CostAccount

ing,
15e(
Horngren/Datar
/Raj
an)
Chapt
er16 CostAl l
ocat
ion:JointPr
oductsandBy
product
s

Obj
ect
ive16.
1

1)Whatt y
peofcosti
sther
esul
tofanev
entt
hatr
esul
tsi
nmor
ethanonepr
oductorser
vice
si
multaneously?
A)byproductcost
B)joi
ntcost
C)maincost
D)separablecost
Answer:B
Di
ff
:1
Obj
ecti
ve: 1
AACSB: Analy
tical
thi
nki
ng

2)Whi chofthef ol
lowi
ngstatementsbestdefinespli
toffpoi
nti
njoi
ntcosting?
A)Itisthepointatwhichmanager sdeci
det odiscont
inueoneormoreoft heproduct
s.
B)Itisthepointatwhichthemanager sdecidetooutsourcesomeofitsproducti
onprocesses.
C)Itisthejunctureinaj
ointproducti
onprocesswhent woormor eproductsbecomesepar at
ely
i
dent i
fi
able.
D)Itisthejunctureatwhi
chdeci si
onsdeter
mi ni
ngjointcost
sofvari
ouspr oduct
stobepr oducedar
e
taken.
Answer :C
Di
ff
:2
Obj
ecti
ve: 1
AACSB: Analy
tical
thi
nki
ng

3)Whichoft hefollowingst atementsi strueofjointproduct i

onprocessandi tscomponent s?
A)Distri
buti
oncost sincurredbey ondt hesplit
offpoi ntassignabletoeachoft hespeci f
icproducts
i
dentif
iedatt hespl it
offpointar econsideredasj ointcosts.
B)Decisionsr el
atingt othesal eorfurtherprocessingofeachi denti
fi
ableproductcanbemade
i
ndependent lyofdeci sionsaboutt heot herproduct sbeyondt hesplit
offpoint.
C)Whenaj ointproduct ionpr ocessyieldstwoormor eproductswi t
hlowt otal salesval
uesr el
ativ
etothe
tot
alsalesv aluesofot herpr oducts,t
hosepr oduct sar ecal
ledjointproducts.
D)Thepr imar ypurposeofj oi ntcost
ingi stoall
ocat ethesepar ablecoststot hei ndi
vi
dual productst
hat
areeventuallysold.
Answer :B
Di
ff
:2
Obj
ecti
ve: 1
AACSB: Analy
tical
thi
nki
ng

1
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sonEducat
ion,
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4)Thefocusofjoi
ntcosti
ngi
sonal
l
ocat
ingcost
stoi
ndi
vi
dual
product
s__
___
___
.
A)befor
ethesplit
offpoi
nt
B)aft
erthespl
it
offpoint
C)atthespl
it
offpoint
D)attheendofproducti
on
Answer:C
Di
ff
:1
Obj
ecti
ve: 1
AACSB: Analy
tical
thi
nki
ng

5)Whi choft hefollowingst at

ement si
st r
ueofj ointcost i
ng?
A)Thecost sofapr oducti
onpr ocessthatyi
eldsmul ti
pleproductssi
multaneousl
yarecal
ledjoi
ntcosts.
B)Distri
buti
oncost sincurredbey ondthespli
toffpoi ntthatareassi
gnabletoeachofthespecif
ic
productsidentif
iedatt hespl i
toffpoi
ntareconsi deredasj oi
ntcosts.
C)Thepr imar ypurposeofj ointcosti
ngistoal l
ocat ethesepar abl
ecoststotheindi
vi
dualpr
oductsthat
areeventuallysold.
D)Jointcost i
ngi slessusef ulforcompanieswhi chmanuf acturemul
ti
pleproductssi
mult
aneouslyfr
om
thesamepr oductionpr ocess.
Answer :A
Di
ff
:2
Obj
ecti
ve: 1
AACSB: Appli
cat
ionofknowl
edge

6)Whenasi ngl
emanuf acturi
ngprocessyiel
dstwoproduct
s,oneofwhi
chhasarel
ati
vel
yhi
ghsal
es
val
uecompar edtotheother,thetwoproductsar
erespect
ivel
yknownas__
___
___
.
A)joi
ntpr
oductsandby products
B)joi
ntpr
oductsandscr ap
C)mainproductsandby products
D)mainproductsandjointproducts
Answer:C
Di
ff
:1
Obj
ecti
ve: 1
AACSB: Analy
tical
thi
nki
ng

7)Whichoft hef ollowingstatement sbestdef inejoi

ntproducts?
A)Whenonepr oducthasahi ght otalsal esv aluecompar edwiththetotalsalesv alueofotherpr oductsof
theprocess,thatpr oductiscalledaj ointpr oduct .
B)Productofaj ointproductionpr ocesst hathav ethesamesal esvaluecompar edwi t
hthet otalsales
val
ueoft hebypr oductsiscal l
edaj ointpr oduct .
C)Whenonepr oducthasal owt otalsal esv aluecompar edwi t
hthetotalsalesv alueofotherpr oductsof
theprocess,thatpr oductiscalledaj ointpr oduct .
D)Whenaj oi
ntpr oducti
onpr ocessy ieldst woormor epr oductswit
hhight otalsalesvaluesr el
ativetothe
tot
alsalesvaluesofot herproduct s,thosepr oductsarecalledjoi
ntproducts.
Answer:D
Di
ff
:2
Obj
ecti
ve: 1
AACSB: Analy
tical
thi
nki
ng

2
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sonEducat
ion,
Inc.
8)Thepr oductsofajoi
ntproduct
ionpr
ocessthathav
elowt
otal
sal
esv
aluescompar
edwi
tht
het
otal
sal
esv alueoft hemai
nproductarecal
l
ed____
_ _
__.
A)pri
mar yproduct
s
B)joi
ntpr oducts
C)byproduct s
D)wast eproducts
Answer:C
Di
ff
:1
Obj
ecti
ve: 1
AACSB: Analy
tical
thi
nki
ng

9)__
__ _
___isthedi f
ferent
iati
ngf act
orwhi
leclassi
fyi
ngapr
oductasamai
npr
oductorby
product
.
A)Numberofuni t
sperpr ocessingperi
od
B)Weightorv olumeofout putsperperi
od
C)Percentageoft ot
al sal
esvalue
D)Jointcostsincurredupt othespli
tof
fpoint
Answer:C
Di
ff
:2
Obj
ecti
ve: 1
AACSB: Appli
cat
ionofknowl
edge

10)I
njointcost
ing,
whichofthefoll
owingchangesmayleadtoachangei
npr
oductcl
assi
fi
cat
ion?
A)mainproductsal
espri
ceincreasesduetoanewapplicat
ion
B)bypr
oductsalespri
cedecreasesduetoanewgov er
nmentregul
ati
on
C)mainproductbecomestechnologi
call
yobsol
ete
D)bypr
oductlosesit
smarketduet oanewinventi
on
Answer:C
Di
ff
:2
Obj
ecti
ve: 1
AACSB: Analy
tical
thi
nki
ng

11)Productswitharel
ati
vel
ylowsal
esv
aluear
eknownas_
___
___
_.
A)pri
mar yproduct
s
B)mainpr oduct
s
C)joi
ntproducts
D)byproducts
Answer:D
Di
ff
:1
Obj
ecti
ve: 1
AACSB: Analy
tical
thi
nki
ng

12)Whichoft hefol
lowi ngstatementsi
st rueofmai npr
oduct
sandby
product
s?
A)Aby pr
oductwillnev erbecomeamai npr oduct.
B)Amai nproductwi l
lnev erbecomeaby product.
C)Productcl
assifi
cationsmaychangeov ertime.
D)Productclassi
fi
cationsr emainsconstantov ert
ime.
Answer:C
Di
ff
:2
Obj
ecti
ve: 1
AACSB: Analy
tical
thi
nki
ng

13)Output
swithanegativesalesvalueare__
___
___
.
A)addedtocostofgoodssol d
B)addedtojoi
ntpr
oductioncost sandall
ocat
edtoj
ointormainpr
oducts
C)addedtojoi
ntproducti
oncost sandall
ocat
edtobyproduct
sandscr
ap
D)subtr
actedf
rom productrevenue
Answer:B

3
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sonEducat
ion,
Inc.
Di
ff
:3
Obj
ecti
ve: 1
AACSB: Analy
tical
thi
nki
ng

14)Joi
ntcostsar
eincur
redbeyondthespl
it
offpoi
ntandareassi
gnabl
etoi
ndi
vi
dual
product
s.
Answer: FALSE
Expl
anat
ion: Joi
ntcost
sareincur
redpri
ortothespl
it
offpoi
nt.
Di
ff
:1
Obj
ecti
ve: 1
AACSB: Analy
tical
thi
nki
ng

15)Joi
ntcosti
ngal
l
ocat
est
hej
ointcost
stot
hei
ndi
vi
dual
product
sthatar
eev
ent
ual
l
ysol
d.
Answer: TRUE
Di
ff
:1
Obj
ecti
ve: 1
AACSB: Analy
tical
thi
nki
ng

16)Separ
ablecost
sincl
udemanufact
uri
ngcostsonl
y.
Answer: FALSE
Expl
anati
on: Separ
ablecost
sincl
udemanufact
uri
ng,mar
ket
ing,
dist
ri
but
ion,
andot
hercost
s.
Di
ff
:2
Obj
ecti
ve: 1
AACSB: Analy
tical
thi
nki
ng

17)Classif
icat
ionofmai npr
oducts,j
ointpr
oduct
s,andbyproductscanalwaysbedonewit
hease.
Answer: FALSE
Expl
anation: Inpract
ice,di
sti
nct
ionsamongmai nproduct
s,joi
ntproduct
s,andbypr
oduct
sarenotso
cl
earcut.
Di
ff
:1
Obj
ecti
ve: 1
AACSB: Analy
tical
thi
nki
ng

18)Joi
ntcostsar
ethecost
sofapr
oduct
ionpr
ocesst
haty
iel
dsmul
ti
plepr
oduct
ssi
mul
taneousl
y.
Answer: TRUE
Di
ff
:1
Obj
ecti
ve: 1
AACSB: Analy
tical
thi
nki
ng

4
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sonEducat
ion,
Inc.
19)Thej unctur
einajoi
ntpr
oduct
ionprocesswhentwoproduct
sbecomeseparabl
eist
hebypr
oduct
point.
Answer : FALSE
Explanati
on: Thejunct
urei
najoi
ntproducti
onprocesswhentwoproduct
sbecomesepar
abl
eisthe
spl
itoffpoint
.
Di
ff
:1
Obj
ecti
ve: 1
AACSB: Analy
tical
thi
nki
ng

20)Beforethespl
it
offpoi
nt,
decisi
onsrel
ati
ngtothesal
eorfur
therpr
ocessingofeachi
dent
if
iabl
e
productcannotbemadeindependent
lyofdeci
si
onsaboutt
heotherproduct
s.
Answer: TRUE
Di
ff
:2
Obj
ecti
ve: 1
AACSB: Appli
cat
ionofknowl
edge

21)Whenaj oi
ntproducti
onprocessy
iel
dst
woormor
epr
oduct
swi
thhi
ght
otal
sal
esv
alues,
these
product
sarecall
edjointpr
oducts.
Answer: TRUE
Di
ff
:1
Obj
ecti
ve: 1
AACSB: Analy
tical
thi
nki
ng

