Chapter8

COSTINGBYPRODUCTSANDJOINTPRODUCTS

MULTIPLECHOICE
Question Nos. 7, 10, 12-19, and 22 are AICPA adapted.
Question No. 25 is ICMA adapted.
Question Nos. 11, 20, 23, and 24 are CIA adapted.
B

1.

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.
deciding whether to sell at the split-off point
E.
evaluating whether an output is a main product or a by-product

2.

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
E.
for income determination when inventories are nonexistent

3.

In a
A.
B.
C.
D.
E.

4.

All of the following are methods of costing by-products except the:

A.
market value method
B.
recognition of net revenue method
C.
recognition of gross revenue method
D.
average unit cost method
E.
replacement cost method

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

a simultaneously produced product of relatively low value
a form of main product with controllable production proportions
waste
products of low value recovered at the end of a production process
a product with no value contribution to help offset production costs

101

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Chapter 8

5.

Reporting revenue from by-product sales on the income statement as additional

sales revenue:
A.
allocates costs to by-products on the basis of quantities produced
B.
reduces the main product cost by the estimated market value of the byproduct
C.
credits main product costs only when the by-product is used in further
production
D.
allocates a proper share of production costs to the by-product
E.
overstates ending inventory costs of the main product

6.

All of the following are methods of allocating joint production costs except the:
A.
market value method
B.
quantitative unit method
C.
average unit cost method
D.
average cost method
E.
recognition of net revenue method

7.

Tobin Company manufactures products S and T from a joint process. The market
value at split-off was $50,000 for 6,000 units of Product S and $50,000 for 2,000
units of Product T. Assuming that the portion of the total joint cost properly
allocated to Product S using the market value method was $30,000, the total
joint cost was:
A.
$40,000
B.
$42,500
C.
$45,000
D.
$60,000
E.
$75,000
SUPPORTINGCALCULATION:

$50,000
= .5
$50,000 + $50,000

$30,000
= $60,000
.5
C

8.

Costs to be incurred after the split-off point are most useful for:
A.
adjusting inequities in the joint cost allocation procedure
B.
determining the levels of joint production
C.
assessing the desirability of further processing
D.
setting the mix of output products
E.
assessing sales realization values for allocating joint costs accurately

Costing By-Products and Joint Products

D

9.

103

Alphabet Company manufactures Products A and B from a joint process that also
yields a by-product, X. Alphabet accounts for the revenues from its by-product
sales as a deduction from the cost of goods sold of its main products. Additional
information is as follows:
A
Units produced....................
15,000
Joint costs............................
Market value at split-off...... $290,000

B
9,000
$150,000

X
6,000
$264,000
$ 10,000

Total
30,000
$450,000

Assuming that joint product costs are allocated using the market value at the
split-off approach, the joint cost allocated to Product B would be:
A.
$136,540
B.
$79,200
C.
$88,000
D.
$86,591
E.
$99,000
SUPPORTINGCALCULATION:

$150,000
_ ($264,000 $10,000) = $86,591
$290,000 + $150,000
D

10.

If a company obtains two salable products from the refining of one ore, the
refining process should be accounted for as a(n):
A.
reduction process
B.
depletion process
C.
mixed cost process
D.
joint process
E.
extractive process

11.

The assignment of raw material costs to the major end products resulting from
refining a barrel of crude oil is best described as:
A.
joint costing
B.
differential costing
C.
incremental costing
D.
variable costing
E.
indirect costing

12.

The following components of production that can be allocated as joint costs

when a single manufacturing process produces several salable products are:
A.
indirect production costs only
B.
materials, labor, and overhead
C.
materials and labor only
D.
labor and overhead only
E.
overhead and materials only

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Chapter 8

13.

The following statement that best describes a by-product is:

A.
a product that usually produces a small amount of revenue when
compared to the main product's revenue
B.
a product that does not bear any portion of the joint processing costs
C.
a product that is produced from material that would otherwise be scrap
D.
a product that has a lower unit selling price than the main product
E.
a product created along with the main product whose sales value does not
cover its cost of production

14.

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.
sometimes
never
E.
yes
yes

15.

The following is acceptable regarding the allocation of joint product costs to a

by-product:
A.
B.
C.
D.
E.

16.

