Assuming that the by-product, Soloc, is further processed and then transferred to the

stockroom at net realizable value with a corresponding reduction of Coco’s

manufacturing costs, the journal entry would be:

a. By-product inventory – Soloc 45,000

Work in process – Coco 45,000

b. By-product – Soloc 135,000

Raw materials 30,000

Direct labor 22,500



c. By-product inventory – Soloc 6,750


d. Work in process – Soloc 60,000


Direct labor 22,500


23. A chemical company manufactures joint products PP and VV, and a by-product ZZ. Costs

are assigned to the joint products by the market value method, which considers further

processing costs in subsequent operations. For allocating cost to the by-product, the

market value, or reversal cost, method is used.

Total manufacturing costs for 10,000 units were P172,000 during the quarter.

Productions and costs data follow:

PP VV ZZ

Units produced 5,000 4,000 1,000

Sales price per unit P50 P40 P5

Further process cost per unit 10 5 -

Selling & admin. expense per unit 2

Operating profit per unit 1

What is the gross profit from the sales of PP?

a. P70,000

b. 80,000

c. 100,000

d. 98,000

24. AMG Paper Mfg. Co., which started operations in 2013, manufactures paper from wood

pulp. The company grades its products and classified them into Products A, B and C. in

processing the chipped woods, a fatty soap is produced, extracted, and refined into a

by-product identified as Product X. The following information related to AMG’s

operations for 2013 are obtained from the company’s records:

Units (in Tons) Sales Price

Products Produced Sold On hand Per Ton

A 152.5 66 86.5 P100

B 68.5 41.5 27 100

C 11 5 6 100

X 85 30 55 33

Sales, including Product X, totaled P12,240 while production costs amounted to

P24,884.50. Selling expenses, on the other hand, were P612.

The cost accountant, in order to find which accounting method best approximates

actual costs, computed the December 31, 2013 inventory (at the lower of cost or

market) based on the following alternative methods:

Method A – joint cost method of accounting, with costs apportioned on a unit

cost per ton basis.

Method B – recognize income in the period in which the by-product is produced,

with no selling expense assigned to the by-product.

The ending inventory on December 31, 2013 would be:

Method A Method B

a. P13,698 P13,765

b. 13,115 13,698

c. 11,105 13,698

d. 11,105 13,115

25. Cooper Company manufactures products MM, RR, SS and CC with product CC classified

as a by-product and sold at a lower price. Sales, including that for product CC, totaled

P49,200 while production costs amounted to P99,538. Selling expenses amounted to

P2,460. The following information concerning the company’s operations for 2013 are

obtained from the company’s records:

Sales Price Units in Kilos

Products Per Kilo Produced Sold On Hand

MM P100 610 264 346

RR 100 274 166 108

SS 100 44 20 24

CC 35 340 120 220

Compute the ending inventory (at lower of cost or market) at December 31, 2008 based

on the following methods:

Cost apportioned

a unit cost per kilo basis

Income recognition in the period

of by-product production

a. P44,838 P53,275.15

b. 44,838 52,842.32

c. 54,793 56,159

d. 56,159 55,159.08

26. Makiling Sawmill, Inc., purchases logs from independent timber contractors and

processes the logs into two joint products, two-by-fours of Narra A and four-by-eight of

Yakal B. In processing the two products, sawdust emerges and classified as by-product.

The packaged sawdust can be sold for P10 per kilo. Packaging cost for the sawdust is

P0.50 per kilo and sales commission is 105 of sales price. The by-product net revenue

serves to reduce joint processing costs for joint products. Joint products are assigned

joint cost based on board feet. Data follows:

Joint processing costs P100,000

Narra A 400,000

Yakal B 200,000

Sawdust produced (kilos) 2,000

What is the cost assigned to Narra A?

a. P61,000

b. 62,000

c. 63,000

d. 62,130

Use the following information in answering Numbers 26 to 30:

Manuel Tuason is the owner and operator of MT Bottling, a bulk soft-drink producer. A

single production process yields two bulk soft drinks: Rain Dew (the main product) and

Resi-Dew (the by-product). Both products are fully processed at the split off point, and

there are no separable costs.

For July 2013, the cost of the soft-drink operations is P120,000. Production and sales

data are as follows:

Production

(In Liters)

Sales

(In Liters)

Selling Price

Per Liter

Main product: Rain Dew 10,000 8,000 P20

By-product: Resi – Dew 2,000 1,400 2

There were no beginning inventories on July 1, 2013.

