Which of the following is not an acceptable method of accounting for by-products

TRUE/FALSE

1. Joint costs occur after the split-off point in a production process

ANS: F

1. Joint costs occur before the split-off point in a production process

ANS: T

1. Joint costs are allocated to by-products as well as primary products.

ANS: F

1. The primary distinction between by-products and scrap is the difference in sales value.

ANS: T

1. The primary distinction between by-products and scrap is the difference in volume produced.

ANS: F

1. The point at which individual products are first identifiable in a joint process is referred to as the split- off point

ANS: T

1. Joint costs include all materials, labor and overhead that are incurred before the split-off point.

ANS: T

1. Two methods of allocating joint costs to products are physical measure allocation and monetary allocation.

ANS: T

1. A decision that must be made at split-off is to sell a product or process it further.

ANS: T

1. Allocating joint costs based upon a physical measure ignores the revenue-generating ability of individual products.

ANS: T

1. Allocating joint costs based upon a physical measure considers the revenue-generating ability of individual products.

ANS: F

1. Monetary allocation measures recognize the revenue generating ability of each product in a joint process.

ANS: T

1. The relative sales value method requires a common physical unit for measuring the output of each product.

ANS: F

1. Joint costs are allocated to main products, but not to by-products

ANS: T

1. Net realizable value equals product sales revenue at split-off plus any costs necessary to prepare and dispose of the product.

ANS: F

1. Net realizable value equals product sales revenue at split-off minus any costs necessary to prepare and dispose of the product.

ANS: T

1. If incremental revenues beyond split-off are less than incremental costs, a product should be sold at the split-off point.

ANS: T

1. If incremental revenues beyond split-off exceed incremental costs, a product should be processed further.

ANS: T

1. The net realizable value approach requires that the net realizable value of by-products and scrap be treated as a reduction in joint costs allocated to primary products.

ANS: T

1. Net realizable value is considered to be the best measure of the expected contribution of each product to the coverage of joint costs.

ANS: T

1. The net realizable value approach is used to account for scrap and by-products when the net realizable value is insignificant.

ANS: F

1. Two incidental products of a joint process are _____________________ and ____________________.

ANS: by-products; scrap

1. The point at which individual products are first identifiable in a joint process is referred to as the _____________________________.

ANS: split-off point

1. Two methods of allocating joint costs to individual products are ______________________ and ___________________________.

ANS: physical measurement allocation; monetary unit allocation

1. Three monetary measures used to allocate joint costs to products are ____________________________, _____________________________________, and ____________________________________________.

ANS: sales value at split-off; net realizable value at split-off; approximated net realizable value at split-off

1. Sales revenue at split-off less disposal costs equals ______________________________.

ANS: net realizable value.

MULTIPLE CHOICE

1. If a company obtains two salable products from the refining of one ore, the refining process should be accounted for as a(n) a. mixed cost process. b. joint process. c. extractive process. d. reduction process.

ANS: B

1. Joint costs are allocated to joint products to a. obtain a cost per unit for financial statement purposes. b. provide accurate management information on production costs of each type of product. c. compute variances from expected costs for each joint product. d. allow the use of high-low analysis by the company.

ANS: A

1. Joint costs are allocated to which of the following products?

By-products Scrap

a. yes yes b. yes no c. no no d. no yes

ANS: C

1. Joint cost allocation is useful for a. decision making. b. product costing. c. control. d. evaluating managers' performance.

ANS: B

1. Joint costs are useful for a. setting the selling price of a product. b. determining whether to continue producing an item. c. evaluating management by means of a responsibility reporting system. d. determining inventory cost for accounting purposes.

ANS: D

1. Which of the following components of production are allocable as joint costs when a single manufacturing process produces several salable products? a. direct material, direct labor, and overhead b. direct material and direct labor only c. direct labor and overhead only d. overhead and direct material only

ANS: A

1. Each of the following is a method to allocate joint costs except a. relative sales value. b. relative net realizable value. c. relative weight, volume, or linear measure. d. average unit cost.

ANS: D

1. Joint costs are most frequently allocated based upon relative a. profitability. b. conversion costs. c. prime costs. d. sales value.

ANS: D

1. In a lumber mill, which of the following would most likely be considered a primary product? a. 2  4 studs b. sawdust c. wood chips d. tree bark

ANS: A

1. Fisher Company produces three products from a joint process. The products can be sold at split-off or processed further. In deciding whether to sell at split-off or process further, management should a. allocate the joint cost to the products based on relative sales value prior to making the decision. b. allocate the joint cost to the products based on a physical quantity measure prior to making the decision. c. subtract the joint cost from the total sales value of the products before determining relative sales value and making the decision. d. ignore the joint cost in making the decision.

ANS: D

1. By-products are a. allocated a portion of joint production cost. b. not sufficient alone, in terms of sales value, for management to justify undertaking the joint process. c. also known as scrap. d. the primary reason management undertook the production process.

ANS: B

1. Which of the following statements is true regarding by-products or scrap? a. Process costing is the only method that should result in by-products or scrap. b. Job order costing systems will never have by-products or scrap. c. Job order costing systems may have instances where by-products or scrap result from the production process. d. Process costing will never have by-products or scrap from the production process.