None Allocated
Some Portion Allocated
not acceptable
not acceptable
acceptable
acceptable
acceptable
not acceptable
sometimes acceptable
never acceptable
not acceptable
acceptable

Idaho Corporation 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
$4,560 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 $10 per gallon for Product A and
$14 for Product B. Product B requires an additional process beyond split-off at a
cost of $2 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
E.
$3,360
SUPPORTINGCALCULATION:

Costing By-Products and Joint Products

105

$14,000

_ $4,560 + ($2 _ 1,000) = $5,360

$14,000 + $5,000

17.

Harry Corp. manufactures Products J, K, L, and M from a joint process. Additional

information is as follows:

Product
J
K
L
M

Units
Produced
6,000
5,000
4,000
3,000
18,000

Market
Value at
Split-Off
$ 80,000
60,000
40,000
20,000
$ 200,000

If Processed Further
Additional
Market
Costs
Value
$ 7,500
$ 90,000
6,000
70,000
4,000
50,000
2,500
30,000
$ 20,000
$ 240,000

Assuming that total joint costs of $160,000 were allocated using the market
value at split-off approach, what joint costs were allocated to each product?
A.
B.
C.
D.
E.

J
$53,333
$60,000
$64,000
$60,000
$40,000

K
$44,444
$46,667
$48,000
$48,000
$40,000

L
$35,556
$33,333
$32,000
$32,000
$40,000

M
$26,667
$20,000
$16,000
$20,000
$40,000

SUPPORTINGCALCULATION:
J:
K:
L:
M:
E

18.

40% x $160,000
30% x $160,000
20% x $160,000
10% x $160,000

= $64,000
= $48,000
= $32,000
= $16,000

Cayan Company manufactures three main products, F, G, and W, from a joint

process. Joint costs are allocated on the basis of relative market value at splitoff. Additional information for June production activity follows:
F
Units produced.....................
50,000
Joint costs.............................
?
Market value at split-off....... $420,000
Additional costs if
processed further............ $ 88,000
Market value if
processed further............ $538,000

G
40,000
?
$270,000

W
10,000
?
$60,000

Total
100,000
$450,000
$750,000

$ 30,000

$12,000

$130,000

$320,000

$87,000

$945,000

Assuming that the 10,000 units of W were processed further and sold for
$87,000, what was Cayan's gross profit on this sale?
A.
$75,000
B.
$51,000
C.
$21,000
D.
$28,500
E.
$39,000

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Chapter 8
SUPPORTINGCALCULATION:
Sales:...............................................................................
Cost of Goods Sold:
Joint Costs..................................................................
Separable Costs.........................................................
Gross Profit......................................................................

$87,000
$36,000
12,000

48,000
$39,000

19.

A company manufactures two joint products at a joint cost of $1,000. These

products can be sold at split-off, or when further processed at an additional cost,
sold as higher quality items. The decision to sell at split-off or further process
should be based on the:
A.
allocation of the $1,000 joint cost using the quantitative unit measure
B.
assumption that the $1,000 joint cost is irrelevant
C.
allocation of the $1,000 joint cost using the relative sales value approach
D.
assumption that the $1,000 joint cost must be allocated using a physicalmeasure approach
E.
allocation of the $1,000 joint cost using any equitable and rational
allocation basis

20.

The characteristic that is most often used to distinguish a product as either a

joint product or a by-product is the:
A.
amount of labor used in processing the product
B.
amount of separable product costs that are incurred in processing
C.
amount (i.e., weight, inches, etc.) of the product produced in the
manufacturing process
D.
relative sales value of the products produced in the process
E.
none of the above

21.

A company processes raw material into products F1, F2, and F3. Each ton of raw
material produces five units of F1, two units of F2, and three units of F3. Joint
processing costs to the split-off point are $15 per ton. Further processing results
in the following per unit figures:
Additional processing costs per unit..........
Selling price per unit..................................

F1
$28
30

F2
$30
35

F3
$25
35

If joint costs 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%
E.
none of the above
SUPPORTINGCALCULATION:

Costing By-Products and Joint Products

107

($2 _ 5)
= 20%
($2 _ 5) + ($5 _ 2) + ($10 _ 3)
B

22.

