lOMoARcPSD|9829909

Joint Cost and By Product Costing Prac 2 2020

Accountancy (STI College)

StuDocu is not sponsored or endorsed by any college or university

Downloaded by JANISCHAJEAN RECTO (recto.janischajean@ue.edu.ph)
 lOMoARcPSD|9829909

JOINT COST AND BY-PRODUCT COSTING

MULTIPLE CHOICE QUESTIONS

PROB. 1 (Adapted)

The allocation of joint costs to individual products is useful primarily for purposes of
a. Determining whether to produce one of the joint products
b. Inventory costing
c. Determining the best market price
d. Evaluating whether an output is a main product or a by-product

PROB. 2 (Adapted)

The method used for the allocation of joint costs to products is important
a. Only in the minds of accountants
b. Because profits will be affected when ending inventories change from the beginning of the period
c. Because its validity for justifying prices before regulatory authorities is unquestioned
d. Because profit margins differ when the relative sales value method is used

PROB. 3 (Adapted)

Relative sales value at split-off is used to allocate:

Cost beyond
Split-off Joint costs
a. Yes No
b. No Yes
c. No No
d. Yes Yes

PROB. 4 (Adapted)

In a joint production process, a by-product is also described as

a. A simultaneously produced product of relatively low value
b. A form of main product with controllable proportions
c. Products of low value recovered at the end of a production process
d. A product with no value contribution to help offset production costs

PROB. 5 (Adapted)

A company produces three main products and one by-product. The by-product’s relative market value is
quite low compared to that of the main products. The preferable accounting for the by-product’s net
realizable value is as
a. An addition to the revenues of the other products allocated to their respective net realizable
values
b. Revenue in the period in which it is sold
c. A reduction in the joint cost to be allocated to the three main products

Downloaded by JANISCHAJEAN RECTO (recto.janischajean@ue.edu.ph)

 lOMoARcPSD|9829909

d. A separate net realizable value upon which to allocate some of the joint costs

PROB. 6 (Adapted)

The following is acceptable regarding the allocation of joint product cost to a by-product

Some Portion
None Allocated Allocated
a. Not acceptable Not acceptable
b. Acceptable Acceptable
c. Acceptable Not acceptable
d. Not acceptable Acceptable

PROB. 7 (Adapted)

If a company obtains two salable products from the refining of one ore, the refining process should be
accounted for as a(an)
a. Mixed cost process
b. Joint process
c. Extractive process
d. Reduction process

PROB.8 (Adapted)

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

PROB. 9 (Adapted)

Joint costs are most frequently allocated based upon relative

a. Profitability
b. Conversion costs
c. Prime costs
d. Sales value

PROB. 10 (Adapted)

A company produces three products from a joint process. The products can be sold at split-off or process
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 product before determining relative sales
value and making the decision

Downloaded by JANISCHAJEAN RECTO (recto.janischajean@ue.edu.ph)

 lOMoARcPSD|9829909

d. Ignore the joint cost in making the decision

PROB. 11 (Adapted)

For purposes of allocating joint costs to joint production using the relative sales values 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 deduction from the sales value at the point of sale
d. Do not affect the allocation of the joint costs

PROB. 12 (Adapted)

Idaho Corp. manufactures liquid chemicals A and B from a joint process. Joint costs are allocated on the
basis of relative market value at split-off. It costs P4,560 to process 500 gallons of Product A and 1,000
gallons of Product B to the split-off point. The market value at split-off is P10 per gallon for Product A and
P14 for Product B. Product B requires an additional process beyond split-off at a cost of P2 per gallon
before it can be sold. What is Idaho’s cost to produce 1,000 gallons of Product B?
a. 5,040
b. 4,360
c. 4,860
d. 5,360

PROB. 13 (Adapted)

Lane Co. produces main products Kul and Wu. The process also yields by-product Zef. Net realizable value
of by-product Zef is subtracted from joint production cost of Kul and Wu. The following information
pertains to production in July at a joint cost of P54,000.