ANS: C

1. Which of the following has sales value?

By-products Waste

a. no no b. yes no c. yes yes d. no yes

ANS: B

1. Under an acceptable method of costing by-products, inventory costs of the by-product are based on the portion of the joint production cost allocated to the by-product a. but any subsequent processing cost is debited to the cost of the main product. b. but any subsequent processing cost is debited to revenue of the main product. c. plus any subsequent processing cost. d. minus any subsequent processing cost.

ANS: C

1. Which of the following is a false statement about scrap and by-products? a. Both by-products and scrap are salable. b. A by-product has a higher sales value than does scrap. c. By-products and scrap are the primary reason that management undertakes the joint process. d. Both scrap and by-products are incidental outputs to the joint process.

ANS: C

1. The split-off point is the point at which a. output is first identifiable as individual products. b. joint costs are allocated to joint products. c. some products may first be sold. d. all of the above.

ANS: D

1. A product may be processed beyond the split-off point if management believes that a. its marketability will be enhanced. b. the incremental cost of further processing will be less than the incremental revenue of further processing. c. the joint cost assigned to it is not already greater than its prospective selling price. d. both a and b.

ANS: D

1. Which of the following would not be considered a sunk cost? a. direct material cost b. direct labor cost c. joint cost d. building cost

ANS: D

1. The definition of a sunk cost is a. a cost that cannot be recovered regardless of what happens. b. a cost that relates to money poured into the ground. c. considered the original cost of an item. d. also known as an opportunity cost.

ANS: A

1. Incremental revenues and costs need to be considered when using which allocation method?

Physical measures Sales value at split-off

a. yes yes b. yes no c. no no d. no yes

ANS: C

1. The method of pricing by-products/scrap where no value is assigned to these items until they are sold is known as the a. net realizable value at split-off point method. b. sales value at split-off method. c. realized value approach. d. approximated net realizable value at split-off method.

ANS: C

1. Relative sales value at split-off is used to allocate

costs beyond split-off joint costs

a. yes yes b. yes no c. no yes d. no no

ANS: C

1. For purposes of allocating joint costs to joint products using the relative sales value at split-off method, the costs beyond split-off a. are allocated in the same manner as the joint costs. b. are deducted from the relative sales value at split-off. c. are deducted from the sales value at the point of sale. d. do not affect the allocation of the joint costs.

ANS: D

1. Not-for-profit organizations are required by the _______ to allocate joint costs. a. AICPA b. FASB c. CASB d. GASB

ANS: A OBJ: 11-

Ratcliff Company

Ratcliff Company produces two products from a joint process: X and Z. Joint processing costs for this production cycle are $8,000.

Yards

Sales price per yard at split-off

Disposal cost per yard at split-off

Further processing per yard

Final sale price per yard X 1,500 $6 $3 $1 $ 7. Z 2,200 9 5 3 11.

If X and Z are processed further, no disposal costs will be incurred or such costs will be borne by the buyer.

1. Refer to Ratcliff Company. Using a physical measure, what amount of joint processing cost is allocated to X (round to the nearest dollar)? a. $4, b. $4, c. $5, d. $3,

ANS: D 1,500/3,700 * $8,000 = $3,

1. Refer to Ratcliff Company. Using a physical measure, what amount of joint processing cost is allocated to Z (round to the nearest dollar)? a. $4, b. $3, c. $5, d. $4,

ANS: D 2,200/3,700 * $8,000 = $4,

1. Refer to Ratcliff Company. Using net realizable value at split-off, what amount of joint processing cost is allocated to Z (round to the nearest dollar)? a. $5, b. $4, c. $2, d. $5,

ANS: D

Yards

Sales price at Split-off

Disposal Cost/Yard

NRV/

Splitoff Total NRV X 1,500 $6 $3 $2 $ 3, Y 2,200 $9 $5 $4 $ 8, $12, $(8,800/12,550) * $8,000 = $5,

1. Refer to Ratcliff Company. Using approximated net realizable value at split-off, what amount of joint processing cost is allocated to X (round to the nearest dollar)? a. $3, b. $5, c. $4, d. $2,

ANS: A

Yards

Final Sales Price

Separate Cost per Yard

Net Sales Price

Approximate d NRV X 1,500 $ 7 $4 $3 $ 4, Y 2,200 $11 $8 $3 $ 7, $11, $(4,500/11,650) * $8,000 = $3,

1. Refer to Ratcliff Company. Using approximated net realizable value at split-off, what amount of joint processing cost is allocated to Z (round to the nearest dollar)? a. $2, b. $4, c. $4, d. $2,

ANS: B

Yards

Final Sales Price

Separate Cost per Yard

Net Sales Price

Approximate d NRV X 1,500 $ 7 $4 $3 $ 4, Y 2,200 $11 $8 $3 $ 7, $11, $(7,150/11,650) * $8,000 = $4,

1. Refer to Ratcliff Company. Which products would be processed further? a. only X b. only Z c. both X and Z d. neither X or Z

ANS: A

Yards

Incremental Revenues

Incremental Costs

Net Difference X 1,500 $ 1 $1 $ 0. Y 2,200 $ 2 $3 $(0)

Gordon Company

Gordon Company produces three products: A, B, and C from the same process. Joint costs for this production run are $2,100.