Jeffrey Co. manufactures Products A and B from a joint process. Market value at
split-off was $700,000 for 10,000 units of A, and $300,000 for 15,000 units of B.
Using the market value at split-off approach, joint costs properly allocated to A
were $140,000. Total joint costs were:
A.
$98,000
B.
$200,000
C.
$233,333
D.
$350,000
E.
none of the above
SUPPORTINGCALCULATION:

$700,000
= .70
$700,000 + $300,000

$140,000
= $200,000
.70
C

23.

A company produces three main joint products and one by-product. The byproduct'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 on 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
D.
a separate net realizable value upon which to allocate some of the joint
costs
E.
none of the above

24.

A company manufactures Products X and Y using a joint process. The joint

processing costs are $10,000. Products X and Y can be sold at split-off for
$12,000 and $8,000 respectively. After split-off, Product X is processed further at
a cost of $5,000 and sold for $21,000, whereas Product Y is sold without further
processing. If the company uses the market value method for allocating joint
costs, the joint cost allocated to X is:
A.
$4,000
B.
$5,000
C.
$6,000
D.
$6,667
E.
none of the above
SUPPORTINGCALCULATION:

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Chapter 8

$12,000
_ $10,000 = $6,000
$12,000 + $8,000
D

25.

The Hovart Corporation manufactures two products out of a joint

processCCompod and Ultrasene. The joint (common) costs incurred are $250,000
for a standard production run that generates 120,000 gallons of Compod and
80,000 gallons of Ultrasene. Compod sells for $2.00 per gallon, while Ultrasene
sells for $3.25 per gallon. If there are no additional processing costs incurred
after the split-off point, the amount of joint cost of each production run allocated
to Compod by the quantitative unit method is:
A.
$100,000
B.
$120,000
C.
$130,000
D.
$150,000
E.
some amount other than those given above
SUPPORTINGCALCULATION:

120,000
_ $250,000 = $150,000
120,000 + 80,000

26.

Ace Company produced 20,000 units of Clubs, 15,000 units of Diamonds, and
10,000 units of Hearts. If the company uses the average unit cost method of
allocating joint production costs, which were $120,000 for the period, the joint
costs allocated to Diamonds would be:
A.
$40,000
B.
$20,000
C.
$80,000
D.
$45,000
E.
none of the above
SUPPORTINGCALCULATION:

15,000
_ $120,000 = $40,000
20,000 + 15,000 + 10,000
C

27.

A company uses the weighted average method to assign joint products. Weight
factors used to assign joint costs to its three joint products were: Product A, 4
points; Product B, 7 points; and Product C, 8 points. Units produced were:
Product A, 10,000; Product B, 5,000; and Product C, 3,125. The amount of the
joint costs of $100,000 that would be allocated to Product C are:
A.
$42,105
B.
$17,241
C.
$25,000
D.
$30,000
E.
none of the above
SUPPORTINGCALCULATION:

Costing By-Products and Joint Products

109

(3,125 _ 8)
_ $100,000 = $25,000
(10,000 _ 4) + (5,000 _ 7) + (3,125 _ 8)
E

28.

The two standards in the StandardsofEthicalConductforManagementAccountants that

pertain most specifically to consideration of joint costs allocation are:
A.
competence and confidentiality
B.
confidentiality and integrity
C.
competence and integrity
D.
confidentiality and objectivity
E.
none of the above

110

Chapter 8

PROBLEMS
PROBLEM
1.
ConsiderationofByProductinNetIncomeDetermination. Harvard Products Co. manufactures two
productsCYalies and Brownies. The Brownies are a by-product from its regular process.
During the year, 10,000 Yalies were sold at $8 each. The total production cost was $5 per
unit of Yalies, and marketing and administrative expenses totaled $20,000. There were no
beginning inventories, but ending inventories amounted to 1,000 units. From the sale of
Brownies, the company received $12,000, which was recorded as additional revenue from
sales.
Required: Prepare an income statement showing the operating income for the year.
SOLUTION
Harvard Products Co.
Income Statement
For Year Ended December 31, 19-Sales: Main product (10,000 Yalies @ $8).......................................
By-product (Brownies).....................................................................
Total sales........................................................................................
Cost of goods sold:
Total production cost (12,000 units 1 @ $5)................................
Ending inventory (1,000 units @ $5)..........................................
Gross profit......................................................................................
Marketing and administrative expenses..........................................
Operating income............................................................................
1