Additional
Units Market cost after
Product Produced Value split-off
Kul 1,000 P40,000 P 0
Wu 1,500 35,000 0
Zef 500 7,000 3,000

If Lane uses the net realizable value method for allocating joint cost, how much of the joint cost should
be allocated to product Kul?
a. 18,800
b. 20,000
c. 26,667
d. 27,342

PROB. 14 (Adapted)

A company processes raw material into Products F1, F2 and F3. Each ton of raw materials produces five
units of F1, two units of F2, and three units of F3. Joint processing costs to the split-off point are P15 per
ton. Further processing results in the following per unit figures:

Downloaded by JANISCHAJEAN RECTO (recto.janischajean@ue.edu.ph)

 lOMoARcPSD|9829909

F1 F2 F3
Additional processing cost per unit P28 P30 P25
Selling price per unit 30 35 35

If joint cost are allocated by the net realizable value of finished product, what proportion of joint costs
should be allocated to F1?
a. 20%
b. 30%
c. 33 1/3%
d. 50%

PROB. 15 (RPCPA)

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 allocating joint costs. For the month of
June, the production activities were as follows:

Joint product costs:

Raw materials 30,000
Direct labor 15,000
Factory overhead 10,000

Further processing costs after the split-off in order to finish the products into their final form were P24,000
for Product A and P36,000 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 was:
a. 22,000
b. 33,000
c. 27,500
d. Answer not given

PROB. 16 (RPCPA)

Lego Plastic, Inc. has two joint products, Abba and Adda, and uses the net realizable value method of
allocating joint cots. The total joint costs for May amounted to P300,000. During the month, 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 month. 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 month is:
a. 175,000
b. 180,000
c. 225,000
d. 150,000

PROB. 17 (AICPA)

Downloaded by JANISCHAJEAN RECTO (recto.janischajean@ue.edu.ph)

 lOMoARcPSD|9829909

Mig Co., which began operations in 2020, produces gasoline and a gasoline by-product. The following
information is available pertaining in 2020 sales and production:

Total production costs to split-off point 120,000

Gasoline sales 270,000
By-product sales 30,000
Gasoline inventory, 12/31/20 15,000
Additional by-product costs:
Marketing 10,000
Production 15,000

Mig accounts for the by-product at the time of production. What are Mig’s 2020 cost of sales for gasoline
and the by-product?

Gasoline By-product
a. 105,000 25,000
b. 115,000 0
c. 108,000 37,000
d. 100,000 0

PROB. 18 (AICPA)

The following information pertains to a by-product called Moy:

Sales in 2020 5,000 units

Selling price per unit P6.00
Selling costs per unit 2.00
Processing costs 0

Inventory of Moy was recorded at net realizable value when produced in 2019. No units of Moy were
produced in 2020. What amount should be recognized as profit on Moy’s 2020 sales?
a. 0
b. 10,000
c. 20,000
d. 30,000

PROB. 19 (AICPA)

Lite Co. manufactures Products X and Y from a joint process that also yield 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 at split-off 300,000 150,000 10,000 460,000

Downloaded by JANISCHAJEAN RECTO (recto.janischajean@ue.edu.ph)

 lOMoARcPSD|9829909

Joint costs were allocated using the sales value at split-off approach. The joint costs allocated to Product
X were
a. 75,000
b. 100,000
c. 150,000
d. 168,000

PROB. 20 (Adapted)

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, the joint costs of processing
amounted to P1,152,000. Additional information is 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
b. 648,000
c. 662,400
d. 810,000

PROB. 21 (RPCPA)

Joie Co. manufactures two joint products (Ralin and Stalin). Joie produces 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 sales
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
b. 45,000
c. 27,000
d. 67,500

PROB. 22 (RPCPA)

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

Downloaded by JANISCHAJEAN RECTO (recto.janischajean@ue.edu.ph)

 lOMoARcPSD|9829909

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 date were obtained for February:

If processed further
No of units Sales price/unit Sales price Additional cost
produced at split-off per unit 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 costs were P15,000. Additional processing on products O 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 was:
a. 4,250
b. 5,175
c. 5,400
d. 6,525
e. Answer not given

PROB 23 (Adapted)

Sheltex Corp. processes materials and recovers Product Shell and Caltex. The cost of buying 600,000
gallons of direct materials, and processing these up to split-off point will yield 300,000 gallons of Shell and
270,000 gallons, net of 30,000 gallons evaporation, at a total production costs of P17,100,000. The selling
price of Shell is P500 per gallon and P400 per gallon for Caltex. Records show that on May 1, there were
24,000 gallons of Shell and 15,000 gallons of Caltex; and at the end of May, there were 36,000 gallons of
Shell and 39,000 gallons of Caltex. Using the quantitative unit method of allocating joint production costs,
what would be the allocated cost for Product Shell and Caltex, respectively?
a. 8,100,000 9,000,000
b. 8,550,000 8,550,000
c. 8,700,000 8,400,000
d. 9,000,000 8,100,000