Assuming by-product is recognized when produced:

27. What is the gross margin for MT Bottling?

a. P67,200

b. 71,200

c. 71,200

d. 70,000

28. What are the inventory costs reported in the balance sheet on July 31, 2013, for Rain

Dew and Resi – Dew?

Rain Dew Resi-Dew

a. P23,200 P1,200

b. 23,200 4,000

c. 22,300 1,200

d. 25,200 4,000

Assuming the by-product is recognized at sale?

29. What is the gross margin for MT Bottling?

a. P66,800

b. 64,000

c. 60,000

d. 65,000

30. What are the inventory costs reported on July 31, 2013, for Rain Dew and Resi-Dew?

Rain Dew Resi-Dew

a. P24,000 P0

b. 23,200 1,200

c. 24,000 1,200

d. 23,200 0

Use the following data for Numbers 31-34:

JMG Company buys Article X for P.80 per unit. At the end of processing in Department 1

Article X split into Products D, E, and F. Product D is sold at split-off point with no further

processing. E and F require further processing before they can be sold. E is processed in

Department 2; and F is processed in Department 3. The following is a summary of costs

and other data for the fiscal year ended July 31, 2013:

Department 1 Department 2 Department 3

Cost of Article X:

Direct materials P144,000 - -

Direct labor 21,000 P67,500 P97,500

Factory overhead 15,000 31,500 73,500

Product D Product E Product F

Units sold 30,000 45,000 67,500

Units on hand, July 31, 2012 15,000 - 22,500

Sales P45,000 P144,000 P212,625

JMG uses the estimated net realizable method of allocating joint costs.

31. What is the sales value of Product D at split-off point?

a. P45,000

b. 30,000

c. 67,500

d. 22,500

32. What is the cost of Product E sold for the year ended July 31, 2013?

a. P147,000

b. 99,000

c. 144,000

d. 135,000

33. What is the cost of the inventory of Product D on July 31, 2013?

a. P27,000

b. 18,000

c. 22,500

d. 54,000

34. What is the cost of the inventory of Product F on July 31, 2013?

a. P33,500

b. 65,250

c. 42,750

d. 90,000

Question 35 and 36 are based on the following data:

JGG Company produces three products: Product A, B and C from the same materials.

Joint costs for this production run are P32,500. Data for the three products are:

Product Kilos

Sales price per

kilo at split-off

point

Disposal cost

per kilo at

split-off point

A 800 P6.50 P3.00

B 1,100 8.25 4.20

C 1,500 8.00 4.00

35. Using the sales value at split-off, what is the amount of joint cost allocated to Product

A?

a. P11,225

b. 10,525

c. 8,225

d. 9,525

36. Using the net realizable value at split-off, what is the allocated joint cost to Product C?

a. P15,605

b. 14,711

c. 15,750

d. 14,500

Use the following information in answering numbers 37 – 40:

The J&J Chemical Company produces a product knows as “VITAMIX” from which a by-

products results. This by-product can be sold at P4.14 per unit. The manufacturing costs

of the main product and by-product up to the point of separation for the three months

ended March 31, 2013 follows:

Materials P50,000

Labor 40,000

Overhead 30,000

The units produced were 15,000 units for the main product and 900 units for the by-

product. During the period 12,000 units of the “VITAMIX” were sold at P16 per unit,

while the company was able to sell 600 units of the by-product. Selling and

administrative expenses related to the main product amounted to P18,000. Disposal

cost per unit of the by-product is P1.75.

37. If the by-product is recorded at net realizable value, what is the unit of cost “VITAMIX”,

if the net realizable value of the by-product is deducted from the manufacturing costs of

“VITAMIX”?

a. P7

b. 7.85

c. 8.75

d. 8.50

38. If the by-product is recognized when sold, what is the cost of the inventory of

“VITAMIX”?

a. P24,000

b. 25,000

c. 24,500

d. 25,500

39. If the net realizable value of the by-product is deducted from the cost of goods sold of

“VITAMIX”, what is the gross profit?

a. P90,500

b. 95,700

c. 97,500

d. 87,500

40. If the net realizable value of the by-product is treated as other income, what is the net

profit?

a. P79,500

b. 75,900

c. 89,600

d. 85,700

ANSWERS

1. D 6. A 11. C 16. C 21. C 26. B 31. C 36. B

2. D 7. A 12. B 17. A 22. B 27. A 32. D 37. B

3. B 8. C 13. A 18. B 23. C 28. A 33. B 38. A

4. A 9. B 14. C 19. D 24. D 29. A 34. B 39. C

5. C 10. C 15. A 20. D 25. B 30. A 35. A 40. A

SOLUTIONS AND EXPLANATIONS

1. Physical measures (units produced):

Allocated joint cost (6,000/12,000 x P60,000) P30,000

Add: Additional processing cost 9,000

Total costs allocated to Product X P39,000

Relative sales value at split-off:

Allocated joint cost (P40,000/P100,000) x P60,000 P24,000

Add: Additional processing cost 9,000

Total costs allocated to Product X P33,000

Note: Sales value at split-off is equal to final sales value less additional processing costs.

