MANAGEMENT ACCOUNTING
CONCEPTS AND TECHNIQUES
By Dennis Caplan, University
at Albany (State University of New York)
CHAPTER
18: Joint Products
Exercises
and Problems:
18-1: Herz Corporation
processes soybeans into soybean oil and other products in a joint process. The
common costs allocated to soybean oil are $2.00 per gallon. The soybean oil can
either be sold for $1.90 or processed into margarine. The cost to process one
gallon of soybean oil into margarine is $1.20. Each gallon of soybean oil
yields 3 pounds of margarine, which sells for $0.80 per pound.
Required:
A) What is the net benefit of processing the soybean oil into margarine, relative to selling the soybean oil at the split-off point?
(A) A gain of $1.20 per gallon of soybean oil processed
(B) A gain of $1.30 per gallon of soybean oil processed
(C) A loss of $0.80 per gallon of soybean oil processed
(D) A loss of $0.70 per gallon of soybean oil processed
B) What should Herz Corporation do?
(A) Process the soybean oil into margarine.
(B) Sell the soybean oil at the split-off point.
(C) Stop producing soybean oil.
(D) Herz’s best course of action cannot be determined from the information provided.
18-2: A joint process produces a batch of product that consists of 5 lbs of
Compound X, 2 lbs of Compound Y and 3 lbs of Compound Z. Common costs to
produce one batch are $60.
Compound X sells for $4 per pound. Compound Y sells
for $20 per pound. Compound Z sells for $10 per pound, but can be processed
further into Compound ZZ. Compound ZZ
sells for $18 per pound, and the additional processing costs are $9 per batch.
Required: How much joint cost would be allocated to each pound
of Compound X, if joint costs are allocated using the Net Realizable Value
method of joint cost allocation?
18-3: Ryan Company makes two products from a joint process and has the following information:
|
|
Units Produced |
Sales value per unit at split-off |
Total additional processing costs beyond split-off |
Sales value per unit after additional processing |
|
Product A |
60,000 |
$20 |
$300,000 |
$27 |
|
Product B |
30,000 |
$11 |
$300,000 |
$19 |
The common costs incurred to produce the two products to the split-off point are $800,000.
Required:
A) What common costs will be allocated to each unit of Product A using the relative sales value at split-off as the allocation method?
B) Which products should be processed further?
C) What common costs will be allocated to each unit of Product B using the net realizable value method of joint cost allocation (and assuming that NRV is calculated based on the profit-maximizing production choice).
18-4: Michael
Hearns is a commercial fisherman and he has just
returned from a trip off the coast of
Required: Allocate the joint costs to the three types of fish
based on their relative sales value.
18-5: In harvesting maple syrup, two grades of maple syrup are obtained from
a joint process. We will call these two
grades of syrup Grade A syrup and Grade Z syrup. The common costs are $50 to obtain 10 gallons
of Grade A syrup and 15 gallons of Grade Z syrup.
Grade A can be sold at the split-off point for $2 per gallon, or alternatively,
$1 of additional processing costs can be incurred per gallon and Grade A can
then be sold for $6.50 per gallon. Grade Z can be sold at split-off for $1 per
gallon, or alternatively, $0.50 of additional processing costs can be incurred
per gallon, and Grade Z can then be sold for $3.50 per gallon.
Required:
A) Calculate the common costs
allocated to all 15 gallons of Grade Z syrup, allocating common costs based on
physical quantities.
B) Calculate the common costs allocated to each gallon of
Grade A syrup using the net realizable value method of
joint cost allocation.
18-6: The Tara Dairy incurs joint costs of $110 per day in order to obtain 50
gallons of raw milk. This raw milk is then separated to obtain 20 gallons of
cream and 30 gallons of skim milk. The dairy allocates joint costs based on
physical quantities. Calculate the joint costs that would be allocated to
cream.
18-7: Joint costs are $720. Joint products are 100 feet of product A, 100 feet of product B, and 200 feet of product C. Product
A sells for $4 per foot at the split off point, but for $1 of additional
processing costs, can be sold for $6 per foot. Product B sells for $3 per foot,
but for $2 of additional processing costs, can be sold for $4 per foot. Product
C sells for $1 per foot, and cannot be processed further.
Required: Allocate the joint costs to the three products based
on Net Realizable Value.
18-8: Dowd Chemicals generates the following two joint products, incurring $6,000 annually in common manufacturing costs to do so:
|
|
Product X1 |
Product Y1 |
|
Pounds of joint product at split-off Per-pound sales value at split-off Per-pound additional processing costs Per-pound sales value after additional processing Name of product after further processing |
100 $15 $ 3 $19 X2 |
300 $25 $ 5 $33 Y2 |
The additional processing generates one pound of X2 for every one pound of X1 used, and one pound of Y2 for every one pound of Y1 used. In 2007, Dowd produced 100 pounds of X2, of which 80 pounds were sold, and 300 pounds of Y2, of which 270 pounds were sold.
Required: Assume that Dowd allocates common costs using the net realizable method (based on units produced). The product manager of the Y1/Y2 product line wants to earn a gross margin of $1,000 in 2007. At the current sales price, how many units of Y2 would have to be sold to earn this gross margin?
18-9: Walnut Farms generates the following joint products, incurring $200,000 annually in common costs to do so:
|
|
Product A |
Product B |
Product C |
Product D |
Product E |
|
Pounds produced Per-pound sales value at split-off Per-pound additional processing costs Per-pound sales value after additional processing Name of product after further processing |
2,500 $15 3 19 AA |
3,250 $25 5 29 BB |
1,600 $23 6 32 CC |
4,300 $20 10 31 DD |
950 $32 4 35 EE |
One pound of each product at split-off produces exactly one pound of product after further processing. In other words, if the Farm makes A into AA, it will produce 2,500 lbs. of AA, etc.
Required:
A) Calculate the total net realizable value (NRV) for all of the products combined, assuming NRV is determined by the most profitable processing decision for each product.
B) 2,300 pounds of Product AA were sold. Calculate the cost of goods sold for product AA. Assume the company allocates common costs using the net-realizable-value method of joint cost allocation, where NRV is determined by the most profitable processing decision for each product.
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Management
Accounting Concepts and Techniques; copyright 2006; most recent update:
November 2010
For a printer-friendly version, contact Dennis Caplan at dcaplan@uamail.albany.edu