PROB. 24 (Adapted)

Chine Manufacturing Corp. produces three products from the same process and incurs joint processing
costs of P60,000. The following information is available for the month:

Further Disposal Cost/gallon

Gallons Processing cost Final SP/gal. SP/gal. @ split-off @Split-off Process further
M 25,000 3.00 7.00 3.60 2.00 1.00
C 20,000 5.75 10.00 5.00 2.25 2.00
T 5,000 1.50 8.00 2.00 1.00 0.50

a. What amount of the joint processing cost is allocated to the three products using the physical
measure allocation?
M C T
a. 25,000 20,000 15,000

Downloaded by JANISCHAJEAN RECTO (recto.janischajean@ue.edu.ph)

 lOMoARcPSD|9829909

b. 30,000 15,000 15,000

c. 30,000 24,000 6,000
d. 20,000 20,000 20,000

b. What amount of the joint processing cost is allocated to the three products using the sales value
at split-off?
M C T
a. 24,000 33,000 3,000
b. 27,000 30,000 3,000
c. 30,000 18,000 12,000
d. 20,000 20,000 20,000

c. What amount of the joint processing cost is allocated to the three products using the net
realizable value at split-off?
M C T
a. 24,000 33,000 3,000
b. 27,000 30,000 3,000
c. 30,000 18,000 12,000
d. 20,000 20,000 20,000

d. What amount of the joint processing cost is allocated to the three products using the
approximated net realizable value at split-off?
M C T
a. 24,000 33,000 3,000
b. 27,000 30,000 3,000
c. 30,000 18,000 12,000
d. 20,000 20,000 20,000

PROB 25 (RPCPA)

Fortune Producers manufactures three joint products, JKA, JKB, and JKC, and by-product, JJD, all in single
process. Results for the month of July were as follows:

Materials used, 10,000 kgs. P24,000

Conversion cost 28,000

OUTPUT
Product Kilos Sales value/kilo
JKA 4,000 P11.00
JKB 3,000 10.00
JKC 1,000 26.00
JJD 2,000 1.00

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 kilo of JKA for the month?
a. 5.72

Downloaded by JANISCHAJEAN RECTO (recto.janischajean@ue.edu.ph)

 lOMoARcPSD|9829909

b. 5.61
c. 5.50
d. 5.20

PROB. 26 (AICPA)

Atlas Foods produces the following three supplemental food products simultaneously through a refining
process costing P93,000.

Alfa - 10,000 pound of Alfa, a popular but relatively rare grain supplement having a caloric value
of 4,400 calories per pounds.

Betters - 5,000 pounds of Betters, a flavoring materials high in carbohydrates with a caloric value
of 11,200 calories per pound.

Morefeeds - 1,000 pounds of Morefeeds, used as a cattle feed supplement with a caloric value of
1,000 calories per pound.

The joint products, Alfa, and Betters have a final selling price of P4 per pound and P10 per pound,
respectively, after additional processing costs of P2 per pound of each product are incurred after the split-
off point. Morefeeds, a by-product, is sold at the split-off point for P3 per pound.

a. Assuming Atlas Foods inventories Morefeeds, the by-product, the joint cost to be allocated to
Alfa, using the net realizable value method is
a. 3,000
b. 30,000
c. 31,000
d. 60,000
e. 62,000

b. Assuming Atlas Foods inventories Morefeed, the by-product, the joint cost to be allocated to Alfa,
using the physical quantity method is
a. 3,000
b. 30,000
c. 31,000
d. 60,000
e. 62,000

c. Assuming Atlas Foods inventories Morefeed, the by-product, the joint cost to be allocated to
Betters using the weighted quantity method based on caloric value per pound is
a. 39,208
b. 39,600
c. 40,920
d. 50,400
e. 52,080

d. Assuming Atlas Foods inventories Morefeed, the by-product, the joint cost to be allocated to Alfa
using the gross market value method is

Downloaded by JANISCHAJEAN RECTO (recto.janischajean@ue.edu.ph)

 lOMoARcPSD|9829909

a. 36,000
b. 40,000
c. 41,333
d. 50,000
e. 51,666

e. Assuming Atlas Foods does not inventory Morefeed, the by-product, the joint cost to be allocated
to Betters using the net realizable value method is
a. 30,000
b. 31,000
c. 52,080
d. 60,000
e. 62,000