The ratio is shown below:

Product X (P49,000 – P9,000) P40,000 - 40/100

Product Y (42,000 – 7,000) 35,000 - 35/100

Product Z (30,000 – 5,000) 25,000 - 25/100

P100,000

2. Since the sales values at split-off are already known, you should not have attempted to

compute the relative sales value by subtracting the additional processing costs from the

final sales values. This approach is only used when sales values at the split-off point are

not available.

Although the question required the correct allocated joint cost for products W, X, Y and

Z, you only needed to compute the correct allocated cost for onr product to select the

proper choice.

The easiest approach would have been as follows:

Allocation to Product Z:

20,000x 160,000 = P16,000

200,000

3. The problem indicates that relative sales value at split-off is used to allocate joint costs.

Product H has been allocated 15% (P18,000 ÷ P120,000) of the total joint costs.

Therefore, Product H has 15% of the total sales value at split-off of P30,000 (15% x

P200,000). Since Product F has sales value at split-off of P120,000, Product G’s sales

value at split-off is P50,000 (P200,000 – P30,000 – P120,000). The Product G sales value

just computed represents 25% (50,000 ÷ 200,000) of the sales value at split-off. The

joint costs allocated to product G is 120,000 x 25% = P30,000.

4. First compute the sales value at split-off ratio as follows:

Final

Sales Value

Add’l

Processing Cost

Sales Value

At split-off Ratio

Product A (1,600 x P200) P320,000 P100,000 P220,000 220/400

Product B (800 x P400) 320,000 140,000 180,000 180/400

P400,000

The allocated joint cost to A can now be computed as shown below:

220x P120,000 = P66,000

400

5. The net realizable values for products PEL and VEL are:

PEL VEL

Sales value –

(800 x P25) P20,000

(400 x P50) P20,000

Costs to convert into a salable form 8,000 12,000

Net realizable value P12,000 P8,000

Product PEL represents 60% (P12,000 ÷ P20,000) of the total net realizable value and

thus should be assigned 60% of the joint costs. Thus, the joint costs allocated to product

PEL would be (P12,000 ÷ P20,000) x 15,000 = P9,000.

6.

Final

Sales

Value

Further

Process

Costs

Sales Value

at Point of

Split-off

A 2,000 x P30 = P60,000 - P24,000 = P36,000

B 1,000 x 60 = 60,000 - 36,000 = 24,000

Total P60,000

Joint costs allocated to Product A:

36/60 x P55,000 = P33,000

7. Product AA (15,000 costs x P2) P30,000

Product BB (15,000 units x P5) 75,000

Total P105,000

The ratio therefore are:

AA = 30/105 or 29%

BB = 75/105 or 71%

8. The computation is:

Product

Sales

Value

Additional

Processing

Cost

Sales

Value

at Split-off

% of

total

Joint

Cost

AA P9,000 P3,000 P6,000 66 2/3 P4,400

BB 6,000 3,000 3,000 33 1/3 2,200

P15,000 P6,000 P9,000 100% P6,600

9. Apply the following formula:

Joint

costs

allocated

=

Sales value at spilt-off

X total joint costsTotal sales value

P48,000 =Sales value at (N)

X P120,000P200,000

Sales

Value

(N)

=

P200,000 x P48,000

P120,000

= P80,000

Since the answer (b) is the only one which assigns P80,000 sales value to product N, we

can stop here. Obtaining the sales value of product P is a simple operation:

Sales Value (P) = Total sales value – sales value (N) – sales value (R)

= P200,000 – P80,000 – P50,000

= P70,000

10. Plug given amounts into the basic relative sales value method Joint Cost allocation

formula applicable to product P:

Joint

costs

Allocated

=

Sales value at spilt-off

X total joint costsTotal sales value

P36,000 =P36,000 x P100,000

P60,000

= P60,000

11. Since Product S represents 66 2/3% (50,000/75,000) of the total, the total joint cost can

be determined as follows:

P30,000Or P30,000 x 3/2 = P45,000

66 2/3%

12. The portion of the total joint product costs allocated to Product J was P9,000. Using the

relative sales value at split-off approach, this means that 60% of the total joint costs

have been allocated to Product J (15,000/25,000 = .60). Therefore, total joint product

costs are calculated as follows:

P90,000= P15,000

60

13. Sales value if processed further (Product S) P126,000

Less: Additional costs if processed further P26,000

Additional margin if processed further 28,000 54,000

Sales value at split-off P72,000

14. The gross profit on this sale is the ultimate sales price less the cost of goods sold. In a

joint processing situation, the cost of the goods sold includes both the allocation of joint

costs up to the split-off point and all further processing costs. The allocation of joint

costs incurred prior to split-off is based on relative sales value at the split-off point. For

Product W, relative sales value is its sales value at split-off divided by total sales value at

split-off or P60,000/P750,000 = 8%. The allocation of joint costs is then 8% of total joint

costs, or (8%) (P450,000) = P36,000. The gross profit is computed as follows:

Ultimate sales price P78,000

Allocation of joint costs P36,000

Further processing costs 12,000 (48,000)

Gross profit P30,000

15. First compute the total production cost as shown below:

R S T

Units produced:

5/10 x 50,000

3/10 x 50,000 = 25,000 15,000 10,000

2/10 x 50,000

Materials:

P120,000 x 5/10

120,000 x 3/10 = P60,000 P36,000 P24,000

120,000 x 2/10

Joint conversion:

P200,000 x 22/50

200,000 x 16/50 = 88,000 64,000 48,000

200,000 x 12/50

Further processing = 30,000 20,000 30,000

Total cost of production P178,000 P120,000 P102,000

NOTE: The materials cost is allocated to the three joint products on the basis of relative

production units; the total joint conversion cost is allocated on the basis of relative sales

values at split-off point, as follows:

R S T

Final sales values:

25,000 x P10

15,000 x 12 P250,000 P180,000 P150,000

10,000 x 15

Less: Further processing costs 30,000 20,000 30,000

Sales values at split-off point P220,000 P160,000 P120,000

Fractional share of conversion costs 22/50 16/50 12/50

The unit cost can now be computed as follows:

Product R (P178,000 ÷ 25,000) P7.12

Product S (120,000 ÷ 15,000) P8.00

Product T (102,000 ÷ 10,000) P10.20

16. First allocate the joint cost among the three products:

Products Sales Value Ratio Allocated Joint Cost

#111 P1,200,000 1,200/4,000 P420,000

#777 800,000 800/4,000 280,000

#999 2,000,000 2,000/4,000 700,000

P4,000,000 P1,400,000

#111 #777 #999

Final sales value P2,160,000 P968,000 P2,520,000

Less: Allocated Joint Cost 420,000 280,000 700,000

Addt’l. Processing Cost 960,000 168,000 520,000

Total 1,380,000 448,000 1,220,000

Contribution margin P780,000 P500,000 P1,300,000

Units produced 60,000 20,000 20,000

Contribution margin/unit P 13 P 26 P 65

Sales value at split-off + additional processing cost.

17.

Product

Sales

Value Ratio

Allocated

Joint Cost ÷

No. of

Kilos =

Unit

Cost

JKA P44,000 44% P22,880 4,000 P5.72

JKB 30,000 30% 15,600 3,000 5.20

JKC 26,000 26% 13,520 1,000 13.52

P100,000 P52,000

18. Joint Cost P3,840,000

Less: Cost of By Product – Wiz

Sales Value (1,000 x P420) 420,000

Less: Addt’l. processing cost 180,000 240,000

Joint cost to be allocated to Koo and Lam P3,600,000

The allocation is as follows:

Market Value Ratio Allocated JC

Koo – P6,000,000 50% P1,800,000

Lam – 6,000,000 50% 1,800,000

P12,000,000 P3,600,000

19. The requirement is to determine the effect on gross margin by reporting the sale of a

by-product as additional sales revenue instead of a deduction from the major product’s

cost of goods sold. The solutions approach is to determine what is currently being done,

then calculate the effect of the accounting change. To facilitate understanding, assume

that peso amounts for sales and cost of goods sold (CGS) are P300,000 and P200,000,

respectively.

Present Method Proposed Method

Sales P300,000 P300,000 + P90,000*

CGS P200,000 – P90,000 P200,000

Gross Margin P190,000 P190,000

*100,000 units x (P1 selling price – P0.10 selling cost)

Note that the change in accounting treatment has no effect on gross margin.