22)Al
lproduct
syiel
dedfrom j
ointproductpr
ocessi
nghavesomepositi
veval
uet
othefir
m.
Answer: FALSE
Expl
anat
ion: Notallpr
oduct
sy iel
dedfrom j
ointpr
oductpr
ocessi
nghavesomeposi
ti
veval
uet
othef
ir
m.
Di
ff
:1
Obj
ecti
ve: 1
AACSB: Analy
tical
thi
nki
ng

23)I
fthevalueofabyproductdr
opssigni
fi
cant
ly,i
tcouldalsobevi
ewedasaj
ointproduct
.
Answer: FALSE
Expl
anat
ion: Ift
hevalueofabyproductdr
opssignif
icant
ly,i
twi
ll
remai
nasabyproductonly
.
Di
ff
:2
Obj
ecti
ve: 1
AACSB: Appli
cat
ionofknowl
edge

5
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ion,
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24)Ineachoft hef oll
owi ngindustr
ies,ident
if
ypossi
blej
oint(
orsev
erabl
e)pr
oduct
satt
hespl
i
tof
fpoi
nt.
a. Coal
b. Petroleum
c. Dairy
d. Lamb
e. Lumber
f. CocoaBeans
g. Chr i
stmasTr ees
h. Salt
i
. Cowhi de
Answer :
a. Coke, Gas, Benzole,Tar ,Ammoni a
b. CrudeOi l,Gas, RawLPG
c. Milk,Butter,Cheese, I
ceCr eam,Skim Milk
d. LambCut s, Tri
pe, Hides,Bones, Fat
e. Boar d,Newspr i
nt,Shav i
ngs,Chips,etc.
f. CocoaBut ter,CocoaPowder ,
CocoaShel ls
g. ChristmasTr ees,Wr eaths,Decor at
ions
h. Hydr ogen,Chl ori
ne,Caust i
cSoda
i
. Leat her,Suede, ChewToy s
Di
ff
:3
Obj
ecti
ve: 1
AACSB: Analy
tical
thi
nki
ng

25)Definethetermsmai npr
oduct,j
ointproduct
,andbyproduct
. Giv
eatleastoneexampleofeachty
pe
ofproduct.
Answer: Mai nproduct-Whenonepr oducthasahightotalsal
esval
uecomparedwiththetot
alsal
es
val
ueofot herproduct
softheprocess.Ex.ti
mberprocessedint
olumber

Joi
ntpr
oduct-Whenajointpr
oduct
ionprocessyi
eldstwoormor epr
oductswi
thhi
ghtotal
sal
esvalue
compar
edwiththet
otalsal
esval
ueofotherproducts.Ex.cr
udeoi
lpr
ocessedi
ntogasol
i
neandkerosene

Bypr
oduct-Pr
oduct
sofajoi
ntproducti
onprocessthathav
elowtotal
sal
esval
uecomparedwit
hthetot
al
sal
esval
ueofthemainpr
oductorjoi
ntproduct
s.Ex.woodchi
pscreat
edwhenti
mberpr
ocessedint
o
l
umber
Di
ff
:2
Obj
ecti
ve: 1
AACSB: Analy
tical
thi
nki
ng

6
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sonEducat
ion,
Inc.
26)Sil
verCompanyusesoner awmat erial,
sil
verore,foral
lofitsproducts.Itspendsconsiderabletime
gett
ingthesilv
erfrom theor ebeforeitst ar
tstheactualprocessingofthef i
nishedproducts,ri
ngs,
l
ockets,et
c.Tradit
ionally
, t
hecompanymadeonepr oductatatimeandchar gedt heproductwithall
costsofproducti
on,from oret ofi
nalinspect i
on.Howev er,i
nrecentmont hs, t
hecostaccount i
ngr epor
ts
havebeensomewhatdi sturbingtomanagement .I
tseemst hatsomeoft hef i
nishedproductsarecosti
ng
mor et
hant heyshould,event othepointofappr oachingtheirr
etailval
ue.Ithasbeennot edbyt he
accounti
ngmanagert hatthisproblem beganwhent hecompanyst art
edbuy ingorefrom dif
ferentpart
s
oftheworld,someofwhi chrequirediff
icultextr
acti
onmet hods.

Required:
Cany ouexpl ai
nhowt hecompanymi ghtchangeit
saccount i
ngsystem toref
lectt
hereporti
ngproblems
better
?Ar ethereotherproblemswi ththepurchasi
ngar ea?
Answer :I tappearsthatthecompanyneedst ostartassigni
ngallext
racti
oncoststoajoint
-cost
category.I
tisunfairthatthefini
shedpr oduct
srecei
veahi ghcostsimplybecauseacertainbatchofore
wasv eryexpensivetor unthroughtheext r
acti
onprocesswhent henextfini
shedproductswereproduced
fr
om si l
verthatwaseasyt oextr
act.

Ifal
lext
ract
ioncostsar
econsideredjoint,
theneachfi
nishedproductwouldshar
eintheaver
agecostof
extr
acti
on,r
athert
hanbeingchargedwi ththecostofaspecif
icbatch.Thi
sshoul
dresul
tincost
sthatar
e
morerefl
ecti
veoftheproduct
'sactualcost.

Addit
ionalpr
oblemsmaybewi t
hthepurchasi
ngdepart
ment .Theaccounti
ngdepar
tmentmayhel
p
hi
ghli
ghttheproblem buti
tdoesnotpi
npointt
heactualproblem.Maybethecompanyshoul
dbuyref
ined
si
lv
erorelsehireexpertsi
ntheminer
alsareaaspartofthepurchasi
ngteam.
Di
ff
:2
Obj
ecti
ve: 1
AACSB: Appli
cat
ionofknowl
edge

27)Whatar ej
ointcosts, separabl
ecost s,
andaspl i
tof
fpoint?
Answer : Jointcostsar ethecost sofasingleproducti
onprocessthaty i
eldmul t
ipl
eproduct
s
si
mul t
aneousl y
.
Separablecostsareall costsincurredbeyondt hespl
it
offpoi
ntthatar eassignabl
etoeachofthespeci
fi
c
productsidenti
fi
edatthespl it
offpoint.
Thesplitoffpoi
ntisthej unctureinaj oi
ntproducti
onprocesswhent heproduct sbecomeseparatel
y
i
dentif
iable.Anexampl ei sthepointatwhi chcoalbecomescoke,nat uralgas,andotherpr
oducts.
Di
ff
:2
Obj
ecti
ve: 1
AACSB: Analy
tical
thi
nki
ng

28)Discussi nbri
efhoweasyi ti
sforcompani estocl assif
yproductsasmai nproducts,j
ointproduct
s,
andby pr
oduct s.
Answer : Disti
ncti
onsamongmai nproducts,
jointproducts,andby pr
oduct sarenotsocl earcutin
pract
ice.Compani esusediff
erentthr
esholdsfordet ermini
ngwhet hertherelati
vesalesvalueofa
productishighenoughf ori
ttobeconsideredaj ointproduct.Moreover,theclassi
fi
cationofpr oduct
scan
changeov ertime,especi
all
yforproductswhosesel li
ngpr i
ceschangef requentl
y.
Di
ff
:2
Obj
ecti
ve: 1
AACSB: Analy
tical
thi
nki
ng

29)Explainthedifferencebet weenaj ointproductandaby product.Canaby producteverbecomeaj oi

nt
product?Also,canaj ointproductev erbecomeaby product?
Answer : Thedifferent i
ati
ngf actorbet weenaj oi
ntproductandaby productisthesalesv al
ueatthe
spli
toffpoint
.Jointpr oductshav ehi ghtotalsalesval
ueatthespl i
toffpoint.Aby producthasal owtotal
salesvalueatthespl itoffpoint.Productscanchangef r
om by pr
oduct stojointproductswhent hei
rtotal
salesvaluesincr
easesi gnif
icantly.Also,productscanchangef rom j
oi ntpr
oduct stobypr oductswhen
theirt
otalsalesvaluesdecr easesi gnifi
cantly.
Di
ff
:2
7
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sonEducat
ion,
Inc.
Obj
ecti
ve: 1
AACSB: Analy
tical
thi
nki
ng

Obj
ect
ive16.
2

1)Whichoft hefoll
owingisapossibl
ereasont
oal
l
ocat
ejoi
ntcost
stoi
ndi
vi
dual
product
s?
A)rat
er egul
ati
onr equir
ement s
B)topreparefinanci
alstatements
C)forproductdesigndecisions
D)todeterminet axrat
es
Answer:A
Di
ff
:1
Obj
ecti
ve: 2
AACSB: Analy
tical
thi
nki
ng

2)Abusinesswhi chent ersi

nt oacont racttopur chaseapr oductwhi chcompensat esthemanufactur
er
underacostr ei
mbur sementagr eementshoul dtakeanact iv
epar ti
nt hedeter
mi nati
onofhowjointcost
s
areal
locat
edbecause_ __
_____.
A)themanuf actur
er mayal l
ocateal argeportionofi t
sot hercoststothesepr oducts
B)thebusinessneedt hosei nformat i
onf ori
tstaxr eport
ingpur poses
C)theFASBr equiresthebusi nesst opartici
pateint hecostallocati
onpr ocess
D)iti
sanoppor tunit
yf orthebusi nesstoenhancei tsmar ketknowledge
Answer:A
Di
ff
:2
Obj
ecti
ve: 2
AACSB: Analy
tical
thi
nki
ng

3)Oneofthereasonst
oal
l
ocat
ejoi
ntcost
stoi
ndi
vi
dual
product
sist
oai
dint
hepr
epar
ati
onoft
ax
ret
urns.
Answer: FALSE
Di
ff
:1
Obj
ecti
ve: 2
AACSB: Analy
tical
thi
nki
ng

4)All
ocat
ingjointcost
stoindi
vi
dualpr
oduct
scanbehel
pful
forl
i
tigat
ionset
tl
ementpur
posesi
nwhi
ch
thecost
sofjointproduct
sorserv
icesar
ekeyinput
s.
Answer: TRUE
Di
ff
:1
Obj
ecti
ve: 2
AACSB: Analy
tical
thi
nki
ng

8
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sonEducat
ion,
Inc.
5)Li
stthreereasonswhyweal l
ocat
ejointcost
stoindi
vidualproduct
sorservi
ces.Giveanexampleof
whenthepar t
icularcostal
locat
ionr
easonwouldcomei ntouse.
Answer:
a. Forinventorycosti
ng,andcostofgoodssoldcomput at
ionsforfi
nanci
alaccount
ingpurposes.
Exampl e:
Costofgoodssol dandendinginvent
oryvaluati
onisnecessar
yforreport
stosharehol
der
s
andfortheinl
andr evenueservi
ce.

b. Fori
nternalcost
ingandcostofgoodssoldcomput
ati
onsf
orint
ernalr
epor
ti
ngpur
poses.
Example:Thesecomputati
onsarenecessar
yfordi
vi
si
onprof
it
abil
it
yanal
ysi
s.

c. Rei mbursementundercont r
acts.
Example:Af i
rm producesmulti
pleproductsorservi
ces-andusest
hesamer esour
cesandf aci
l
iti
esto
producethepr oduct
sorser vi
ces.Butnotallthefi
rm'sproductsar
eunderthecontr
act.Thef
irm must
all
ocatethecostoft hesesharedfaci
lit
iesorresour
cestor efl
ectt
heport
ionusedbytheproductunder
thecontract.