PROB. 27 (AICPA)

Eagle Corp. manufactures a product that gives rise to a by-product called Pag-asa. The only costs
associated with Pag-asa are selling costs P1.00 for each unit sold. Eagle accounts for Pag-asa sales first by
deducting its separable costs from such sales and then by deducting this net amount from costs of sales
of the major product. During the year, 1,000 units of Pag-asa were sold for P4.00 each.

a. If Eagle changes its method of accounting for Pag-asa sales by recording the net amount as
additional sales revenue, what is the gross margin?
a. Unaffected
b. Increase by P3,000
c. Decrease by P3,000
d. Increase by P4,000

b. If Eagle changes its method of accounting for Pag-asa sales by recording the net amount as other
income, what is the gross margin?
a. Unaffected
b. Increase by P3,000
c. Decrease by P3,000
d. Decrease by P4,000

c. If Eagle records the net realizable value of Pag-asa as inventory as it is produced, what is the per
unit value?
a. 1.00
b. 2.00
c. 3.00
d. 4.00

PROB. 28 (AICPA)

The managers of Rochester Manufacturing are discussing ways to allocate the cost of service departments
such as: Quality Control and Maintenance to the production departments. To aid them in this discussion,
the controller has provided the following information:

Downloaded by JANISCHAJEAN RECTO (recto.janischajean@ue.edu.ph)

 lOMoARcPSD|9829909

Budgeted Quality Control Maintenance Machining Assembly

Overhead costs before
allocation 350,000 200,000 400,000 300,000
Machine hours 50,000
Direct labor hours 25,000
Hrs. of services:
Quality control 7,000 21,000 7,000
Maintenance 10,000 18,000 12,000

a. If Rochester Manufacturing uses the direct method of allocating service departments, the total
service costs allocated to the assembly department would be
a. 80,000
b. 87,500
c. 120,000
d. 167,500
e. 467,500

b. If Rochester Manufacturing uses the step-down method of allocating service costs beginning with
quality control, the maintenance costs allocated to the assembly department would be
a. 70,000
b. 108,000
c. 162,000
d. 200,000
e. 210,000

Downloaded by JANISCHAJEAN RECTO (recto.janischajean@ue.edu.ph)

 lOMoARcPSD|9829909

SOLUTIONS AND EXPLANATIONS

PROB. 1 Suggested answer (b) Inventory costing

Joint cost includes all costs incurred up to the split off point for direct material, direct labor, and overhead.
Joint cost allocated, at split off point, to the joint products only. Allocation is necessary because of the
cost principle. Joint costs is a necessary and reasonable cost of producing the joint products and,
therefore, should be attached to them.

PROB. 2 Suggested answer (b)

Assignment of costs to these various products is required for inventory costing, for income determination,
and for financial statement purposes. By product and joint product costing also furnishes management
with data that ca be useful in planning maximum profit potentials and evaluating actual profit
performance.

PROB. 3 Suggested answer (b) No Yes

The total production cost of multiple products involves both joint costs and separable cost/cost beyond
split-off. Joint production cost requires allocation or assignment to the individual products; while
separable costs are identifiable with the individual product and generally need no allocation.

PROB. 4 Suggested answer (a) A simultaneously produced product of relatively low value.

The term by-product is generally used to denote a product of relatively small total value that is produced
simultaneously with a product of greater total value. While, the product with greater value and usually
produced in greater quantities than the by-product is commonly called the main product.

PROB. 5 Suggested answer (c) A reduction in the joint cost to be allocated to the three main products.

Under net realizable value method of accounting by-product, the net realizable value of by-product is
shown as reduction from the joint cost of main products.

PROB. 6 Suggested answer (b) Acceptable Acceptable

The accepted methods for costing by-product fall into two categories. In the first category, a joint
production cost is not allocated to the by-product; while in the second category, some portion of the joint
production cost is allocated to the by-product.

PROB. 7 Suggested answer (b) joint process

A single process in which one product cannot be manufactured without producing others is known as a
joint process.

PROB. 8 Suggested answer (a) direct materials, direct labor, and overhead

Joint costs includes all cost incurred up to the split-off point for direct materials, direct labor, and
overhead.

