PA2.

M-1404: JOINT COST AND BY-PRODUCTS

STRAIGHT PROBLEMS

Straight Problem 1

Allocate the joint cost of 500,000 to the products A, B and C based on the following information using
1. Sales value method 3. Average method
2. Quantitative method 4. Predetermined index of production

Product A Product B Product C

Selling price / unit 10 9 11.25
Units of production 9,000 15,000 20,000
Weight / unit 5 10 15
Points (index of production) 5 4 6

Market Value (Reversal) Method of Allocating Joint Cost

Assume that the products in problem 1 are not yet ready for sale at the split off point. How much
should be the unit cost if joint cost is allocated using the market value using reversal method?

Additional information is as follows.

Product A Product B Product C

Cost of further P2 P3 P4
processing

Straight Problem 2 (Methods 1 and 2)

Kuya Ariel Company produces product XY from a process that also yields a by —product, Z. The by
product does not require additional processing. The company decided to charge the joint cost to XV. The
by-product will require selling and administrative expenses of P5,000. Information concerning a batch
produced in January follows: .

Product Units Produced MV at SO Units sold

XY 50,000 P 10.00 40,000 .
Z 20,000 1.00 15,000

The costs incurred up to point of split-off are:

Direct materials P 120,000
Direct labor 100,000
Factory Overhead 80,000 .

Required:

1. Income statements showing the net revenue of the by-product using the different methods.
a. Additional sales revenue
b. Deduction from the cost of goods sold of XY
c. Other income

2. Income statement showing the, net revenue of the by-product as deduction from the total
manufacturing cost of XY.

Straight problem 3 (Methods 3 and 4)

Ate Red Company manufactures product MN from a process that also produces by-product J and by
product K. The following pertains to operations for March, 2012.

MN J K Total

Units produced 10,000 6,000 4,000 20,000

Sales price/unit P 20.00 P 3.00 P 2.75
Units sold 8,000 6,000 4,000 18,000
Subsequent cost p 62,300 5,700 4,300 P 72,300
Selling & admin 32,000 2,500 1,000 35,500
Desired profit 2,000 1,200

Required:

1. Share of the by-products in the joint cost of p 50,ooo using reversal cost method
- Expected sales value — expected additional processing cost — marketing and admin expenses—
normal gross profit value of the by product

2. Share of the by-products in the joint cost of P50,000 net realizable value method
. Expected sales value — expected additional processing cost — marketing and admin expenses
value of the by-product

MULTIPLE CHOICE QUESTIONS

JYP Mfg. Corp. has two joint product, 2N and El. The corporation’s records show that the joint
production cost for the month of May, 20M amounted to P150,000. Additional processing costs beyond
the split-off point are P5 and P6 per unit, respectively. The corp. produced 12,000 units of 2N and 10,000
of El.
Assuming the company uses the net realizable value method for locating joint product

cost, the amount allocated to 2N would be:

A. P100,000 C. P90,000
B. P60,000 D. P80,000

2. Park Company, which manufactures products K, R and Y from a joint process. Joint costs are
allocated on the basis of relative sales value at split-off. Additional information is presented
below:

K R Y Total

6,000 4,000 2,000 12,000

Joint costs P72,000 ? ? P120,000
Sales value at split off point ? ? P30,000
P200,000
Additional Cost (if processed) 14,000 10,000 6,000 30,000

Sales value (if processed) 140,000 60,000 40,000 240,000

How much of the joint costs should Park allocate to product R?

A. P24,000 C. P30,000
B. P28,800 D. P32,000

3. Using the same information in No. 2 and assuming that 2,000 units of product Y were processed
further and sold for P40,000, what was park’s gross profit on the sale?
A. P 4,000 C. P16,000
B. P14,000 D. P22,000

4. Byun Company, which manufactures a product that gives rise to a by-product called “Hyun”. The only
costs associated with Hyun are selling costs of Pl for each unit sold. Byun accounts for Hyun sales first by
deducting its separable costs from such sales and then by deducting this net amount from cost of sales
of the major product. This year, 1,000 unit of Hyun were sold at P 4each.

If Byun records the net realizable value of Hyun as inventory as it is produced, what will the per
unit value be?
A. Pl C. P3
B. P2 D. P4

5. Kamagong Inc., produces two joint products, P and V. The joint production costs for March 2011 were
P15,000. During March 2011, 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 P and 400 units of V respectively. P
sells for P25 per unit and V sells for P50 per unit. Assuming that Kamagong uses net realizable value
method for allocating joint product costs, what were the joint costs allocated to product P for March
2011?