d. I
nsurancesettl
ementcomput ati
ons.
Example:Whereabusinesswi t
hmul t
ipl
eproduct
sorser
vicescl
aiml
ossesunderaninsurancepol
i
cy
andwantstocalcul
atet
hel oss.Theinsur
ancecompanyandtheinsur
edmustagreeonthev al
ueofthe
l
oss.

e. Rateregulation.Whencompaniesar esubjecttor
ateregul
ati
on,
theal
l
ocat
ionofj
ointcost
scanbea
si
gnif
icantfactorindetermi
ningtheregulat
edr at
es.
Example: Crudeoilandnatur
algasar eproducedoutofacommonwel l
.
Di
ff
:2
Obj
ecti
ve: 2
AACSB: Analy
tical
thi
nki
ng

6)Whatar et hereasonsf orall

ocatingj ointcostst oindivi
dualproductsorser vi
ces?
Answer : Thej oi
ntcost sshouldbeal locatedtoi ndivi
dualproductsorser vicest ocomput ei nvent ori
able
costsandt hecostofgoodssol df orext ernalreportingpurposes.Absor pti
oncost i
ngi srequiredf or
i
ncomet axr eportingwhi chnecessitatest heallocationofjoi
ntmanuf acturi
ngorpr ocessingcost sto
products.Thecost sshoul dbeallocat edt oalsoal l
owf orcomput i
ngcostofgoodssol dandi nventoriabl
e
costsforint ernalreporti
ngpurposesofcomput ingdi vi
si
onpr ofi
tsandt oev aluatetheper formanceof
divi
sionmanager s.Thecost swi l
lber eimbursedundercont ractsusingacostpl ussy stem, oftenf oundin
governmentcont ractswhi chcall
sf oral l
ocationofj ointcost
s.Anot herreasonf ort
hecostal locationisto
all
owf orpr operv aluat
ionandset tl
ementi ninsur anceclaimsf ordamages.Al so,wher ejointpr oductsare
regul
ated, propercost i
ngi sessential.Allocati
ngj ointcostscansuppor tlit
igationwher ethej ointpr oduct
i
sakeyi nput .
Di
ff
:2
Obj
ecti
ve: 2
AACSB: Analy
tical
thi
nki
ng

9
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right©2015Pear
sonEducat
ion,
Inc.
Obj
ect
ive16.
3

1)Whi chofthef ol
lowingstatementsi str
ueoft hemethodsforallocati
ngjointcost
s?
A)Const antgross-marginpercentagemet hodresul
tsinsamej ointproducti
oncostperuni tf orall
products.
B)Estimatednetr eal
izablevaluemet hodresult
sinsamegr ossmar ginpercentageforallproduct
s.
C)Presentv alueall
ocati
onmet hodistheleastpref
err
edmet hodduet oit
scompl excalculati
ons.
D)Salesv al
ueatspl i
toffmethodusest hesalesval
ueoftheent i
reproductionoftheaccount i
ngperiodt
o
al
locatecost s.
Answer :D
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

2)Anexampl eofallocati
ngjointcost
susi
ngphy
sical
measur
esi
sal
l
ocat
ingj
ointcost
sbasedon
___
_____.
A)sal
esv alueatsplit
offpoi
nt
B)vol
umeoft heproducts
C)constantgross-marginpercentage
D)netreali
zablevalue
Answer:B
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

3)I
njointcosting,
whichoft
hef
oll
owi
ngi
samar
ket
-basedappr
oacht
oal
l
ocat
ingcost
s?
A)sal
esuni t
s
B)uni
tsofpr oducti
on
C)physicalmeasures
D)netreali
zableval
ue
Answer:D
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

4)Thesalesvalueatspl
i
toffmethod____
___
_.
A)al
locatesj
ointcost
stojointpr
oduct
sonthebasi
softherelat
ivetot
alsal
esvalueatthespl
itoffpoi
nt
B)al
locatesj
ointcost
stojointpr
oduct
sonthebasi
sofacompar ablephysi
calmeasureatthesplit
off
poi
nt
C)al
locatesj
ointcost
stojointpr
oduct
sonthebasi
sofrelat
iveNRV
D)all
ocatesj
ointcost
stojointpr
oduct
sinawaythateachproducthasanident
icalgr
oss-margin
per
centage
Answer:A
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

10
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right©2015Pear
sonEducat
ion,
Inc.
5)Whi choft hef oll
owi
ngstatementsistrueofthemethodsf orall
ocati
ngjoi
ntcost
s?
A)Thenetr eal
izableval
uemet hodusest hesal
esv al
ueoft heunit
ssoldduri
ngtheaccountingperiodto
al
locatejointcost s.
B)Thesal esv alueatspli
tof
fmet hodalwaysresul
tsinthesamegr oss-
margi
npercentageforallpr
oducts.
C)Thesal esv alueatspli
tof
fmet hodall
ocatesjoi
ntcoststoeachpr oducti
nproport
iontothesalesv al
ue
oftotalproduction.
D)Thenetr eali
zableval
uemet hodresult
sinthesamej ointproducti
oncostperuni
tf oral
lproducts.
Answer :C
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

6)Thephy si
cal
-measuremethod_____
___.
A)al
locatesjoi
ntcost
stojoi
ntproductsi
nawayt hateachpr oducthasanident
icalgr
oss-
mar gi
n
per
centage
B)al
locatesjoi
ntcost
stojoi
ntproductsonthebasi
sofacompar ablephy
sicalmeasureatthespli
tof
f
poi
nt
C)al
locatesjoi
ntcost
stojoi
ntproductsonthebasi
softher elat
ivesal
esvalueatthespl
it
offpoint
D)all
ocatesjoi
ntcost
stojoi
ntproductsonthebasi
sofr el
ati
v eNRV
Answer:B
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

7)Thenetreal
izabl
evaluemethod_____
___
.
A)al
locatesj
ointcost
stojoi
ntproduct
sonthebasi
sofacompar ablephysicalmeasureatthespli
tof
f
poi
nt
B)al
locatesj
ointcost
stojoi
ntproduct
sonthebasi
softher elat
ivesal
esv alueatthespl
it
offpoi
nt
C)al
locatesj
ointcost
stojoi
ntproduct
sinawaythateachpr oducthasani dent
icalgr
oss-
mar gi
n
per
centage
D)all
ocatesj
ointcost
stojoi
ntproduct
sonthebasi
sofr el
ati
v eNRV
Answer:D
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

8)Whichoft hefoll
owi ngstatement sistr
ueinregardt ot hecause- and-ef
fectr
elat
ionshi
pbet
ween
al
locat
edjointcostsandi ndiv i
dual products?
A)Ahighindividualproductv alueresultsinahighlev el ofjointcosts.
B)Alowindiv i
dualproductv alueresul t
sinalowlev el ofjointcosts.
C)Ahighindividualproductv alueresultsinalowlev el ofjointcosts.
D)Therei
snocause- and-effectrelationshi
p.
Answer:D
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

11
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right©2015Pear
sonEducat
ion,
Inc.
9)Thebenef i
ts-
recei
vedcri
ter
iaf
oral l
ocatingjoi
ntcost
si ndi
catemarket
-basedmeasur
esarepr
efer
red
because_ _
_____
_ .
A)physicalmeasuressuchasquant i
tyareclearbasesforall
ocati
ngcostthanot
hermeasur
es
B)physicalmeasuresaremoredif
ficulttocalcul
ate
C)revenuesareusuall
ythebesti
ndicat or
soft hebenef
itsrecei
ved
D)revenuesalwaysremainconsi
stentov ershort-
run
Answer:C
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

Answert
hef
oll
owi
ngquest
ionsusi
ngt
hei
nfor
mat
ionbel
ow:

Bismit
eCorporat
ionpur
chasestreesfr
om Cheneylumberandpr ocessest hem uptothespli
tof
fpoint
wheretwoproducts(
paperandpencilcasi
ngs)areobtai
ned.Thepr oductsarethensoldtoan
i
ndependentcompanythatmarketsanddist
ri
butesthem toret
ailoutl
ets.Thefoll
owinginfor
mationwas
coll
ect
edforthemonthofOctober:

Treesprocessed:250tr
ees
Producti
on: paper 180,
000sheet
s
penci
lcasi
ngs 180,
000
Sales: paper 174,
000at$0.
12perpage
penci
lcasi
ngs 178,
500at$0.
15percasi
ng

Thecostofpur chasing250t r
eesandprocessi
ngt
hem uptot
hespli
tof
fpoi
ntt
oyi
eld180,
000sheet
sof
paperand180,000penci lcasi
ngsis$12,500.
Bismit
e'saccountingdepartmentrepor
tednobegi
nni
nginv
entor
y.

10)Whatist
hetotal
sal
esval
ueatthespl
it
offpoi
ntforpaper
?
A)$26,
775
B)$20,
880
C)$21,
600
D)$27,
000
Answer:C
Expl
anat
ion: C)Sal
esval
ueofpaper=180,
000sheets×$0.12=$21,
600
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

11)Whatist
hetotal
sal
esval
ueatthespl
i
tof
fpointoft
hepencil
casi
ngs?
A)$21,
600
B)$27,
000
C)$26,
775
D)$20,
880
Answer:B
Expl
anat
ion: B)Sal
esval
ueofpenci
l
s=180,000casi
ngs×$0.15=$27,000
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

12)Whatarethepaper'
sandthepenci
l
'sappr
oxi
mat
ewei
ght
edcostpr
opor
ti
onsusi
ngt
hesal
esv
alueat
spl
it
offmethod,r
espect
ivel
y?
A)50.00%and50.00%
B)33.33%and66.67%
C)31.82%and68.18%
D)44.44%and55.56%

12
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right©2015Pear
sonEducat
ion,
Inc.
Answer:D
Expl
anation: D)Paper:
180,
000sheets×$0.12=$21,
600
Penci
ls:180,
000casings×$0.
15=$27, 000
Weightedcostpropor
ti
ons-Paper
:$21,600/(
$21,
600+$27,
000)=44.
44%
Weightedcostpropor
ti
ons-Penci
l
:$27,000/(
$21,
600+$27,
000)=55.
56%
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

13)I ft
hesal esval
ueatspli
tof
fmet hodi sused,whataretheappr
oximatejoi
ntcostsassi
gnedtoendi
ng
i
nvent oryforpaper?
A)$185. 17
B)$57. 87
C)$175. 38
D)$57. 78
Answer :A
Explanat i
on: A)Paper:180,
000sheet s×$0. 12=$21,600
Penci l
s:180,000casi
ngs×$0.15=$27, 000
Wei ghtedcostproport
ions-Paper:$21,600/(
$21,600+$27,000)=44.44%
Endingi nventor
y=180,000-174,000=6, 000sheets
Jointcost sassi
gnedtoendinginventoryforpaper=44.44%×$12,500×(6,000/180,
000)=$185.17
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

14)Ifthesalesvalueatspl
it
offmethodisused,whatistheappr
oxi
mateproduct
ioncostf
oreachpenci
l
casing?
A)$0.309
B)$0.301
C)$0.031
D)$0.039
Answer :D
Explanation: D)Paper:
180,000sheet
s×$0.12=$21, 600
Pencils:
180,000casings×$0.15=$27,000
Productioncostforeachpencil
casi
ng=[ (
$27,000/
($21,
600+$27,000)×$12,
500)]/180,
000=$0.039
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

13
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right©2015Pear
sonEducat
ion,
Inc.
15)Ifthesalesvalueatspl
i
toffmethodisused,whati
stheappr
oximateproduct
ioncostforeachpaper
sheet?
A)$0.309
B)$0.301
C)$0.031
D)$0.039
Answer :C
Explanation: C)Paper:
180,000sheet
s×$0. 12=$21,
600
Pencils:
180,000casings×$0.15=$27,000
Productioncostofeachpapersheet=[($21,
600/(
$21,
600+$27,000)×$12,500)
]/180,000=$0.0309
(r
oundt o$0.031)
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

Answert
hef
oll
owi
ngquest
ionsusi
ngt
hei
nfor
mat
ionbel
ow:

TheBerkelCorporati
onmanufact
uresWidgets,Gizmos,andTurnbol
sfrom ajoi
ntprocess.June
product
ionis5,000widget
s;8,
750gizmos;and10, 000t
urnbol
s.Respecti
veperunitsel
li
ngpr i
cesat
spli
tof
fare$75, $50,
and$25.Joi
ntcostsupt othespli
tof
fpoi
ntare$187,500.