Downloaded by JANISCHAJEAN RECTO (recto.janischajean@ue.edu.ph)

 lOMoARcPSD|9829909

PROB. 9 Suggested answer (d) sales value

Generally, joint costs may be allocated based on the following: 1.) Physical measure allocation, 2.)
Monetary measure allocation. Physical measure allocation includes tons of ore in mining, linear board feet
in lumber milling, barrels of oil in petroleum refining, etc.

Monetary measure allocation includes sales value at split-off, net realizable value at split-off,
approximated net realizable value at split-off.

Th sales value at split-off allocation assigns joint costs to joint products based solely on relative sales value
of the products at the split-off point.

PROB. 10 Suggested answer (d) ignore the joint cost in making the decision.

The cost incurred for materials, labor and overhead during a joint process are referred to as the joint cost
of the production process. Although joint cost allocations are necessary to determine financial statement
valuations, such allocations should not be used in internal decision making. Since joint costs are
production costs incurred prior to split-off point, the joint cost allocation is not relevant to decision
making. Once the split-off point is reached, the joint cost ahs already been incurred and is a sunk cost that
cannot be changed no matter future course of action is taken.

PROB. 11 Suggested answer (d) do not affect the allocation of the joint costs.

If any of the joint process outputs are processed further, additional joint costs after split-off will be
incurred. Any costs after split-off are assigned to the separate products for which those costs are incurred,
and therefore, not allocated to joint products in a manner similar to joint costs.

PROB. 12 Suggested answer (d) 5,360

MV Allocation
Product A (500 x 10) 5,000 5/19 1,200
Product B (1,000 x 14) 14,000 14/19 3,360
19,000 4,560

Allocated joint cost – Product B 3,360

Additional processing cost (1,000 x 2) 2,000
Total cost to produce Product B 5,360

The chief characteristic of a joint cost is the fact that the cost of several different products is incurred in
an indivisible sum for all products, rather than individual amounts for each product. The total production
cost of multiple products involves both joint cost and separate, individual product costs. These separable
product costs are not allocated; however, a joint production cost requires allocation to the individual
products.

PROB. 13 Suggested answer (c) P26,667

Total joint cost 54,000

Downloaded by JANISCHAJEAN RECTO (recto.janischajean@ue.edu.ph)

 lOMoARcPSD|9829909

Less net realizable value of by-product

(P7,000 – 3,000) 4,000
Joint cost to be allocated to main products 50,000

Main product Sales value at split-off Joint cost allocated

Kul 40,000 40/75 26,667
Wu 35,000 35/75 23,333
75,000 50,000

The use of the net realizable value (or offset) approach of accounting the by-product requires that the net
realizable value (selling price of by-product minus further processing and disposal costs) be treated as a
reduction in the joint cost of manufacturing the primary products. On the other hand, the net realizable
value at split-off allocation of joint cost assigns the joint cost based on the joint products’ proportional
net realizable values at the point of split-off. Net realizable value is equal to product sales revenue minus
any costs necessary to prepare and dispose of the product.

PROB. 14 Suggested answer (a) 20%

NRV Allocation
F1 (28-30 x 5) 10 20% 3,000
F2 (30-35 x 2) 10 20% 3,000
F3 (25-35 x 3) 30 60% 9,000
50 15,000

In many industries, individual units of the various joint products differ markedly. For this reason,
predetermined weighted factors often are assigned to each unit based on such factors as size of the unit,
difficultly of manufacture, time consumed in making the unit, difference in type of labor employed, and
amount of materials used. Finished production of every kind is multiplied by weighted factors to apportion
the total joint cost to individual units. This approach may be used to determine the factors in using the
net realizable value method of allocating the joint production cost.

PROB. 15 Suggested answer (b) P33,000

Product A Product B Total

Sales price:
(2,000 x 30) 60,000
(1,000 x 60) 60,000 120,000
Less further processing costs 24,000 36,000 60,000
Net realizable value 36,000 24,000 60,000

NRV Allocation
Product A 36,000 36/60 33,000
Product B 24,000 24/60 22,000
Total 60,000 55,000

Again, the net realizable value at split-off allocation of joint cost assigns the joint cost based on the joint
products’ proportional net realizable values at the point of split-off. Net realizable value is equal to
product sales revenue minus any costs necessary to prepare and dispose of the product.