A. P5 000 C. P 9,000
B. P6,000 D. P10,000

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, 2011
were:

Materials P30,000 .
Direct labor 15,000
Factory overhead

Further processing costs after the split-off point in order to finish the products into their final form
amounted to 24,000 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. P 33,000 C. P22,000

B. P 27,500 D.P32,000

7. Korina Company manufactures products S and-T from a joint process. The sales value at spIit-off was
P50 000 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 C. P45,000
B. P42,500 D. P60,000

8. Abel Corp manufactures a product that yields the by-product Yum The only costs 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 Pl 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 C. Increase by P110,000
B. Increase by P100,000 D. Be unaffected

9. Bataan Co. produces main products JJ and MM. The process also yields by-product BB. Net
realizable value of by-product BB is subtracted form joint production cost of JJ and MM. The
following information pertains to production in July 2011 at a joint cost of P54,000

Product Units produced Market value Additional cost after split-off

JJ 1,000 P40,000 P0

MM 1,500 35,000 P 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 C. P26,667
B. P20,000 D. P27,342

10. Sisa Company manufactures Products J and Product K from a joint process. For Product J4,000 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 production costs?
A. P14,400 C. P18,400
B. P15,000 D. p19,000

11. Zi manufactures two limber products from a joint milling process. The two products developed are
mine support braces (MSB) and unseasoned commercial building lumber (CBL). A standard production
run incurs joint costs of P300,000 and results in P60,000 units of MSB and 90,000 units of CBL. Each MSB
sells P2 per unit and each CBL sells for P4 per unit.
Assuming no further processing work is done after the split-off point, the amount of joint cost
allocated to commercial building lumber (CBL) on a physical quantity allocation basis would be:

A. P75,000 C. P225,000
B. P180,000 D. P120,000

12. Wu Mfg. Co. manufactures two joint products and it uses the net realizable value method for
allocating joint costs. Production A sells for P30 while Product B sells for P60. Joint costs for June, 20M
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.

A. P33,000 C. P22,000
B. P27,500 D. P36,000

13. Abel Corp. manufactures a product that yields the by-product “Yum”. The only costs associated with
Yum are selling costs of P0.10 for each unit sold. Abel accounts for sales 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 P1.00 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 be?

A. Decreased to P90,000 C. Increased to P110,000

B. increased to P100,000 D. Be unaffected
14. Dennis Manufacturing Co. manufactures two joint products Product A sells at P30 while Product B
sells at P60. The company uses the net realizable value method for locating joint costs. For the month of
June 2012, the production activities were as follows;
Joint product costs:
Raw 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 were P24,000 for product A and p36,00° for Product B. total number of units produced
during the month were 2,000 for Product A and 1,000 for Product B. the joint cost allocated to A
A. 22,000 C. 27,500

B. 33,000 D. Answer not given

15. Lego Plastic, Inc. has two joint product5 Abba and Adda, and uses the net realizable value
method of locating joint costs. The total joint costs for 2012 amounted to P300,000 During the
year, additional processing costs after split-off were p160,000 for Abba and P240,000 for Adda.
Lego produced 16,000 units of Abba and 8,000 units of Adda during the year. The sales value of
Abba is p500 per unit and for Adda is P1,000 per unit. The portion of Joint costs allocated to Adda during
the year is:
A. 175,000 C. 225,000

B. 180,000 D. 150,000

16. The f0lloWing information pertains to a by product called Moy:

Sales in 2012 5,000 units

selling price per unit P6
selling costs per unit 2

processing costs 0

Inventory of Moy was recorded at net realizable value when produced in 2011. No units of Moy
were produced in 2012. What amount should be recognized as profit on Moy’s 2012 sales?

A. 0 C. 20,000
B. 10,000 D. 30,000
17. Lite Co. manufactures products X and Y from a joint process that also yields a by Product, Z.
Revenue from sales of Z is treated as a reduction of joint costs. Additional information is as
follows:

PRODUCTS

X Y Z TOTAL

Units produced 20,000 20,000 10,000 50,000

Joint costs ? ? ? 262,000

Sales value 300,000 150,000 10,000 460,000

Joint costs were allocated using the sales value at split-off approach. The joint costs allocated to product
X were

75,000 C. 150,000

100,000 D. 168,000

18. Joie Co. manufactures two joint products (Ralin and Stalin). Joie produced 12,000 units of Ralin with
an after split-off sales value, of P45,000. However, if Ralin were to be processed further, additional cost
of P6,000 will be incurred but the sale value will increase to P60,000. Joie produced 6,000 units of Stalin
with an after split-off sales value of P30,000.

However, if Stalin were to be further processed, additional cost of P3,000 will be incurred but the sale
value will go up to P36,000. Under the relative sales value at split-off approach, the
allocation to Ralin from total product cost is P27,000. What is the total product cost?
A. 75,000 C. 27,000
B. 45,000 D. 67,500

19. High Tets Chemicals, Inc. produces Product Love and potion from a process and incident to their
production recovers a by-product No. One. The net realizable value of the by-product, No. One is treated
as reduction of the joint production costs. For the month of October 2012, the joint costs of Processing
amounted to P1,152,000. Additional information are shown below:

Product Production Market Value

Love 550,000 P900,000

 Potion 825,000 600,000
No. One 275,000 126,000

An additional Processing costs of P54,000 was spent to complete the Processing of No. One.
Using the net realizable value method for allocating joint production costs, what would be the
amount of joint costs allocated to Product Love?