16)Ifjointcost sar
eallocat
edbasedupont
hesal
esv
alueatspl
i
tof
f,whatamountofj
ointcost
swi
l
lbe
al
locatedt ot hewidgets?
A)$30, 882
B)$66,176
C)$44, 118
D)$77, 206
Answer :B
Explanat i
on: B)
Widgets: $75×5, 000 = $375,000
Gizmos: $50×8, 750= $437,500
Turnbol s:$25×10, 000= $250,000
Total =$1,
062,
500

Joi
ntcost
sal
l
ocat
edt
otheWi
dget
s=$375,
000/
$1,
062,
500×$187,
500=$66,
176
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

14
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right©2015Pear
sonEducat
ion,
Inc.
17)Whatamountofj ointcostswi l
lbeal
l
ocatedtotheTurnbol
s?
A)$44,118
B)$30,882
C)$77,206
D)$66,176
Answer :A
Explanati
on: A)
Widgets: $75×5, 000= $375, 000
Gizmos: $50×8, 750 = $437, 500
Turnbols: $25×10,000 = $250, 000
Total =$1,062,500
Jointcostsal
locat
edtotheTur nbols=$250,
000/$1,062,
500×$187,
500=$44,
118
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

18)Whatamountofj ointcost
swi l
lbeal
l
ocatedtotheGizmos?
A)$44,118
B)$30,882
C)$77,206
D)$66,176
Answer :C
Explanati
on: C)
Widgets: $75×5, 000= $375, 000
Gizmos: $50×8, 750 = $437,500
Turnbols: $25×10,000 = $250,000
Total = $1,062,
500
Jointcostsal
locat
edtothe Gi zmos=$437,
500/$1,062,
500×$187,
500=$77,
206
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

19)Areasonwhyaphy sical
-measuretoal l
ocatejointcost
si slesspr efer
redthanthesal
esval
ueat
spl
it
offisbecause_ __
_____.
A)aphy sicalmeasur
esuchasv olumeisdiffi
culttoesti
mat ethansal esv al
ue
B)physicalvolumeusuall
yhasl i
tt
lerel
ati
onshipt otherevenuepr oducingpowerofproduct
s
C)aphy sicalmeasur
eusuallyresult
sinlesscost sbeingall
ocat edt otheproductt
hatweighst
hemost
D)customer swill
easil
yunderstandthattheproduct sareoverpriced
Answer:B
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

15
Copy
right©2015Pear
sonEducat
ion,
Inc.
Answert
hef
oll
owi
ngquest
ionsusi
ngt
hei
nfor
mat
ionbel
ow:

TheAlfarm Corpor
ati
onprocessesrawmi
l
kuptothespl
itof
fpointwheret
woproducts,
cream andli
quid
skim,
ar eproducedandsold.Ther
ewasnobegi
nni
nginv
entory
.Thef ol
l
owingmater
ialwascoll
ectedfor
themont hofFebruar
y:

Directmateri
alspr
ocessed: 750, 000gall
ons(727,
500gal
l
onsofgoodpr
oduct
)
Producti
on: Cream 442,
500gall
ons
Li
quidski
m 285,000gal
lons
Sales: Cr eam 421,500at$110pergall
on
Li
quidski
m 273,000at$100pergall
on

Thecostofpur
chasi
ng750,000gal
lonsofdi
rectmat
eri
alsandprocessi
ngi
tupt
othespl
i
tof
fpoi
ntt
o
yi
eldatot
alof727,
500gal
lonsofgoodproductwas$2,
280,000.

20)Whatar ethephysi
cal
-volumeproporti
onst
oallocat
ejoi
ntcost
sforcr
eam andl
i
qui
dski
m,
respectiv
ely?
A)59. 00%and41. 00%
B)60. 82%and39. 18%
C)50. 00%and50. 00%
D)59. 79%and40. 21%
Answer :B
Explanation: B)Cream:442,500/727,500=60.82%
Liquidskim: 285,
000/727,500=39.18%
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

21)Whenusi ngaphy sical-vol

umemeasur e,
whati st
heappr
oxi
mateamountofj
ointcost
sthatwi
l
lbe
al
locat edtocream andl i
qui dski
m?
A)$1, 386,804and$893, 196
B)$1,140, 000and$1,140, 000
C)$1, 368,000and$912, 000
D)$1, 254,00and$1,026,000
Answer :A
Explanation: A)Cream: 442,500/727,500=60. 82%
Li
qui dskim: 285,
000/727, 500=39.18%
Jointcost sall
ocat
edt oCr eam =$2,280,000×60. 82%=$1,
386,
804
Jointcost sall
ocat
edt oLi quidski
m =$2,280,000×39.18%=$893,
196
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

16
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sonEducat
ion,
Inc.
22)Whenusi ngthephysi
cal
-vol
umemet hod,whatisCream'sappr
oxi
mat
epr
oduct
ioncostpergal
l
on?
A)$3.03
B)$3.31
C)$3.13
D)$3.21
Answer :C
Explanat
ion: C)Cream:442,
500/727,500=60. 82%
Jointcostsal
locat
edtoCream =$2,
280,000×60. 82%=$1,386,
804
Producti
oncostpergall
onforCream =$1,386,
804/442,500=$3.13
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

23)Whi chofthefol
lowi
ngst atementsaboutAl
farm'sjoi
ntproductioncostsistrue?
A)Thegr oss-
mar gi
npercentagepergall
onofCream andLi qui
dskim areequal becausejointcost
sare
all
ocatedbasedont henumberofgal l
ons.
B)Thegr oss-
mar gi
npercentagepergall
onofCream ishigherthangrossmar ginpercentagepergall
onof
Liqui
dskim becauseofCream' shi
gherproduct
ionvolume.
C)Thej oi
ntproducti
oncostpergallonofCream andLiquidski
m areequal becausejointcostsare
all
ocatedbasedont henumberofgal l
ons.
D)Thej oi
ntproducti
oncostpergallonofCream i
shigherthanjointproducti
oncostpergal lonofLi
quid
skim becauseofCream'shigherproduct
ionvol
ume.
Answer :C
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

17
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sonEducat
ion,
Inc.
Answert
hef
oll
owi
ngquest
ionsusi
ngt
hei
nfor
mat
ionbel
ow:

NetzoneCompanyisinsemiconduct
ori
ndust
ryandf
abr
icati
onofsi
l
icon-
waf
erchi
psspli
tsofft
wotypes
ofmemor ychi
ps,
StandardandPremium.Thefol
l
owi
nginfor
mati
onwascoll
ect
edforl
astquart
eroft
he
cal
endaryear:

Dir
ectmat er
ial
spr
ocessed: 200kgs(Bothstandar
dandpr
emi
um chi
pswei
gh10gr
amseach)
Producti
on: St andard 10,
000chi
ps
Pr
emium 6,500chi
ps
Sales: St
andard 9,
500at$100perchip
Pr
emium 6,000at$170perchip

Thecostofpur chasing200kgsofdirectmateri
alsandprocessi
ngituptothespli
tof
fpoi
nttoyieldatot
al
of16,
500chipsofgoodpr oduct
swas$1, 950,000.
Begi
nninginvent or
iestot
all
ed100chipsforStandardand50chipsforPremium.Endingi
nvent
ory
amountsrefl
ect ed100chipsofStandardand50chi psofPremium.Octobercost
sperunitwer
et hesame
as Nov ember.

24)Whatarethephysical
-vol
umepr oport
ionsf
orproduct
sStandar
dandPr
emi
um,
respect
ivel
y?
A)60.00%and40.00%
B)55.
00%and45. 00%
C)60.61%and39.39%
D)54.00%and46.00%
Answer:C
Expl
anati
on: C)Standard:10,000/(10,
000+6,500)=60.61%
Premi
um: 6,
500/(10,000+6, 500)=39.39%
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

25)Whenusi ngaphy sical-v

olumemeasure,
whatistheapproxi
mat
eamountofj
ointcost
sthatwi
l
lbe
al
locatedStandardchi ps?
A) $1, 170,
000
B) $1, 818,
818
C) $975, 000
D) $1, 181,
818
Answer :D
Explanati
on: D)St andar d:10,000/(
10,
000+6,500)=60.61%
Jointcostsall
ocatedt oSt andardchi
ps=$1,
950,000×60.61%=$1,
181,
818
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

18
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ion,
Inc.
26)Whenusi ngaphy sical
-vol
umemeasur e,whatistheapproxi
mat
eamountofj
ointcost
sthatwi
l
lbe
al
locatedPr emium chips?
A)$768,182
B)$1,170,000
C)$975,000
D)$780,000
Answer :A
Explanat
ion: A)Pr emi um:6,500/( 10,000+6,500)=39.39%
Jointcostsallocat
edt oPremi um chips=$1,950,000×39.39%=$768,
182
Di
ff
:3
Obj
ecti
ve: 3
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cat
ionofknowl
edge

19
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ion,
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Answert
hef
oll
owi
ngquest
ionsusi
ngt
hei
nfor
mat
ionbel
ow:

TheGr eenCompanypr
ocessesunprocessedgoatmi
lkupt
othespli
tof
fpoi
ntwheret
woproduct
s,
condensedgoatmil
kandskim goatmil
kresul
t.Thef
oll
owi
nginf
ormati
onwascoll
ect
edf
orthemonthof
October:

Dir
ectMat er
ial
spr
ocessed:98,
000gall
ons(af
tershr
inkage)
Producti
on: Condensedgoatmil
k 42, 500gal
lons
Ski
m goatmil
k 55,500gal
lons
Sales: Condensedgoatmil
k $3. 50pergall
on
Ski
m goatmil
k $2.50pergall
on

Thecost sofpurchasingtheofunprocessedgoatmi l
kandpr ocessingi
tuptothespli
toffpoi
nttoyiel
da
total
of98,000gal l
onsofsaleableproductwas$184, 480.Therewer enoinv
entor
ybalancesofeither
product.
Condensedgoatmi l
kmaybepr ocessedfurthertoyi
eld42,000gallons(t
heremainderisshri
nkage)ofa
medicinalmil
kpr oduct,
Xy l
a,f
oranaddi t
ionalprocessi
ngcostof$4perusabl egall
on.Xy l
acanbesold
for$20pergallon.

Skim goatmi
lkcanbepr ocessedfurt
hertoyi
eld54,200gal
lonsofskim goati
cecr
eam,
foranaddi
ti
onal
processi
ngcostperusablegall
onof$4.Thepr oductcanbesoldfor$9pergall
on.
Therearenobeginni
ngandendi nginvent
orybalances.