Downloaded by JANISCHAJEAN RECTO (recto.janischajean@ue.edu.ph)

 lOMoARcPSD|9829909

PROB. 16 Suggested answer (d) P150,000

NRV Allocation
Abba [(500 x 16,000) – 160,000] 7,840,000 50% 150,000
Adda [(1,000 x 8,000) – 240,000] 7,760,000 50% 150,000
15,600,000 300,000

Under the net realizable value method of allocating joint production costs, allocation should be based on
the sales value of the products after further processing costs (any cost to prepare and dispose of the
product).

PROB. 17 Suggested answer (d) P100,000 P 0

Total joint production costs 120,000

Less net realizable value of by-product
[30,000 – (10,000 + 15,000)] 5,000
Net production cost 115,000
Less: gasoline inventory, 12/31/20 15,000
Cost of sales for gasoline 100,000

Under the production method, where the by-product is accounted at the time of production, the net
realizable value of the by-product produced is deducted from the cost of the main products produced.
Therefore, no cost of sales is reported for the by-product, and the total joint production costs will be
reduced by the net realizable value of the by-product, thereby reducing the cost of sales of the main
product.

PROB. 18 Suggested answer (a) 0

Since the inventory of the by-product was recorded at net realizable value when produced in 2019, and
likewise, when the units of the by-product were sold in 2020, the proceeds equaled the inventory cost
plus disposal costs, thus, no profit will be recognized in 2020.

PROB. 19 Suggested answer (d) P168,000

Product Sales value at split-off Allocated cost

X 300,000 30/45 168,000
Y 150,000 15/45 84,000
Total 450,000 252,000

Based on the foregoing information, the revenue from sales of by-product is treated as a reduction of
joint costs, thus the amount of joint costs to be allocated to main products is P252,000 (P262,000 –
10,000). Also note, the basis of allocation is the sales value at split-off of the main products, thus the
above computations.

PROB. 20 Suggested answer (b) P648,000

Product Market value Allocated cost

Love 900,000 9/15 648,000

Downloaded by JANISCHAJEAN RECTO (recto.janischajean@ue.edu.ph)

 lOMoARcPSD|9829909

Potion 600,000 6/15 432,000

Total 1,500,000 1,080,000

The total joint production costs of P1,152,000 was reduced by the net realizable value of by-product of
P72,000 (P126,000 – 54,000), thus the remaining amount was allocated to main products using the net
realizable value of allocating the joint costs, which based on the foregoing information is equal to its
market values due to the absence of related further processing costs.

PROB. 21 Suggested answer (b) P45,000

Product Sales value at split-off Allocated cost

Ralin 45,000 45/75 27,000
Stalin 30,000 30/75 18,000
75,000 45,000

Based on the foregoing information, allocation of joint production cists was based on the relative value at
split-off, thus, to determine the total joint product cost, the amount of P27,000 (allocated product cost to
Ralin) must be divided by the related fraction(45/75) developed from the sales value at split-off of main
products. Incidentally, the allocated cost to Stalin should be P18,000, as shown above.

PROB. 22 Suggested answer (c) P5,400

Sales revenue:
Product O (2,000 x 5.00) 10,000
Product P (3,000 x 4.00) 12,000
Product M 91,500 x 3.00) 4,500 26,500
Less production costs:
Joint production costs:
Product O (2,000/6,500 x 15,000) 4,615
Product P (3,000/6,500 x 15,000) 6,923
Product M (1,500/6,500 x 15,000) 3,462
Further processing costs:
Product O (2,000 x 0.80) 1,600
Product P (3,000 x 1.50) 4,500 21,100
Gross profit for the month of February 5,400

The quantitative (physical unit) method of allocating joint production cost attempts to distribute the joint
costs to products based on a physical measure of units. Under this method, each unit of each product is
assigned of the same value regardless of the nature or value of the product.

The total production cost of multiple products involves both joint cost and separate individual product
costs. These separable product costs are identifiable with the individual product and, generally, need not
be allocated. Based on the foregoing information, Product M was sold at the point of split-off, thus, no
further process cost was considered.

PROB. 23 Suggested answer (d) P9,000,000 P8,100,000

Downloaded by JANISCHAJEAN RECTO (recto.janischajean@ue.edu.ph)

 lOMoARcPSD|9829909

Product Units produced Allocated cost

Shell 300,000 30/57 9,000,000
Caltex 270,000 27/57 8,100,000
570,000 17,100,000

The quantitative unit method attempts to distribute the total joint production costs on the basis of some
common unit of measurement, such as pounds, gallons, tons, or board feet. If the joint products are not
measurable by the basic measurement unit, the joint units must be converted to a denominator common
to all units produced.