Sales + Ending inventory Production

10,000 + 1,000
- 0

$80,000
12,000
$92,000
$60,000
5,000

Beginning inventory
= 11,000

55,000
$37,000
20,000
$17,000
=

Costing By-Products and Joint Products

111

PROBLEM
2.
ByProductSalesinNetIncomeDetermination. Galaxy Flavorings Company produces tea bags.
As part of the manufacturing process, the tea leaves are separated from the stalks and
stems. The tea leaves are sold as the main product, while the stalks and stems are sold as
the by-product for use in nursery mulch. During May, the company processed 25,000 boxes
of tea bags at a unit cost of $.75. Beginning inventory consisted of 2,000 boxes at a unit
cost of $.70 per box. During May, 20,000 boxes were sold for $1.75 each. The company also
sold 500 pounds of stalks and stems at a total price of $850. Marketing and administrative
expenses amounted to $12,000.
Required: Prepare an income statement showing the operating income for May, assuming
that the revenue from the company's by-product sales is deducted from the production
costs. (Show unit costs for the ending inventory using the average cost method rounded to
three decimal places.)
SOLUTION
Galaxy Flavorings Company
Income Statement
For Month Ended May 31, 19-Sales: Main product (20,000 boxes @ $1.75).............
Cost of goods sold:
Beginning inventory (2,000 boxes @ $.70)............
Total production cost (25,000 boxes @ $.75)........ $18,750
Revenue from sales of by-product.........................
(850)
Cost of goods available for sale.............................
Ending inventory (7,000 boxes @ $.746 1).............
Gross profit..................................................................
Marketing and administrative expenses.....................
Operating income........................................................
8,922
1

(25,000 x $.75) + (2,000 x $.70)/(20,000 + 7,000) =

($18,750 + $1,400)/27,000 =
$20,150/27,000 = $.746

$ 35,000
$ 1,400
17,900
$19,300
5,222

14,078
$ 20,922
12,000
$

112

Chapter 8

PROBLEM
3.
DeterminationofEndingInventory;HypotheticalMarketValueMethod. Macho Inc. manufactures
two beveragesCRed Eye and Tornado. The production process is such that both beverages
are jointly processed in the Basic Blending Department. At the end of the basic blending
process, Red Eye is sold at $10 per gallon, but Tornado must be processed at a further cost
of $7 per gallon before it can be sold at $15 per gallon. In June, the total joint cost
amounted to $96,000, while 5,000 gallons of Red Eye and 12,500 gallons of Tornado were
produced. There were no beginning inventories. At the end of June, there were 1,500
gallons of Red Eye and 2,000 gallons of Tornado on hand.
Required: Calculate the ending inventory costs for Red Eye and Tornado, using the
hypothetical market value method.
SOLUTION
Ending
Inventory
Product
(Units)
Red Eye...................................................................
1,500
Tornado..................................................................
2,000
Ending inventory...............................................
Ultimate
Market Value
Product
per Unit
Red Eye...............................................
$10
Tornado...............................................
15
(
(
(
(
(
(
1

Hypothetical
Market Value
$ 50,000
100,000
$ 150,000

Joint Cost
Allocation2
$32,000
64,000
$96,000

Total
Production
Cost
$ 32,000
151,500
$ 183,500

Units
Produced
5,000
12,500

Unit Cost
$ 6.40
12.12

12,500 units x $7 = $87,500

$96,000/$150,000 = 64%, percentage to allocate joint cost

Unit Costs
(per Schedule)
$ 6.40
12.12
Ultimate
Market
Value
$ 50,000
187,500
$ 237,500

Total
Costs
$ 9,600
24,240
$ 33,840
Processing)
Costs After)
Split-Off )
0 )
$87,5001 )
$87,500 )

Costing By-Products and Joint Products

113

PROBLEM
4.
JointCostAllocationCMarketValueandWeightedAverageMethods. Texarkana Oil Co. produces
three joint products: gasoline, kerosene, and naphtha. Total joint production cost for May
was $59,500. The units produced and unit sales prices at the split-off point were:
Product
Gasoline.....................................................................................
Kerosene....................................................................................
Naphtha.....................................................................................

Units
10,000
15,000
20,000

Unit Sales Price

$5
4
3

In determining costs by the weighted average method, each unit is weighted as follows:
Product
Gasoline..................................................................................................
Kerosene.................................................................................................
Naphtha..................................................................................................