A. 540,000 C. 662,400
B. 648,000 D. 810,000

20. A chemical company which uses a joint process manufactures products O, P and M, which are all
derived from one input. The company allocates joint costs to the products in proportion to the relative
physical volume of output. The company may either sell the products at the point of split-off or process
further in order to maximize profits. The following data were obtained for February 2012:

If processed further

No of units Sales price/unit at Sales price per unit Additional cost

produced split-off per unit

O 2,000 P4.00 P5.00 P0.80

P 3,000 2.25 4.00 1.50
M 1,500 3.00 3.75 0.90

Joint production coats were P15,000. Additional Processing on products and P were performed,
while product M was sold at the point of split-off, The gross profit of the company derived from
the production process for the month of February 2012 was:
A. 4,250 C. 5,400
B. 5,175 D. 6,525

21. Gone 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 P 120,000 were processed and completed,
with joint conversion costs of P 200,000. Conversion costs are to be allocated to the products on
the basis of market values, while materials were based on units produced.

To make the products salable, further processing which does not require additional raw materials
was done at the following costs:
 Product R P 30,000

Product S 20,000
Product T 30,000

The unit selling prices are:

Product R P 10
Product S 12

Product T 15

The unit cost of Product R is:

A. P7.12 C. P10.00
B. P8.00 D. P25.32

22. Using the same information in No. 21 and assume all units are considered sold, compute the
gross profit on sales for Product S:
A. P80,000 C. P60,000
B. P72,000 D. P48,000

23. Using the same information in No. 21, and assume all units of Product T are sold, and selling and
administrative expenses are 20% of sales, the net income from the sale of Product T:
A. P18,000 C. P240,000
B. P22,000 D. P64,000

24. A chemical company manufactures joint products Pep and Vim, and a byproduct, Zest. Costs are
assigned to the joint products by the market value method, which considers further processing costs n
subsequent operations. For allocating cost to the by-product, the market value, or reversal cost method
is used.

The total manufacturing costs for 10,000 units were p 172,000 during the quarter. Production and
costs data follow:

PEP VIM ZEST

Units produced 5,000 4,000 1,000

Sales price per unit P 50 P40 P4
Further processing 10 5 -
Selling & admin expense per unit 2
Operating profit per unit 1
The value of Zest to be deducted from the joint costs is:

A. P5,000 C. P2,000
B. P3,000 D. Zero

25. Using the same information in No. 24, compute the gross profit for Pep:
A. P70,000 C. P100,000
B. P80,000 D. Zero

26. Magna Co. Produces three products, A, B, and C are joint products, while B is a by-product of A. No
joint cost is allocated to the by-product The production data for the year 2011 were as follows:

a. In Department 1, 220,000 kilos of raw materials are processed at a total cost of P240,000.
After processing, 60% of the units are transferred to Department Il while 40% of the units
(now C) are transferred to Department III.
b. In Department Il, the materials are processed further at total additional cost of P76,000. On
completion of the process, 70% of the units (now A) are transferred to Department IV while

the other 30% emerge as B, the by-product, which is sold at P1.20 per kilo. The selling
expenses related to B amounted to P16,200.
c. In Department Ill, C is processed further at total additional cost of P330,000. In this
department, a normal loss units of C occurs during processing, which is equal to 10% of the
good output. The good output of C is sold at P12 per kilo.
d. In Department IV, A is processed further at total additional cost of P47,320 after which it is
ready for sale at PS per kilo.

Market value method is used in allocating joint costs and treating the -NRV of by product as an
addition to product A sales.

Determine how much of the total joint cost of P240,000 is allocated to product A.
A. P101,564 C. P95,267
B. P91,210 D. P88,800

27. Using the same information in No. 26, determine how much of the total joint cost of P240,000 is
allocated to product C.
A. P138,436 C. P144,733
B. P148,790 D. P151,200
28. Goldilocks Company manufactures products Ma Ri Sa and Co with product Co classified as a by-
product and sold at a lower price. Sales, including that for product Co, totalled P49,200 while production
costs amounted to P99,538. Selling expenses amounted to P2,460. The following information concerning
the company’s operations for 2011 are obtained from the company’s records:

Units in Kilos

Products Sales Prices per Kilo Produced Sold On Hand

Ma P100 610 264 346
Ri 100 274 166 108
Sa 100 44 20 24
Co 35 340 120 220

Compute the ending inventory (at lower of cost of market) at December31, 2011 using joint cost
method of accounting with cost apportionment on a unit cost per kilo basis:
A. P44,838.00 C. P54,793.00
B. P53,275.15 D. P56,159.00

29. Using the same information in No. 28, compute the ending inventory (at lower of cost on market) at
December 31, 2011, using joint cost allocation method of accounting with cost apportionment on a unit
cost per kilo basis, assuming the company recognizes income in the period in which the by-product is
produce, the revenue of which should be deducted from the total production cost with no selling
expense assigned to the by-product:
A. P55,159 C. P53,275
B. P56, 159 D. P52,841

30. 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:
A. P33,000 C. P22,000
B. P27,500 D. P36,000 .
S