PROB. 24
a. Suggested answer (c) P30,000 P24,000 P6,000

Gallons Allocation
M 25,000 25/50 30,000
C 20,000 20/50 24,000
T 5,000 5/50 6,000
50,000 60,000

Physical measurement allocation uses a common physical characteristic of the joint product as proration
base; in this case, gallons.

b. Suggested answer (b) P27,000 P30,000 P3,000

SP @ Split-off Allocation
M (25,000x 3.60) 90,000 90/200 27,000
C (20,000 x 5.00) 100,000 100/200 30,000
T (5,000 x 2.00) 10,000 10/200 3,000
200,000 60,000

Sales value at split-off allocation assigns joint cost to joint products based solely on relative sales value of
the products at split-off point; thus, to use this method, all joint products must be marketable at split-off.

c. Suggested answer (a) P24,000 P33,000 P3,000

NRV @ split-off Allocation

M 25,000 x (3.60-2.00) 40,000 40/100 24,000
C 20,000 x (5.00-2.25) 55,000 55/100 33,000
T 5,000 x (2.00-1.00) 5,000 5/100 3,000
100,000 60,000

The net realizable value at split-off allocation method assigns joint cost based on the joint products’
proportional net realizable value at split-off point. Net realizable value is equal to product sales revenue
at split-off minus any costs necessary to prepare and dispose of the product.

d. Suggested answer (c) P30,000 P18,000 P12,000

Downloaded by JANISCHAJEAN RECTO (recto.janischajean@ue.edu.ph)

 lOMoARcPSD|9829909

Approx. NRV @ split-off Allocation

M 25,000 x (7.00-3.00-1.00) 75,000 75/150 30,000
C 20,000 x (10.00-5.75-2.00) 45,000 45/150 18,000
T 5,000 x (8.00-1.50-0.50) 30,000 30/150 12,000
150,000 60,000

Approximated net realizable value at split-off allocation requires that a simulated bet realizable value at
the split-off point be calculated. This approximated value is computed on per product basis as final sales
price minus incremental separate costs. Incremental separate costs refer to all costs that are incurred
between the split-off point and the point of sale.

PROB. 25 Suggested answer (a) P5.72

Product Sales value Joint costs

JKA (4,000 x 11) 44,000 44/100 22,880
JKB (3,000 x 10) 30,000 30/100 15,600
JKC (1,000 x 26) 26,000 26/100 13,520
Total 100,000 52,000

Cost per kilo of JKA (P22,880/4,000 kilos) 5.72

Under the relative sales value approach, the joint production cost of P52,000 (P24,000 + 28,000) is
allocated based on the relative market values of the products. One of the accepted methods for costing
by-products is to show the revenue from the sales of by-product as additional sales revenue. In this regard,
joint production cost is not allocated to the by-product.

PROB. 26
a. Suggested answer (b) P30,000

NRV Allocated cost

Alfa (4-2) x 10,000 20,000 2/6 30,000
Betters (10-2) x 5,000 50,000 4/6 60,000
Total 60,000 90,000

Under the net realizable value method of allocating the joint costs, allocation must be on the difference
between the sale value and the actual cost to complete and sell (further processing cost). When Atlas
inventories the by-product, the by-product is recognized when produced and treated as a reduction of
joint costs, thus the allocable joint cost is P90,000 (P93,000-3,000).

b. Suggested answer (d) P60,000

Qty. (lbs.) Allocated cost
Alfa 10,000 10/15 60,000
Betters 5,000 5/15 30,000
Total 15,000 90,000

The quantitative unit method attempts to distribute the total joint production costs on the basis of some
common unit of measurement, such as pounds, gallons, tons, or board feet. If the joint products are not
measurable by the basic measurement unit, the joint units must be converted to a denominator common

Downloaded by JANISCHAJEAN RECTO (recto.janischajean@ue.edu.ph)

 lOMoARcPSD|9829909

to all units produced. Again, since the by-product was inventoried, the allocable joint product cost was
P90,000 (93,000 – 3,000).

c. Suggested answer (d) P50,400

Caloric value Allocated cost

Alfa (10,000 x 4,400) 44,000,000 44% 39,600
Betters (5,000 x 11,200) 56,000,000 56% 50,400
Total 100,000,000 90,000