27)Whati stheest
imatednetreal
izablev al
ueofXy l
aatthespli
toffpoi
nt?
A)$271, 000
B)$287, 400
C)$672, 000
D)$712, 600
Answer :C
Explanat ion: C)
Xyl
a I
ceCream Total
Sales 42,000×$20=$840, 000 54,200×$9=$487, 800 $1,327,
800
Less: Sepcost 42,000×$4=$168, 000 54,200×$4=$216, 800
Est.NRVal ue $672,000 $271,000 $943, 000
Wei ghting 71.
26% 28.74%
Jtcost s $184,
480×71. 26%= $184,
480×28. 74%=
$184,
480
al
locat ed $131,464 $53,016
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

20
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ion,
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28)Whati stheest
imatednetr eal
izableval
ueoft
heskim goaticecream atthespl
i
tof
fpoi
nt?
A)$271, 000
B)$287, 400
C)$672, 000
D)$712, 600
Answer :A
Explanat ion: A)
Xyl
a I
ceCream Total
Sales 42,000×$20=$840, 000 54,200×$9=$487, 800 $1, 327,
800
Less: Sepcost 42,000×$4=$168, 000 54,
200×$4=$216, 800
Est.NRVal ue $672,
000 $271,
000 $943, 000
Wei ghting 71.
26% 28.
74%
Jtcost s $184,
480×71. 26%= $184,
480×28. 74%=
$184,
480
al
locat ed $131,
464 $53,
016
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

29)Usi ngest imatednetr eal

iz
ableval
ue,whatamountofthejointcost
swoul
dbeall
ocat
edXy
laandt
he
ski
m goati cecream?
A)$672, 000and$271, 000
B)$131, 464and$53, 016
C)$92, 240and$92, 240
D)$144, 480and$72, 140
Answer :B
Explanat ion: B)
Xyl
a I
ceCream Total
Sales 42,000×$20=$840, 000 54,200×$9=$487, 800 $1,
327,
800
Less: Sepcost 42,000×$4=$168, 000 54,200×$4=$216, 800
Est.NRVal ue $672,
000 $271,000 $943,000
Wei ghting 71.
26% 28.
74%
Jtcost s $184,
480×71.26%= $184,
480×28. 74%=
$184,
480
all
ocat ed $131,
464 $53,
016
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

21
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ion,
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30)Usingthesalesvalueatsplit
offmet hod,whatist
hegr oss-
mar gi
nper
centageforcondensedgoat
milkatthespl
itof
fpoint?
A)51.74%
B)50.00%
C)35.83%
D)48.26%
Answer :C
Explanati
on: C)
CondensedGoatMi l
k Ski
m GoatMi lk Total
42,500×$3. 50= 55,500×$2. 50=
Revenues $287,500
$148,750 $138,750
$148,750/$287,500= $138,750/$287,
500=
Percentage
0.
5174 0.4826

$184,
480×.5174= $184,
480×.4826=
Joi
ntcost
s $184,
480
$95,
448 $89,
032

Gr
ossmar
gin $53,
302 $49,
718 $103,
020

$53,
302/
$148,
750= $49,
718/
$138,
750=
GM per
cent
age
0.
3583 0.
3583
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

31)Usingt hesal
esv
alueatsplit
offmet hod,whatist
hegr oss-
mar gi
nper
centageforski
m goatmi
l
kat
thespli
toffpoint
?
A)51.74%
B)50.00%
C)35.83%
D)48.26%
Answer :C
Explanati
on: C)
CondensedGoatMi l
k Ski
m GoatMi lk Total
42,500×$3. 50= 55,500×$2. 50=
Revenues $287,500
$148,750 $138,750
$148,750/$287,500= $138,750/$287,
500=
Percentage
0.
5174 0.4826

$184,
480×.5174= $184,
480×.4826=
Joi
ntcost
s $184,
480
$95,
448 $89,
032

Gr
ossmar
gin $53,
302 $49,
718 $103,
020

$53,
302/
$148,
750= $49,
718/
$138,
750=
GM per
cent
age
0.
3583 0.
3583
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

22
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sonEducat
ion,
Inc.
32)Howmuch( i
fany )ext r
aincomewoul dGr
eenearnifitproducedandsoldalloftheXy
lafr
om t he
condensedgoatmi lk?Al locatejoi
ntpr ocessi
ngcostsbaseduponr el
ati
vesal
esv al
ueonthespli
toff
.
(Extraincomemeansi ncomei nexcessofwhatGr eenwoul dhav eearnedf
rom sell
i
ngcondensedgoat
milk.)
A)$576, 552
B)$132, 250
C)$523, 250
D)$181, 968
Answer :C
Explanat i
on: C)
CondensedGoatMi lk Ski
m GoatMi l
k Total
42,500×$3. 50= 55,500×$2. 50=
Rev enues $287,
500
$148,750 $138,
750
$148,750/$287,500= $138,750/$287,500=
Percent age
0.5174 0.
4826

$184,
480×0.5174= $184,
480×0.4826=
Joi
ntcost
s $184,
480
$95,
448 $89,
032

Gr
ossmar
gin $53,
302 $49,
718 $103,
020

$53,
302/
$148,
750= $49,
718/
$138,
750=
GM per
cent
age
0.
3583 0.
3583

Xyl
a IceCream
Revenue 42,
000×$20=$840,000 54,200×$9=$487, 800
Jointcost (
95,448) (
89,032)
Processcosts (
$4×42,
000)=(
168,000) (
$4×54,200)=(216,800)
Revenue(net) 576,552 181,968
Grossmar gi
n (
53,302) (
49,718)
Dif
ference $523,250 $132,250
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

23
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ion,
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33)Howmuch( i
fany)ext
raincomewoul dGreenearnifitproducedandsoldskim milki
cecream f
rom
goatsratherthangoatski
m mi l
k?Allocatejoi
ntprocessingcostsbasedupont herel
ati
vesal
esvalueat
thespli
toffpoint
.
A)$132,250
B)$576,552
C)$523,250
D)$181,968
Answer :A
Explanati
on: A)
CondensedGoatMi lk Skim GoatMi l
k Total
42,500×$3. 50= 55,500×$2. 50=
Revenues $287,500
$148,750 $138,
750
$148,750/$287,500= $138,750/$287,500=
Percentage
0.
5174 0.
4826

$184,
480×.5174= $184,
480×.4826=
Joi
ntcost
s $184,
480
$95,
448 $89,
032

Gr
ossmar
gin $53,
302 $49,
718 $103,
020

$53,
302/
$148,
750= $49,
718/
$138,
750=
GM per
cent
age
0.
3583 0.
3583

Xyl
a IceCream
Revenue 42,
000×$20=$840,000 54,200×$9=$487, 800
Jointcost (
95,448) (
89,032)
Processcosts (
$4×42,
000)=(
168,000) (
$4×54,200)=(216,800)
Revenue(net) 576,552 181,968
Grossmar gi
n (
53,302) (
49,718)
Dif
ference $523,250 $132,250
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

24
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sonEducat
ion,
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34)Chem Manuf
acturi
ngCompanypr
ocessesdi
rectmater
ial
supt
ot hespl
it
offpoi
ntwher
etwoproduct
s
(XandY)areobt
ainedandsol
d.Thef
oll
owingi
nformat
ionwascol
lectedf
orthemonthofNovember
:

Dir
ectmateri
alsprocessed:10,
000gal
l
ons(
10,
000gal
l
onsy
iel
d9,
500gal
l
onsofgoodpr
oductand500
gal
lonsofshri
nkage)

Pr
oduct
ion: X 5,
000gal
l
ons
Y 4,
500gal
l
ons

Sal
es: X 4,
750at$150pergal
l
on
Y 4,
000at$100pergal
l
on

Thecostofpur
chasi
ng10,
000gal
lonsofdi
rectmat
eri
alsandpr
ocessi
ngi
tupt
othespl
i
tof
fpoi
ntt
oyi
eld
atot
alof9,
500gall
onsofgoodpr
oductswas$975,
000.

Thebegi nni
ngi
nventor
iest
otal
ed50gall
onsforXand25gall
onsforY.Endingi
nvent
oryamounts
ref
lected300gal
lonsofProductXand525gall
onsofPr
oductY.Octobercost
sperunitwer
ethesameas
Nov ember.

Usingthephysical
-volumemet
hod,
whatisProductX'
sapproxi
mat
egr
oss-
mar
ginper
cent
age?
A)32%
B)34%
C)35%
D)38%
Answer :A
Explanat
ion: A)
Sales(4,
750×$150) $712,
500
CostofGoodsSol d[ 4,
750×$*
513,
158/
5,000] 487,
500
GrossMar gi
n $225,
000

*5,000/(
5,000+4,500)=0.5263×$975,
000=$513,
158
Gross-marginper
centage$225,
000/
$712,
500=0.32rounded
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

25
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ion,
Inc.
35)Bever
ageDrinkCompanypr
ocessesdi
rectmat
eri
alsuptothespl
i
tof
fpoi
ntwheret
wopr
oduct
s,A
andB,areobt
ained.Thef
oll
owi
nginf
ormati
onwascoll
ectedfort
hemonthofJul
y:

Di
rectmat
eri
alspr
ocessed: 2,
500l
i
ter
s(wi
th20%shr
inkage)

Pr
oduct
ion: A 1,
500li
ter
s
B 500l
it
ers

Sal
es: A $15.
00perl
i
ter
B $10.
00perl
i
ter

Thecostofpur
chasi
ng2,500l
it
ersofdi
rectmater
ial
sandprocessi
ngi
tuptothespl
it
offpoi
ntt
oyi
elda
tot
alof2,
000li
ter
sofgoodproduct
swas$4,500.Therewer
enoi nv
ent
orybal
ancesofAandB.

ProductAmaybepr ocessedf
urthert
oy i
eld1,
375li
ter
sofPr
oductZ5foranaddit
ional
processi
ngcost
of$150.ProductZ5issol
dfor$25.00perli
ter
.Ther
ewasnobeginni
nginvent
oryandendi
nginvent
ory
was125l i
ter
s.

ProductBmaybeprocessedfur
thert
oyi
eld375li
ter
sofPr
oductW3foranaddi
tional
processingcostof
$275.ProductW3i
ssoldfor$30.
00perl
i
ter.Ther
ewasnobeginni
ngi
nvent
oryandendinginventor
ywas
25lit
ers.

I
fPr oductZ5andPr oductW3ar
epr
oduced,
whatar
etheexpect
edsal
esv
aluesofpr
oduct
ion,
respecti
vel
y?
A)$11,250and$34, 375
B)$22,500and$5, 000
C)$31,250and$10, 500
D)$34,375and$11, 250
Answer :D
Explanati
on: D)
Z5 =1,375li
ter
s×$25 =$34,
375
W3 =375lit
ers×$30 =$11,
250
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

26
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ion,
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36)Col
aDr i
nkCompanyprocessesdir
ectmat
eri
alsuptot
hespl
i
toffpoi
ntwher
etwopr
oduct
s,AandB,
areobt
ained.Thef
oll
owi
nginformat
ionwascoll
ectedf
ort
hemonthofJuly
:

Di
rectmat
eri
alspr
ocessed: 2,
500l
i
ter
s(wi
th20%shr
inkage)

Pr
oduct
ion: A 1,
500li
ter
s
B 500l
it
ers

Sal
es: A $15.
00perl
i
ter
B $10.
00perl
i
ter

Thecostofpur
chasi
ng2,500l
it
ersofdi
rectmater
ial
sandprocessi
ngi
tuptothespl
it
offpoi
ntt
oyi
elda
tot
alof2,
000li
ter
sofgoodproduct
swas$4,500.Therewer
enoi nv
ent
orybal
ancesofAandB.