Per Unit Weighting

10.3
5
3

Required: Allocate the production cost, using:

(1)
(2)

The market value method

The weighted average method

SOLUTION
(1)
Product
Gasoline.................................................
Kerosene................................................
Naphtha.................................................

Units
10,000
15,000
20,000

Unit
Sales
Price
$5
4
3

Total
Market
Value
$ 50,000
60,000
60,000
$ 170,000

Units
10,000
15,000
20,000

Per Unit
Weighting
10.3
5
3

Weighted
Units
103,000
75,000

Allocation1
$17,500
21,000
21,000
$ 59,500

$59,500/$170,000 = 35%

(2)
Product
Gasoline.................................................
Kerosene................................................
Naphtha.................................................
.................................................. 15,000

238,000
2

$59,500/238,000 = $.25 per weighted unit

Allocation2
$25,750
18,750
60,000
$59,500

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Chapter 8

PROBLEM
5.
MarketValueMethodforByProducts. Flores Inc. manufactures one main product and two byproducts. Data for July are:
Main
Product
Sales.................................................... $150,000
Manufacturing cost before
separation....................................
Manufacturing cost after
separation....................................
23,000
Marketing and administrative
expense........................................
12,000

By-Product
A
$12,000

By-Product
B
$ 7,000

Total
$169,000
75,000

2,200

1,800

27,000

1,500

1,100

14,600

Profit allowed for By-Product A is 15% of sales and for By-Product B is 20% of sales.
Required:
(1)
(2)

Calculate the manufacturing cost before separation that is to be charged to ByProducts A and B.
Prepare an income statement detailing sales and costs for each product.

SOLUTION
(1)
Sales.................................................................................................
Manufacturing cost after separation.................................................
Marketing and administrative expenses...........................................
Profit allowance (A, 15%; B, 20%).....................................................
Manufacturing cost before separation..............................................
(2)

A
$12,000
$ 2,200
1,500
1,800
$ 5,500
$ 6,500

B
$7,000
$1,800
1,100
1,400
$4,300
$2,700

Flores Inc.
Income Statement
For July, 19--

Main
Product
Sales.................................................... $ 150,000
169,000
Cost of goods sold:
Before separation.......................... $ 65,800
After separation.............................
23,000
$ 88,800
102,000
Gross profit
$ 61,200
Less marketing and
administrative expenses
12,000
Profit from operations
$ 49,200
52,400

A
$ 12,000

B
$7,000

Total

$ 6,500
2,200
$ 8,700

$2,700
1,800
$4,500

$ 75,000
27,000
$

$ 3,300

$2,500

$ 67,000

1,500
$ 1,800

1,100
$1,400

14,600

Costing By-Products and Joint Products

115

PROBLEM
6.
JointCostAnalysisforManagerialDecisions. The Conga Company produced three products, C, O,
and N, as the result of joint processing which cost $51,700.
C
22,000
$33,000
$ 5.50

Units produced................................................
Separable processing costs............................
Unit sales price...............................................

O
17,500
$24,875
$ 7.25

N
11,750
$31,375
$ 8.50

Required:
(1)
(2)

Allocate the joint cost to the three products using the market value method.
Suppose that Product O could be sold at the split-off point for $5.00. Would that be a
good idea? Show calculations.

SOLUTION
(1)

Ultimate
Market Value
Product
per Unit
C............................................. $5.50
O............................................. 7.25
N............................................. 8.50
(
(
(
(
(
(
(

Processing
Cost After
Split-Off
$33,000
24,875
31,375
$89,250

Hypothetical
Market
Value
$ 88,000
102,000
68,500
$ 258,500

Units
Produced
22,000
17,500
11,750

Ultimate
Market
Value
$121,000
126,875
99,875
$347,750

)
)
)
)
)
)
)

Apportionment
of Joint
Production Cost
$17,600*
20,400
13,700
$51,700

* 51,700 $258,500 = .20; $88,000 x .20 = 17,600

(2)
Differential revenue [17,500 x (7.25 - 5.00)]...........................................................
Differential cost........................................................................................................
Net effect of separable processing...........................................................................

$39,375
24,875
$14,500

Conclusion: Based on the information given, O should be processed beyond the split-off
point.