Given that allocation should be based on the weighted quantity (caloric value per pound) method, the
fraction to be used for purposes of allocation must be based on the total caloric value of the products.
And since the by-product was inventoried, the allocable joint cost was reduced by the net realizable value
of the by-product to P90,000.

d. Suggested answer (b) P40,000

Gross market value Allocated cost

Alfa (10,000 x 4) 40,000 40/90 40,000
Better (5,000 x 10) 50,000 50/90 50,000
90,000 90,000

The gross market value method is synonymous with the relative sales market value method of allocating
the joint production cost. Again, the by-product was inventoried, thus the allocable joint cost was reduced
by the realizable value of the by-product.

e. Suggested answer (e) P62,000

NRV Allocated cost

Alfa (4-2) x 10,000 20,000 2/6 31,000
Betters (10-2) x 5,000 40,000 4/6 62,000
Total 60,000 93,000

When by-product are not inventoried, allocation of joint cost is based on the net realizable value of main
products and the realizable value of the by-product is deducted from the cost of goods sold of main
products sold. Thus, the joint cost is not adjusted for the value of the by-product.

PROB. 27
a. Suggested answer (a) Unaffected

Before the change, the net amount increases the gross margin because it is deducted from cost of goods
sold. After the change, the net amount increases the gross margin because it is added to sales. Therefore,
the effect is the same.

b. Suggested answer (c) Decrease by P3,000

Before the change, the net amount increases the gross margin because it’s deducted from cost of goods
sold. After the change, the net amount decreases the gross margin because it is recorded as other income,

Downloaded by JANISCHAJEAN RECTO (recto.janischajean@ue.edu.ph)

 lOMoARcPSD|9829909

which will not affect the cost of goods sold. Therefore, the net decrease in the gross margin is P3,000 (4-
1 x 1,000).

c. Suggested answer (c) 3,000

The net realizable value is equal to estimated selling price less estimated cost to complete and to sell.
Thus, given no additional processing cost, the net realizable value is equal to selling price less cost to sell
in the amount of P3.00 (4.00-1.00).

PROB. 28
a. Suggested answer (d) P167,500

Production Budgeted hours (Quality Control)

Department of services Allocated cost
Machining 21,000 21/28 262,500
Assembly 7,000 7/28 87,500
28,000 350,000

Production Budgeted hours (Maintenance)

Department of services Allocated cost
Machining 18,000 18/30 120,000
Assembly 12,000 12/30 80,000
30,000 200,000

Allocated cost to Assembly:

Quality control 87,500
Maintenance 80,000
Total 167,500

Under the direct method of allocating service department costs, the service department costs are
allocated only to producing departments. This approach minimizes clerical works but fails to measure the
total costs of individual service departments when such information is needed for costing, planning and
control.

The direct method can be justified for product costing if the final costs of a producing department differ
only immaterially, depending on whether the costs of a service department are prorated to other service
department or not. Thus, the total service cost allocated to the Assembly department was P167,500, as
shown above. Incidentally, the total allocated service cost to the Machining department was P382,500
(P262,500 + 120,000).

b. Suggested answer (b) P108,000

Quality control (Quality Control)

Departments hours of services Allocated cost
Maintenance 7,000 7/35 70,000
Machining 21,000 21/35 210,000
Assembly 7,000 7/35 70,000
35,000 350,000

Downloaded by JANISCHAJEAN RECTO (recto.janischajean@ue.edu.ph)

 lOMoARcPSD|9829909

Maintenance (Maintenance)
Departments hours of services Allocated cost
Machining 18,000 18/30 162,000
Assembly 12,000 12/30 108,000
30,000 270,000

The step-down method transfers the cost of service departments by a sequence of steps; that is in the
prescribed order by department. The step method is also called the sequential method because are
allocated from service departments in a predetermined sequence. Once cost is allocated from a service
department, no other service department’s cost is allocated back to it in a subsequent step.

Given that the allocation will begin with the quality control department, the first step is to allocate the
cost of quality control department of P350,000 to Maintenance, Machining, and Assembly departments;
and then the total cost of maintenance department (its own service cost plus cost of quality control cost
allocated to maintenance) in the total amount of P270,000 (P200,000 + 70,000) will be allocated to the
remaining departments (Machining and Assembly departments). Thus, the allocated cost to Assembly
department should be P162,000, as shown above.

Downloaded by JANISCHAJEAN RECTO (recto.janischajean@ue.edu.ph)