ProductAmaybepr ocessedf
urthert
oy i
eld1,
375li
ter
sofPr
oductZ5foranaddit
ional
processi
ngcost
of$150.ProductZ5issol
dfor$25.00perli
ter
.Ther
ewasnobeginni
nginvent
oryandendi
nginvent
ory
was125l i
ter
s.

ProductBmaybeprocessedfur
thert
oyi
eld375li
ter
sofPr
oductW3foranaddi
tional
processingcostof
$275.ProductW3i
ssoldfor$30.
00perl
i
ter.Ther
ewasnobeginni
ngi
nvent
oryandendinginventor
ywas
25lit
ers.

WhatisProductZ5'
sesti
matednetreal
i
zableval
ueatthespl
i
toffpoi
nt?
A)$11,
100
B)$22,
350
C)$34,
225
D)$34,
375
Answer:C
Expl
anat
ion: C)1,375×$25=$34,375;$34,
375-$150=$34,225
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

37)Whichofthefoll
owingist r
ueoft hephy si
cal
-measur eapproachofall
ocatingjointcost
s?
A)Costscannotbeallocat
edi fthemeasur ementbasi sforeachproductaredifferent
.
B)Physi
cal measur
esusuallyresulti
nlesscost sbeingallocat
edt ot
hepr oductthatweighsthemost
.
C)Thephy si
calmeasurerefl
ect saproduct'sabi
li
tytogener at
erevenues.
D)Obtai
ningcomparablephy sicalmeasuresforallproductsisalwaysstr
aightforward.
Answer:A
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

27
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ion,
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Answert
hef
oll
owi
ngquest
ionsusi
ngt
hei
nfor
mat
ionbel
ow:

TheKentonCompanypr ocessesunprocessedmil
ktoproducetwoproduct
s,But
terCr
eam and
CondensedMil
k.Thefoll
owinginfor
mat i
onwascollect
edforthemonthofJune:
Dir
ectMater
ial
sprocessed: 18, 000gallons(
aft
ershri
nkage)

Pr
oduct
ion: Butt
erCream 7,
500 gal
lons
CondensedMil
k 10,
500 gal
lons
Sal
es: Butt
erCream 7,
000 gal
lons
CondensedMil
k 10,
000 gal
lons
Sal
esPr
ice: Butt
erCream $3.
5 pergal
lon
CondensedMil
k $7.
5 pergal
lon
Separabl
ecost
s
i
ntotal: Butt
erCream $12,
500
CondensedMil
k $34,
700

Thecostofpur
chasi
ngtheofunprocessedmil
kandpr
ocessi
ngi
tupt
othespl
i
tof
fpoi
ntt
oyi
eldat
otal
of
18000gal
lonsofsal
eabl
eproductwas$46,000.

Thecompanyusesconst
antgr
oss-
mar
ginper
cent
ageNRVmet
hodt
oal
l
ocat
ethej
ointcost
sof
product
ion.

38)Whatist
heconst
antgr
oss-
mar
ginper
centf
orKent
on?
A)10%
B)6.
3%
C)11%
D)6.
5%
Answer:C
Expl
anat
ion: C)
Tot
al
Totalfi
nalsalesv
alue(7,500×$3.
5)+(
10,500×
$7.5) $105,
000
Totalproducti
oncosts($46,
000+$12,
500+
$34,700) 93,
200
Grossmar gin $11,
800
Grossmar gin% 11%
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

28
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ion,
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39)Whati stheall
ocat
edj
ointcostsofCondensedMil
k?
A)$35,200
B)$10,800
C)$12,500
D)$34,700
Answer :A
Explanati
on: A)
Butter Condensed
Cream Mil
k Tot
al
Finalsal
esv al
ue $26,
250 $78,
750 $105,
000
Grossmar gin@ 11% 2,
950 8,
850 11,
800
Totalproducti
oncosts 23,
300 69,
900 93,
200
Separablecosts 12,
500 34,
700 47,
200
Jointcostsall
ocat
ed $10,
800 $35,
200 $46,
000
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

40)Whati stheall
ocat
edj
ointcostsofButt
erCream?
A)$35,200
B)$12,500
C)$34,700
D)$10,800
Answer :D
Explanati
on: D)
Butter Condensed
Cream Mil
k Tot
al
Finalsal
esv al
ue $26,
250 $78,
750 $105,
000
Grossmar gin@ 11% 2,
950 8,
850 11,
800
Totalproducti
oncosts 23,
300 69,
900 93,
200
Separablecosts 12,
500 34,
700 47,
200
Jointcostsall
ocat
ed $10,
800 $35,
200 $46,
000
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

41)Whichofthefollowingstatementsist r
ueofKent on'sjoi
ntcostallocati
ons?
A)Thegrossmar ginissamef orbothpr oductsbecauseconst antgrossmar ginper
centageNRVmet hod
i
gnoresprofi
tsearnedbef or
ethespli
tof fpoint.
B)Oneproductcanr eceivenegati
vejointcost sall
ocati
onstobr i
ngtheot herunpr
ofit
ablepr
oductt
ot he
over
allav
eragegrossmar gi
n.
C)Kentonhaschosent heeasi
estmet hodf orallocat
ingit
sjointcostsofproducti
on.
D)Thegrossprofitpercentofcondensedmi lkislowerthanthegrosspr ofi
tofbutt
ercream.
Answer:B
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

29
Copy
right©2015Pear
sonEducat
ion,
Inc.
42)Whichoft hemethodsofal l
ocati
ngj
ointcost
susual
l
yisconsi
der
edt
hesi
mpl
estt
oimpl
ement
?
A)esti
mat ednetreal
izabl
evalue
B)constantgross-
mar gi
npercentageNRV
C)sal
esv alueatspli
toff
D)physi
cal measures
Answer:C
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

43)Whichofthefoll
owingst atement sist r
ueoft hemet hodsforall
ocati
ngj ointcosts?
A)Underthecause-and-ef
fectcriter
ion,thephy sical-
measuremet hodishi ghl
ydesi r
able.
B)Bypr
oductsarenev erexcludedf r
om t hedenomi nat
orusedinthephy sical-
measur emet hod.
C)TheNRVmet hodisnev erusedwhent hesell
ingpr i
cesofjoi
ntproductsv aryfrequentl
y.
D)Thesalesval
ueatspl it
offmet hodf ol
lowst hebenef it
s-r
ecei
vedcrit
erionofcostal locat
ion.
Answer:D
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

30
Copy
right©2015Pear
sonEducat
ion,
Inc.
Answert
hef
oll
owi
ngquest
ionsusi
ngt
hei
nfor
mat
ionbel
ow:

TheBri
talCompanypr
ocessesunprocessedmil
ktopr
oducet
wopr oduct
s,But
terCr
eam andCondensed
Mil
k.Thefoll
owi
nginf
ormat i
onwascoll
ectedf
orthemont
hofJune:
Dir
ectMater
ial
sprocessed:28,
000gall
ons

Pr
oduct
ion: Butt
erCream 12,
500 gal
lons
CondensedMil
k 15,
500 gal
lons
Sal
es: Butt
erCream 12,
000 gal
lons
CondensedMil
k 15,
000 gal
lons
Sal
es: Butt
erCream $2.
5 pergal
lon
CondensedMil
k $5.
5 pergal
lon
Separabl
ecost
s
i
ntotal: Butt
erCream $13,
500
CondensedMil
k $33,
700

Thecost
sofpur
chasi
ngtheofunpr
ocessedmil
kandpr
ocessi
ngi
tupt
othespl
i
tof
fpoi
ntt
oyi
eldat
otal
of28,
000gal
l
onsofsal
eabl
eproductwas$46,
000.

Thecompanyusesconst
antgr
oss-
mar
ginper
cent
ageNRVmet
hodt
oal
l
ocat
ethej
ointcost
sof
product
ion.

44)Whatist
heconst
antgr
ossmar
ginper
centf
orBr
it
al?
A)15%
B)22%
C)20%
D)30%
Answer:C
Expl
anat
ion: C)
Tot
al
Totalfi
nalsalesv
alue(12,500×$2.5)+(15,
500×
$5.5) $116,
500
Totalproducti
oncosts($46,000+$13,
500+
$33,700) 93,
200
Grossmar gin $23,
300
Grossmar gin% 20%
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

31
Copy
right©2015Pear
sonEducat
ion,
Inc.
45)Whati stheall
ocat
edj
ointcostsofButt
erCream?
A)$33,700
B)$13,500
C)$34,500
D)$11,500
Answer :D
Explanati
on: D)
Butter Condensed Tot
al
Cream Mil
k
Finalsal
esv al
ue $31,
250 $85,
250 $116,
500
Grosspr of
it@ 20% 6,
250 17,
050 23,
300
Totalproducti
oncosts 25,
000 68,
200 93,
200
Separablecosts 13,
500 33,
700 47,
200
Jointcostsall
ocat
ed $11,
500 $34,
500 $46,
000
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

46)Whati stheall
ocat
edj
ointcostsofCondensedMil
k?
A)$34,500
B)$13,500
C)$33,700
D)$11,500
Answer :A
Explanati
on: A)
Butter Condensed Total
Cream Mil
k
Finalsal
esv al
ue $31,
250 $85,
250 $116,
500
Grosspr of
it@ 20% 6,
250 17,
050 23,
300
Totalproducti
oncosts 25,
000 68,
200 93,
200
Separablecosts 13,
500 33,
700 47,
200
Jointcostsall
ocat
ed $11,
500 $34,
500 $46,
000
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

47)Whichofthef
ollowingst atementsi
st r
ueofBr i
tal?
A)Thegrossprof
itpercentofcondensedmi l
kislowerthant hegrossprofitofbut
tercr
eam.
B)Thegrossmarginissamef orbothproductsbecauseconst antgrossmar gi
npercentageNRVmet hod
i
gnoresprof
it
searnedbef orethespli
tof
fpoi nt
.
C)Thegrossprof
itofcondensedmi l
kislowerthant hegrosspr of
itofbutt
ercream.
D)Thegrossmarginisallocatedtothejoi
ntproductsinor dertodeterminethejoi
nt-
costall
ocat
ions.
Answer:D
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

32
Copy
right©2015Pear
sonEducat
ion,
Inc.
48)Ifsepar abl
ecost sofBut
terCr eam was16,000andconst antgrossmar
ginwas25%,
whatwoul
dhav
e
beent heal l
ocatedjoi
ntcost
sofCondensedMi l
k?
A)$7,438
B)$7,538
C)$30, 238
D)$30, 338
Answer :C
Explanat i
on: C)
Butter Condensed
Cream Mil
k Tot
al
Finalsalesv al
ue $31,250 $85,250 $116,500
Grosspr of
it@ 25% 7,812.
5 21,
312.5 29,125
Totalpr oducti
oncost s 23, 437.
5 63,
937.5 87,375
Separabl ecosts 16,000 33,700 49,700
Jointcost sall
ocated $7,438 $30,238 $37,675
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

