Concepts:

Joint Production Problem: Joint Costs, Separable Costs, By-products

Allocation methods for Joint Costs

Accounting for By-products

Terms : p.288

Problems:

Allocation Of Joint Cost:

By-Product Accounting Treatments: Reduction of Main Product Cost

Decisions:

Freedman Corporation uses a joint process to manufacture Products A, B, and C. Each product may be sold at its split-off point or processed further. Additional processing costs are entirely variable and traceable to the respective products manufactured. Joint production costs for 19x1 were $580,000. The following data are available:

Required:

1. Determine the joint cost allocation and inventory value for each product, assuming all products are processed beyond the split-off point:

1. Using the physical method of allocation.
2. Using the net market (realizable) value method of allocation.

2. Assume Product A can be sold at the split-off point for $185,000. What would you advise management to do?
3. Assume product C can be sold at split-off point for $265,000. What would you advise management to do?
4. Determine the weighted average joint cost allocation of the following weights are used

5. Determine the joint cost allocation using the sales value at split-off give these market values at split-off:

6. Determine the joint cost allocation using the constant gross margin percentage.
7. Determine the joint cost allocation using the sales to Production Ratio Method.

The Darl Company operates a simple chemical process to reduce a single material into three separate items, here referred to as X, Y, and Z. All three end products are separated simultaneously at a single split off point.

Products X and Y are ready for sale immediately upon split off without further processing of any other additional costs. Product Z, however, is processed further before being sold. There is no available market price for Z at the split off point.

The selling prices quoted below have not changed for three years, and no changes are foreseen for the coming year. During 19_5, the selling prices of the items and the total amounts sold were as follows:

• X ---- 120 tons sold for $1,500 per ton
• Y ---- 340 tons sold for $1,000 per ton
• Z ---- 475 tons sold for $700 per ton

The total joint manufacturing costs for the year were $400,000. An additional $200,000 was spent in order to finish product Z.

There were no beginning inventories of X, Y, and Z. At the end of year, the following inventories of completed units were on hand: X, 180 tons; Y, 60 tons; Z, 25 tons. There was no beginning of ending work in process.

Required:

1. What will be the cost of inventories of X, Y, and Z for balance sheet purposes and what will be the cost of goods sold for income statement purposes as of December 31, 19_5, using ( a ) the estimated net realizable value method of joint-cost allocation and ( b ) the constant gross-margin percentage NRV method of joint-cost allocation?
2. Compare the gross-margin percentages for X, Y, and Z using the two methods given in requirement 1.

8-8 (RAYBURN) Krown Ltd., produces three products ( K, Q, and T ) from a joint process. Joint cost is allocated in the basis of relative sales value at split-off. Information related to these products is as follows:

1. What amount of joint cost should be allocated to products Q and T?
2. What are the sales values at split-off for products K and Q?
3. Which products should be processed further? Show computations.
4. If 4,000 units of Q are processed further and sold for $67,000, what is gross profit on the sales?

Oury Company's Chemicals X12 and YR8 are joint products: 200,000 gallons of X12 and 40,000 gallons of YR8 were produced. Their cost for April up to the point of separation was $350,000. No costs were incurred beyond that point. The selling price was $8 for X12 and $6 for YR8.

Required:

1. Determine the allocation of costs between joint products using the net market (realizable) method.
2. If, instead, the sales price for X12 is 2.5 per gallon and x12 is treated as a by-product and the sales price for YR8 remains at $6, determine the allocation of costs between the two products. The company follows the approach of deducting the market value of the by-products produced from production costs. Would you advise management to continue production using these market conditions?

Allen Manufacturing Company produces one by-product, Cy-O, and three joint products -- Di-O, Ey-O, and Fe-O. Joint costs of production totaled $508,000 for May. Because the skills needed to process each product vary, the engineering staff has provided points per pound. Data for each product follows:

The company uses the approach of deducting the net market value of the by-products manufactured from production costs.

Required:

1. Using the weighted factor method in allocating joint costs, determine the distribution of production costs, total inventory valuation of each of the four products, and their unit costs. Would this method be acceptable for this set of circumstances?
2. Using the net market method in allocating joint costs, determine the distribution of production costs and total inventory valuation of each of the four products.

Texco Company manufactures three products, R, S, and T, from a particular joint process. Each product may be sold at split-off or may processed further. Joint production costs for the period were $412,500. All costs of additional processing are of a variable nature and are directly traceable to the products involved. The following data are from company records:

Required:

1. Using the gross market value method, distribute joint cost to the joint products.
2. Using the quantity method, determine the joint costs to allocate to each group of joint products.
3. If management instead assigns weights of 3:1:2 to products R, S, and T respectively based on the engineering skills required, what is the joint cost allocation and the cost per actual unit produced?

Murray Company produces three main products: A, B, C. It also has a residue Product DD that requires additional material and processing before it can be sold. The company assigns joint production costs to its Product DD equal to its market value less additional costs incurred after the split-off point. The products are manufactured in batches, costing $2,175. A batch produces the following"

Required:

1. Using the physical basis, determine the amount of production costs that should be allocated to all four products. Also indicate the inventory value for each product.
2. Using the net market (realizable) value, determine the amount of production costs that should be allocated to all four products. Also indicate the inventory value for each product.
3. Indicate the ending inventory valuation using the physical basis and the net market value method if 10 gallons of Product A, 18 gallons of B, 15 gallons of C, and 6 gallons of DD are on hand at the end of the period.

G. Porter corporation uses a joint process in manufacturing product L, UL, sul. Each prodect may be sold at its split-off point or processed further. None of the separable costs are fixed, and all are traceable to the respective product manufactured. Join production costs total $45,000 and are allocated on the basis of the sales value at spit-off point.

Required:

1. Determine the joint cost allocated to each product and the inventory valuation assuming the products are further processed.
2. For the company to maximize profits, what is your suggestion on each product?

16-27 Accounting for a main product and a byproduct. (HORNGREN, FOSTER, DATAR)

( Cheatham and Green, adapted) Bill Dundee is the owner and operator of Louisiana Bottling, a bulk soft-drink producer. A single production process yields two bulk soft drinks -- Rainbow Dew (the main product) and Resi-Dew (the byproduct). Both products are fully processed ate the splitoff point, and there are no separable costs.

Summary data for September 19_5 are:

Cost of soft-drink operations = $120,000

Production and sales data:

There were no beginning inventories on September 1, 19_5. An overview of operations:

 Required:

1. What is the gross margin for Louisiana Bottling under methods A, B, C, and d of by product accounting descried on p. 583 of this chapter?
2. What are the inventory amounts reported in the balance sheet on September 30, 19_5. Rainbow Dew and Resi-Dew under each of the four methods of byproduct accounting in requirement 1?

to AC 301 - TeachingNotes