Pounds

Sales price per lb. at split-off

Disposal cost per lb. at split-off

Further processing per pound

Final sales price per pound A 800 $6 $3 $2 $ 7. B 1,100 8 4 3 10. C 1,500 8 4 3 10.

If the products are processed further, Gordon Company will incur the following disposal costs upon sale: A, $3; B, $2; and C, $1.

1. Refer to Gordon Company. Using a physical measurement method, what amount of joint processing cost is allocated to Product A (round to the nearest dollar)? a. $ b. $ c. $ d. $

ANS: D (800/3,400) * $2,100 = $

1. Refer to Gordon Company. Using net realizable value at split-off, what amount of joint processing cost is allocated to Product A (round to the nearest dollar)? a. $ b. $ c. $ d. $

ANS: D

Yards

Sales price at Split-off

Disposal Costs at Split-Off

Net Realizable Value at Splitoff Total X 800 $6 $3 $3 $ 2, Y 1,100 $8 $4 $4 $ 4, Z 1,500 $8 $4 $4 $ 6, $13, $(2,800/13,255) * $2,100 = $

1. Refer to Gordon Company. Using net realizable value at split-off, what amount of joint processing cost is allocated to Product C (round to the nearest dollar)? a. $ b. $ c. $ d. $

ANS: B

Yards

Sales price at Split-off

Disposal Costs at Split-Off

Net Realizable Value at Splitoff Total X 800 $6 $3 $3 $ 2, Y 1,100 $8 $4 $4 $ 4, Z 1,500 $8 $4 $4 $ 6, $13, $(6,000/13,255) * $2,100 = $

Sabrina Company

Sabrina Company is placing an ad in the local paper to advertise its products. The ad will run for one week at a total cost of $5,500. Sabrina Company has four categories of products as follows:

% of floor space occupied

Expected sales value Hardware 20% $35, Hand Tools 15 15, Lawn Furniture 45 64, Light Fixtures 20 25,

1. Refer to Sabrina Company. What amount of advertising cost should be allocated to hardware, assuming Sabrina allocates based on percent of floor space occupied? a. $1, b. $1, c. $2, d. $ 825

ANS: B $5,500 * 0 = $1,

1. Refer to Sabrina Company. Assume that Sabrina decides to allocate based on expected sales value. What amount of advertising cost should be allocated to light fixtures (round to the nearest dollar)? a. $1, b. $ c. $1, d. $2,

ANS: C $(25,500/140,000) * $5,500 = $1,

Versatile Company

Versatile Company produces four solvents from the same process: C, D, E, and G. Joint product costs are $9,000. (Round all answers to the nearest dollar.)

Barrels

Sales price per barrel at split-off

Disposal cost per barrel at split-off

Further processing costs

Final sales price per barrel C 750 $10 $6 $2 $13. D 1,000 8 4 2 10. E 1,400 11 7 4 15. G 2,000 15 9 4 19.

If Versatile sells the products after further processing, the following disposal costs will be incurred: C, $2; D, $1; E, $3; G, $6.

1. Refer to Versatile Company. Using sales value at split-off, what amount of joint processing cost is allocated to Product D? a. $4, b. $2, c. $1, d. $1,

ANS: D

Product Barrels

Sales Price at Split-Off Total C 750 $10 $ 7, D 1,000 $ 8 $ 8, E 1,400 $11 $ 15, G 2,000 $15 $30, $60, $(8,000/60,900) * $9,000 = $1,

1. Refer to Versatile Company. Using sales value at split-off, what amount of joint processing cost is allocated to Product C? a. $4, b. $2, c. $1, d. $1,

ANS: C

Product Barrels

Sales Price at Split-Off Total C 750 $10 $ 7, D 1,000 $ 8 $ 8, E 1,400 $11 $ 15, G 2,000 $15 $30, $60, $(7,500/60,900) * $9,000 = $1,

1. Refer to Versatile Company. Using sales value at split-off, what amount of joint processing cost is allocated to Product G? a. $4, b. $1, c. $1, d. $2,

ANS: A

Product Barrels

Sales Price at Split-Off Total C 750 $10 $ 7, D 1,000 $ 8 $ 8, E 1,400 $11 $ 15, G 2,000 $15 $30, $60, $(30,000/60,900) * $9,000 = $4,

1. Refer to Versatile Company. Using sales value at split-off, what amount of joint processing cost is allocated to Product E? a. $4, b. $1, c. $1, d. $2,

ANS: D

Product Barrels

Sales Price at Split-Off Total C 750 $10 $ 7, D 1,000 $ 8 $ 8, E 1,400 $11 $ 15, G 2,000 $15 $30, $60, $(15,400/60,900) * $9,000 = $2,

What are the methods of accounting for by products?

Which of the following is not an acceptable method for accounting for inventory?

What is mean by by

Which of the following methods of joint cost allocation is not suitable when the products obtained after the joint process are a mixture of solids and liquids?