49)Ifsepar ablecost
sofBut t
erCr eam was16,000andconst antgrossmar
ginwas25%,
whatwoul
dhav
e
beent het otal
all
ocatedj
ointcostsofpr oducti
on?
A)$37, 675
B)$33, 700
C)$30, 238
D)$34, 500
Answer :A
Explanat i
on: A)
Butter Condensed
Cream Milk Tot
al
Finalsalesv al
ue $31,250 $85,
250 $116,500
Grosspr ofi
t@ 25% 7,812.
5 21,312.
5 29,125
Totalpr oducti
oncosts 23, 437.
5 63,937.
5 87,375
Separabl ecosts 16,000 33,
700 49,700
Jointcost sall
ocated $7,438 $30,
238 $37,675
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

50)Whydoaccount antscri
ti
cizethepracti
ceofcarr
yinginvent
oriesatesti
mat
ednetr
eal
i
zabl
eval
ues?
A)Thecostsofproducingtheproductsareusuall
yestimates.
B)Ther
eisusuallynoclearl
ydefinedreali
zabl
evalueforanyinventor
ies.
C)Inef
fect,
thispract
icerecognizesi
ncomebef or
esal esaremade.
D)Itwi
l
l r
esulti
nhighercostofgoodssol dandlesserprofi
ts.
Answer
:C
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

33
Copy
right©2015Pear
sonEducat
ion,
Inc.
51)Theconstantgross-
mar ginper
centageNRVmet hodofjointcostall
ocat
ion____
____.
A)invol
vesal
locati
ngcostsinsuchawayt hatmaint
aini
ngthesamegr ossmargi
npercentagef
oreach
productt
hatwasobt ai
nedinpr i
oryears
B)computesgrossmar ginbeforeall
ocati
ngthecoststotheproducts
C)isthesameast heestimatedNRVmet hod
D)isthesameast hesales-
v al
ueatspli
toffmethod
Answer:B
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

52)Injointcosti
ng,
theconstantgross-
mar gi
npercent
ageNRVmethodi
sanexampl
eofal
locat
ingcost
s
usingphy si
calmeasur
es.
Answer : FALSE
Explanat
ion: Injoi
ntcost
ing,theconstantgross-
margi
nper
cent
ageNRVmethodi
sanexampleof
al
locati
ngcost susi
ngmarketbaseddat a.
Di
ff
:1
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

53)Injointcosti
ng, usi
ngphysicalmeasuresatspl
i
tof
ftoall
ocat
ecost
senabl
estheaccount
antt
oobtai
n
i
ndividualproductcostsandgrossmar gins.
Answer : FALSE
Explanati
on: Injointcosti
ng,usingsal
esv al
ueatspl
i
tofft
oall
ocat
ecost
senabl
estheaccount
antt
o
obtainindi
vidualproductcost
sandgr ossmar gi
ns.
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

54)Anadvantageoft
hephysical
-measur
emethodisthatobt
aini
ngphysi
cal
measuresforal
lpr
oduct
sis
aneasytask.
Answer: FALSE
Expl
anat
ion: Forsomeproductssuchasgas,
obtai
ningphysi
calmeasur
esisdi
ff
icul
t.
Di
ff
:1
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

55)Injointcost
ing,
thesal
esval
ueatsplit
offmet hodal l
ocatesj oi
ntcostsenti
rel
ytojointpr
oductssol
d
duri
ngt heaccounti
ngperi
odonthebasisoft herelati
vetotalsalesvalueatthespli
tof
fpoint.
Answer : FALSE
Expl
anat i
on: Thesalesval
ueatspl
i
toffmet hodal l
ocatesjointcoststojoi
ntproductsproducedduri
ng
theaccount i
ngperi
odonthebasi
softherelativetotalsal
esv alueatthespli
toffpoi
nt.
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

34
Copy
right©2015Pear
sonEducat
ion,
Inc.
56)Injointcosti
ng,thesal esv alueatspli
toffmet hodisty
picall
yusedinpref
erencetotheNRVmet hod
onlywhennetr eali
zablev aluef oroneormor eproductsatsplit
offdonotexi
st.
Answer : FALSE
Explanati
on: Thesal esv alueatspl i
toffmet hodisthemor epreferr
edmethod.TheNRVmet hodi
s
ty
picall
yusedi npreferencet ot hesalesvalueatspl i
tof
fmet hodonlywhensell
ingpr
icesforoneormore
productsatspli
toffdonotexi st.
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

57)Thenetr eal
izableval
ue( NRV)met hodallocatesjoi
ntcost st
ojointpr
oductsproducedduri
ngthe
accountingperi
odont hebasi softhei
rrelat
iveNRV—f i
nalsalesval
ueplusseparabl
ecosts.
Answer : FALSE
Explanati
on: Thenetr eal
izablevalue(NRV)met hodall
ocatesjoi
ntcoststoj
ointproduct
sproduced
duri
ngt heaccountingperi
odont hebasi softheirrel
ati
veNRV—f i
nalsal
esval
uemi nusseparabl
ecosts.
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

58)Injointcosti
ng,thephysicalmeasuresaregener
all
yusedforproductsorservi
cesthatarepr
ocessed
and,afterspl
itof
f,addi
ti
onalv al
ueisaddedt ot
heproductandasel l
i
ngpr i
cecanbedetermined.
Answer : FALSE
Explanati
on: Thenetr eali
zablevaluemethodisgener
all
yusedf orproduct
sorservi
cesthatare
processedand, af
terspli
tof
f,addit
ionalval
ueisaddedtotheproductandaselli
ngpri
cecanbe
determined.
Di
ff
:2
Obj
ecti
ve: 2
AACSB: Analy
tical
thi
nki
ng

59)Thenetr eali
zablevalue(
NRV)met hodmethodallocat
esjointcoststoj oi
ntproductsproduceddur i
ng
theaccountingperiodinsuchawayt hateachi
ndi
vidualproductachievesani denti
calgross-
mar gin
percentage.
Answer : FALSE
Explanati
on: Theconst antgross-
marginper
cent
ageNRVmet hodallocatesjoi
ntcostst oj
ointproducts
produceddur i
ngtheaccountingperi
odinsuchawayt hateachi ndi
vi
dual productachi
ev esanidentical
gross-margi
nper centage.
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

60)Theconst antgross-margi
nper centagemet hoddi f
fersfrom market
-basedjoi
nt-
costall
ocat
ion
met hod(sal
esv al
ueatsplit
offandest imatednetr eali
zablev al
ue)si
ncenoaccountistakenofprofi
ts
earnedbeforeorafterthespli
toffpointwhenal l
ocatingjointcosts.
Answer : FALSE
Explanat
ion: Theconst antgross-marginpercentagemet hodtakesaccountoftheprof
it
searnedbefore
oraf t
ert
hespl i
tof
fwhenal l
ocatingjointcost
s.
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

61)Thesal esval
ueatspl
it
offmethodpresupposestheexactnumberofsubsequentst
epsunder
taken
forfurt
herprocessi
ng.
Answer : FALSE
Explanati
on: Thesalesv
alueatspli
tof
fmet hoddoesnotpresupposet
heexactnumberofsubsequent
steps.
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng
35
Copy
right©2015Pear
sonEducat
ion,
Inc.
62)Inj
ointcost
ing,
out
put
swi
thnosal
esv
aluear
eal
way
sexcl
udedwhencost
sar
eal
l
ocat
edusi
ng
physi
calmeasures.
Answer: TRUE
Di
ff
:1
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

63)Theonlyal
lowabl
emethodofj
ointcostal
locat
ionisspeci
fi
edbyFASB.
Answer: FALSE
Expl
anat
ion: TheFASBdoesnotspecif
yasingleall
owablemethodofj
ointcostal
l
ocat
ion.
Di
ff
:1
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

64)Theconstantgr
oss-margi
npercent
ageNRVmet hodi
stheonl
ymet
hodofal
l
ocat
ingj
ointcost
sunder
whichpr
oductsmayr ecei
venegat
iveal
locat
ions.
Answer: TRUE
Di
ff
:1
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

65)Thesales-
val
ueatspli
tof
fmethodofjoi
ntcostal
locat
ioninvol
vescomputat
ionofther
elat
ive
amountsofthesalesv
alueoftheamountofeachjoi
ntproductsol
dduringt
heperiod.
Answer: FALSE
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

66)Theconstantgr
oss-margi
npercent
ageNRVmet hodal
locat
esjoi
ntcoststojointproductsinsucha
waythatthegrossmargi
noneachj oi
ntpr
oductisthesameasi twasinthepreviousyear.
Answer: FALSE
Expl
anati
on: Theconstantgross-
margi
npercentageNRVmet hodall
ocatesj
ointcoststojointproduct
s
i
nsuchawayt hatt
heoveral
lgrossmargi
npercentagei
sidenti
calf
ortheindi
vidualproducts.
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

36
Copy
right©2015Pear
sonEducat
ion,
Inc.
67)Theconstantgross-
mar
ginper
cent
ageNRVmet
hodi
stheonl
ymet
hodwher
ebypr
oduct
scanr
ecei
ve
negat
iveal
locati
ons.
Answer: TRUE
Di
ff
:1
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

68)Undert hebenef it
s-r
ecei v
edcr i
terion, t
hephy sical-measur emet hodismuchl essdesi rabl
et hant he
salesv alueatsplitoffmet hod.Why ?
Answer : Undert hebenef it
s-receivedcr i
terion, thephy sical-
measur emet hodi smuchl essdesi rablethan
thesal esvalueatspl it
offmet hodbecauset hephy sicalmeasur eoft heindi v
idualproductsmayhav eno
rel
at i
onshipt otheirrespectiverev enue- gener atingabi l
it
ies.
Consi deragol dmi nethatext ractsor econt aininggol d,silver,andlead.Usi ngacommonphy sical
measur e(tons)woul dresultinal mostal lcost sbei ngal locat edtolead, t
hepr oductt hatweighst hemost
buthast helowestr evenue-gener ati
ngpower .Thi smet hodofcostal locationisinconsistentwitht he
mai nreasont hemi ni
ngcompanyi si ncur r
ingmi ningcost s—t oearnrevenuesf rom gol dandsi l
ver ,not
l
ead.Whenacompanyusest hephy sical-measur emet hodi napr oduct-l
ineincomest atement,pr oducts
thathav eahi ghsal esvaluepert on,li
kegol dandsi l
v er
, woul dshowal arge" prof
it
"andpr oductst hat
hav eal owsal esvaluepert on, l
ikelead, woul dshowsi zabl elosses.
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

69)Foreachoft hef ol
lowingmet hodsofal l
ocat
ingjointcost
s,gi
veapositi
veoranegat i
veaspectof
sel
ectingeachonet oall
ocatejoi
ntcost s.
a. salesvalueatspl i
toff
b. estimatednetr eal
izableval
uemet hod
c. theconst antgrossmar gi
nmet hod
d. aphy si
cal measuresuchasv olume
Answer :
a. Positi
ve:Cost sareall
ocatedtopr oductsinproporti
ontothei
rpot
enti
alrevenues.Thi
sisafair
ly
si
mpl emethodt oimpl ement.
Negat i
ve:Weuset hesalesvalueoft heenti
reproducti
onoftheaccounti
ngperiod.

b. Posi
ti
ve:Itcanbeusedwhent
hemarketpri
cesofthepr
oduct
sarenotknownoravai
l
able.
Negat
ive:Itcanbever
ycompl
exi
noperati
onswit
hmul t
ipl
epr
oduct
sandmul t
ipl
espl
it
offpoi
nts.

c. Positi
ve:Accountist
akenoft
heprofi
tsear
nedei
therbef
oreoraft
erthespl
i
toffpoi
ntwhenal
locat
ing
thejoi
ntcosts.
Negat
ive:Theassumpti
onismadethatal
lhav
ethesamer at
ioofcostt
osalesval
ue.Thi
sisl
i
kelynot
true.