20. The requirement is to find the cost of sales for both gasoline and the gasoline by-

product. The value of the by-products may be recognized at two points in time: (1) at

the time of production, or (2) at the time of sale. Under the production method (as

given in the problem), the net realizable value of the by-products produced is deducted

from the cost of the major products produced. The net realizable value of the by-

product is as follows:

Sales value of by-product P30,000

Less: Separable costs 25,000 (10,000 + 15,0000)

Net realizable value 5,000

Therefore, cost of sales for gasoline is calculated as follows:

Total production (joint) costs P120,000

Less: Net realizable value of by-product 5,000

Net Production Cost 115,000

Less: Costs in 12/31/13 inventory 15,000

Cost of Sales P100,000

Therefore, total cost of gasoline sales is P100,000, and no cost of sales is reported for

the by-product.

21. The requirement is to determine how to allocate joint cost using the net realizable va lue

(NRV) method when a by-product is involved. NRV is the predicted selling price in the

ordinary course of business less reasonably predictable costs of completion and

disposal. The joint cost of P54,000 is reduced by the NRV of the by-product (P4,000) to

get the allocable joint cost (P50,000). The computation is:

Products Sales Value at Split-off Weighting Joint Costs Allocated

JJ P40,000 40,000/75,000 x 50,000 P26,667

MM 35,000 35,000/75,000 x 50,000 23,333

P75,000 P50,000

Therefore, P26,667 of the joint cost should be allocated to product JJ.

22. The entry in answer choice “b” is the result of the following procedures related to the

by-product sales:

a) Reduce the manufacturing costs of Coco by the estimated realizable value of by-

product sales:

Work in process – Saloc P75,000

Work in process – Coco P75,000

Computation:

Sales price of Saloc (45,000 x P3) P135,000

Less: Further processing cost 60,000

Net realizable value of Saloc P 75,000

b) Record further processing costs of Saloc:

Work in process – Saloc P60,000


Direct labor 22,500


c) Record cost of By-Product transferred to stockroom:

By-product – Saloc 135,000

Work in process – Saloc 135,000

23. First compute the allocable joint cost to PP and VV.

Joint cost P172,000

Less: Cost of by-product ZZ:

Sales price (1,000 x P5) P5,000

Less: Operating expense (1,000 x P2) 2,000

Operating profit (1000 x P1) 1,000 3,000 2,000

Allocable Joint Cost P170,000

Allocated as follows:

Sales Value at Split-off Ratio Allocated Joint Costs

PP: 5,000 x (P50-P10) P200,000 200/340 P100,000

VV: 4,000 x (40-5) 140,000 140/340 70,000

Total P340,000 P170,000

The gross profit from sales of PP can now be computed:

Sales (5,000 x P50) P250,000

Less: Allocated joint cost 100,000

Further processing cost (5,000 x P10) 50,000 150,000


24.

Method A Prod. A Prod. B Prod. C Prod. X

Unit cost (total production cost

divided by total units produced):

P24,884.50/317 P78.50 P78.50 P78.50 P78.50

Unit “market”:

Unit selling price P100 P100 P100 P100

Unit selling expense:

P612/P12,240 = 5% 5 5 5 1.65

Unit realizable value P 95 P 95 P 95 P 31.35

Prod. A, B & C = 119.5 x P78.50 P9,380.75

By-product X = 55 x 31.35 1,724.25

Dec. 31, 2013 inventory at lower of cost or market P11,105

Method B Prod. A Prod. B Prod. C

Unit cost (total production cost

less sales value of X produced,

divided by total units of

A, B & C produced):

P22,079.50/232 P95.16 P95.16 P95.16

Unit “market”:

Unit selling price P100 P100 P100

Unit selling expense:

P612/P11,250 = 5.44% 5.44 5.44 5.44

Unit realizable value P 94.56 P 94.56 P 94.56

Prod. A, B & C = 119.5 x P94.56 P11,300

By-product X = 55 x 33 1,815

Dec. 31, 2013 inventory at lower of cost or market P13,115

25. Unit cost, if joint production costs is apportioned on a

“unit cost per kilo” basis: P99,538/1,268 kilos P78.50

Percent of selling expense to selling price: P2,460/49,200 5%

December 31, 2011 inventory at “lower of cost or market”:

MM: 346 kilos @ P78.50

RR: 108 kilos @ 78.50

SS: 24 kilos @ 78.50

Total 478 kilos @ 78.50 P37,523

CC 220 kilos @ 33.25 (net of 5% selling expense) 7,315

Total: 698 kilos P44,838

Unit cost, if the company recognizes income in the period in which the by-product is

produced with no selling expense assigned to the by-product:

Total production costs P99,538

Less: By-product sales value: 340 kilos @P35 11,900

Joint costs of MM, RR & SS P87,638

P87,638/928 kilos P94.44

December 31, 2013 inventory at “lower cost or market”:

MM, RR & SS: 478 kilos @ P94.44 P45,142.32

By-product 220 kilos @ 35.00 7,700.00

Total 638 kilos P52,842.32

26. Sales revenue of by-product – Sawdust (P10 x 2,000 kilos) P20,000

Selling expenses

Packaging costs (P.50 x 2,000) P1,000

Sales commission (10% x 20,000) 2,000 3,000

Net revenue P17,000

Joint processing costs P100,000

Less net revenue from sale of by-product 17,000

Joint costs to be allocated to Main products P93,000

Allocation to Narra A (P93,000 x 400/600) P62,000

27. Sales revenue:

Main product (8,000 x P20) P160,000

Cost of goods sold:

Total manufacturing costs P120,000

Less by product revenue (2,000 x 2) 4,000

Net manufacturing costs P116,000

Less Main product inventory:

(2,000/10,000 x P116,000) 23,200 92,800

Gross margin P67,200

28. Rain Dew (per no. 27) P23,200

Resi – Dew (2,000 – 1,400) x P2 P 1,200

29. Sales revenue:

Main product (8,000 x P20) P160,000

By product (1,400 x P2) 2,800

Total revenues P162,800

Cost of goods sold:

Total manufacturing costs P120,000

Less Main product inventory:

(2,000/10,000 x P120,000) 24,000 96,000

Gross margin P66,800

30. Rain Dew (per no. 29) P24,000

Resi – Dew P 0

31. The answer is (c). the computation is as follows:

Units produced (30,000 + 15,000) 45,000

Selling price per unit (45,000 ÷ 15,000) P 1.50

Sales value at split-off P67,500

Before answering numbers 32-34, prepare a schedule of allocating joint cost of

P180,000 (total cost in Department 1) among the joint products as follows:

Product Final

Sales value

Additional

Processing cost

Estimated

Net realizable

% Allocated

Joint cost

D P67,500 - P67,500 30% P54,000

E 144,000 P99,000 45,000 20% 36,000

F 283,500 171,000 112,500 50% 90,000

P225,000

32. The answer is (d) computed as follows:

Allocated joint cost P36,000

Additional processing cost 99,000

Total costs of product E P135,000

33. The correct choice is P18,000 (P54,000 x 15/45)

34. The answer is P65,250, computed as follows:

Allocated joint cost P90,000

Additional processing costs 171,000

Total cost P261,000

Cost of ending inventory (P261,000 x 22,500/90,000) P62,250

35. The answer is (a), computed as follows:

Product Units

produced

Unit

Sale price

Sales value at

split-off

A 800 P6.50 P5,200

B 1,100 8.25 9,075

C 1,500 8.00 12,000

Total P26,275

Allocated joint cost of product A (P9,075/P26,275 x P32,500) P11,225

36. The answer is (b). The computation is:

Product Units

produced

Unit

Sale price

Sales value at

split-off

A 800 P3.50 P2,800

B 1,100 4.05 4,455

C 1,500 4.00 6,000

Total P13,255

Allocated joint cost of product C (P6,000/P13,255 x P32,500) P14,711

37. The correct choice is (b).

Sales value of by-product (900 x P4.25) P3,825

Disposal cost (900 x P1.75) (1,575)

Net realizable value P2,250

Manufacturing costs P120,000

Net realizable value of by-product ( 2,250)

Cost of “VITAMIX” P117,750

Unit cost (P117,750/15,000 units) P 7.85

38. The answer is P24,000 (P120,000 x 3,000/15,000).

39. The correct answer is (c). the computation is as follows:

Sales (12,000 units x P16) P192,000

Cost of goods sold:

Main product (P12,000 x 12,000/15,000) P96,000

By-product (600 x P2.50) ( 1,500) 94,500


40. The answer is (a) as computed below:

Sales P192,000

Cost of goods sold ( 96,000)

Gross profit 96,000

Expenses ( 18,000)

Operating income 78,000

Other income (by-product) 1,500

Net income P79,500

Documents

Joint Product & By-Product Accounting - 1 File Download