d. Posi
ti
ve:Itisfai
rl
ysi
mpletouse.
Negat
ive:Ithasnorel
ati
onshi
ptother
evenue-
produci
ngpowerofi
ndi
vi
dual
product
s.
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Analy
tical
thi
nki
ng

37
Copy
right©2015Pear
sonEducat
ion,
Inc.
70)Ber
kelCompanyprocessessugarcanei
ntothr
eeproduct
s.Dur
ingMay,t
hejointcost
sofpr
ocessi
ng
were$600,
000.Pr
oducti
onandsalesv al
uei
nfor
mationfort
hemonthwereasfol
lows:

SalesValueat Separabl
e
Pr
oduct Uni
tsPr
oduced
Split
offPoint costs
Sugar 15,
000 $200,000 $60,000
SugarSyr
up 10,
000 175,
000 192,000
Fruct
ose
5,
000 125,
000 96,
000
Syrup

Required:
Deter
mi netheamountofjoi
ntcostall
ocat
edtoeachproducti
fthesal
esval
ueatspli
tof
fmet
hodi
sused.
Answer :
Product Unit
s Sal
esValue Percent JointCost All
ocated
Sugar 15,
000 $200,000 40%× $600, 000 $240,000
SugarSy r
up 10,
000 175,000 35%× 600,000 210,000
Fruct
ose
5,
000 125,000 25%× 600,000 150,000
Syrup
Total $500,000 100% $600,000
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

71)Cal
amataCorporat
ionpr
ocessesasi
ngl
emat er
ial
int
othreesepar
atepr
oduct
sA,B,andC. Duri
ng
Sept
ember,
thejoi
ntcostsofpr
ocessi
ngwere$300,
000. Producti
onandsal
esval
ueinf
ormat
ionfort
he
monthwer
easf ol
lows:

Fi
nalSal
es Separ
able
Pr
oduct Uni
tsPr
oduced
Val
ueperUni
t Costs
10,
000 $25 $125,
000
A
15,
000 30 250,
000
B
12,
500 24 125,
000
C

Requi
red:
Deter
minetheamountofj
ointcostall
ocatedt
oeachproducti
ftheconst
antgross-mar
ginper
cent
age
NRVmet hodisused.
Answer: Thegrossmar
ginpercentageis20% ($1,
000,
000-$800,000)
/$1,
000,000

Total
Fi
nalSales LessGr oss Production LessSeparabl
eJointCosts
Product Val
ue Margin Costs Costs Al
l
ocated
A $250,000 $50,000 $200, 000 $ 125, 000 $ 75, 000
B 450,000 90,000 360,000 250,000 110,000
C 300,000 60,000 240,000 125,000 115,000
Total 1,
000,
000 200,000 800,000 $ 500, 000 300,000
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

38
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right©2015Pear
sonEducat
ion,
Inc.
72)OregonLumberpr ocessesti
mberint
ofourproduct
s.Duri
ngJanuary
, t
hejointcost
sofpr
ocessi
ng
were$280,000.Ther
ewasnoi nv
entor
yatthebeginni
ngofthemonth.Producti
onandsalesval
ue
i
nformati
onf ort
hemont hisasfoll
ows:

Sal
esVal
ueat
Pr
oduc
Boardfeet Spl
i
tof
fPoi
nt Endi
ngI
nvent
ory
t
2×4'
s 6,000,
000 $0.
30perboar
dfoot 500,
000bdf
t.
2×6'
s 3,000,
000 0.
40perboar
dfoot 250,
000bdf
t.
4×4'
s 2,000,
000 0.
45perboar
dfoot 100,
000bdf
t.
Sl
abs 1,000,
000 0.
10perboar
dfoot 50,
000bdf
t.

Required:
Determinetheval
ueofendinginventoryi
fthesalesval
ueatspli
toffmet
hodisusedf
orpr
oductcost
ing.
Roundt o3decimalplaceswhennecessary.
Answer :
Product Boar dfeet Sal esValue Per
cent Joi
ntCost Al
l
ocated
2×4' s 6,
000,000 $1,
800,000 45.0× $280,000 $126,
000
2×6' s 3,
000,000 1,
200,000 30.0× 280,000 84,
000
4×4' s 2,
000,000 900,000 22.5× 280,000 63,
000
Slabs 1,
000,000 100,000 2.5× 280,000 7,
000

Tot
als $4,
000,
000 100.
0% $280,
000

Fr
act
ionofProduct
ioni
n
Pr
oduct Al
located Inv
ent
oryv alue
Invent
ory
2×4'
s 500,
000/6,
000,
000× $126,000= $10,500
2×6'
s 250,
000/3,
000,
000× 84,000= 7,000
4×4'
s 100,
000/2,
000,
000× 63,000= 3,150
Sl
abs 50,
000/1,
000,
000× 7,000= 350

Tot
al $21,
000
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

39
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right©2015Pear
sonEducat
ion,
Inc.
73)ZenonChemical
,I
nc.,
processespinerosi
nintot
hreepr
oducts:
turpent
ine,
pai
ntthinner
,andspot
remover
.Duri
ngMay ,
thejointcost
sofprocessi
ngwere$240,
000.Product
ionandsalesval
ue
i
nformati
onfort
hemonthi sasf ol
l
ows:

SalesVal ueat
Pr
oduct Uni
tsPr
oduced
Splitof
fPoi nt
Turpenti
ne 15,
000li
ter
s $120, 000
Pai
ntt hi
nner 15,000li
ter
s 100,000
Spotremov er 7,500l
i
ters 50,
000

Required:
Determinet heamountofj
ointcostal
l
ocat
edtoeachpr
oductift
hephy
sical-
measur
emet
hodi
sused.
Answer :
Pr oduct Uni
tsProduced Per
cent
age JointCosts Al l
ocated
Turpentine 15,
000lit
ers 40% $720,
000= $288, 000
Paintthinner 15,
000lit
ers 40% 720,
000= 288,
000
Spotr emov er 7,
500lit
ers 20% 720,
000= 144,
000

Tot
als 37,
500 100 $720,
000
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

40
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right©2015Pear
sonEducat
ion,
Inc.
74)RedSauceCanni
ngCompanyprocessestomatoesintocat
sup,
tomatojuice,
andcannedt omat
oes.
Duri
ngthesummerof20X5,t
hej
ointcostsofprocessi
ngthetomatoeswere$420,000.Ther
ewasno
begi
nningorendi
ngi
nvent
ori
esf
orthesummer .Producti
onandsal
esv al
ueinfor
mat i
onfort
hesummer
i
sasf ol
lows:

Sal
esValueat
Pr
oduct Cases Separabl
eCosts Sel
li
ngPri
ce
Spli
tof
fPoint
Catsup 100,
000 $6percase $3.00percase $28percase
Jui
ce 150,
000 8percase 5.
00percase 25percase
Canned 200,
000 5percase 2.
50percase 10percase

Required:
Determinetheamountal locat
edtoeachpr oducti
ftheesti
matednetreali
zabl
eval
uemet
hodi
sused,
and
comput ethecostpercasef oreachproduct.
Answer :
ExpectedSales Separ able NetReal i
zabl
e
Product Percentage
Value Costs Value
Catsup $2,800,
000 $300,000 $2,500,
000 35.71
Juice 3,750,
000 750,000 3,000,
000 42.86
Canned 2,000,
000 500,000 1,500,
000 21.43

Tot
als $7,
000,
000 100.
00

Produc Separabl
e
Per
centage Joi
ntCost
s Al
l
ocated Pr
oductCost
s
t Costs
Catsup 35.
71%× $420,000= $149,
982+ $300,000= $449,
982
Juice 42.
86%× 420, 000= 180,012+ 750,000= 930,
012
Canne
21.
43%× 420, 000= 90,
006+ 500,
000= 590,
006
d

Catsupcostpercase =$449,
982/
100,
000=$4.
50
Jui
cecostpercase =$930,
012/
150,
000=$6.
20
Cannedcostpercase =$590,
006/
200,
000=$2.
95
Di
ff
:3
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

41
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right©2015Pear
sonEducat
ion,
Inc.
75)Pilgri
m Cor porati
onprocessesfrozentur
keys.Thecompanyhasnotbeenpl easedwit
hit
sprofit
mar gi
nperpr oductbecauseitappearsthatt
hehighv alueit
emshav etoofewcost sassi
gnedtothem,
whilethelowv al
ueitemshav etoomanycost sassignedt othem.Theprocessi
ngr esul
tsi
nsever
al
products,thepr i
maryoneofwhi chisfrozensmallturkeys.Otherpr
oductsincl
udef r
ozenpar
tssuchas
wingsandl egs,byproduct
ssuchasski nandbones, andunusedscr apit
ems.

Requi
red:
Whatmaybet hecostassignmentprobl
em ifakeyconsi der
ati
onisthevalueoftheproductsbei
ngsold?
Answer: First,
thecompanyneedst oconsiderwhetherthebyproduct
sarebeingt r
eatedasproducts,
rat
herthanby pr
oducts.Forthemostpart
,byproductsshouldnotbeassignedcosts.Ther ev
enuefrom
thebyproductsshoul
dbeusedasei therminorsalecategori
esorelseasof f
set
st oprocessi
ngcosts.

Asecondconsi derat
ionisthemethodusedtoassignthecosts.I
tispossi
blet
hatsomephysi
calmeasur
e
(weight)i
sbeingused, i
nwhichcasethepartsi
temsandt hebypr
oductsmaywei ghasmuchasthe
pri
mar yproduct
.Itmaybenecessar ytoeval
uat
ethev ar
iousmethodsofall
ocati
onandsel
ectt
heone
whichmanagementf eel
sisbestfordeci
si
onmaki ng.
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

76)Whar fFisheri
espr ocessesmanyofi t
sseafoodi t
emst ot hedemandsofi tslargestcust
omers,most
ofwhi char elargeretaildi
stri
butors.Tokeeptheaccount i
ngsy stem si
mple,i
thasal way sassi
gnedcost
byt hewei ghtoft hefi
nishedpr oduct.However,
wi thi
ncreasedcompet it
ion,i
thashadt owatchit
sprices
closelyand, inrecentyears,severalit
emshav eincurr
edzeropr ofitmar
gins.Afterseveralweeksof
i
nv esti
gation, y
ourconsul ti
ngfirm hasfoundthat,whil
ewei ghtisimport
antinpr ocessingofseaf
ood,
numer ousi temshav ev erydist
inctprocessi
ngst epsandsomei temsareprocessedt hroughmoresteps
thanot hers.

Requi
red:
Basedonthefindi
ngsofy
ourconsul
ti
ngf i
rm,whatchangesmighty
ourecommendtot
hecompanyi
nthe
wayofcostall
ocati
onamongit
sproducts?
Answer: Recommendati
onsmighti
nclude,amongothers,
someofthefol
lowi
ng:

a. Categori
zethef i
shingexpediti
onsasj ointcost s,especial
l
yifmulti
pleitemsarecaught.
b. Categori
zeallprocessingactiv
iti
eswher emul ti
pleit
emsar eprocessedasjointcosts.
c. Forthoseprocessest hatareuniquet oonl yonepr oductorasetofpr oduct
s,useseparabl
ecost
categor
ies.
d. Choosesomet hingotherthanwei ghtf orallocati
ngjointcost
s.Selectoneofthevaluemethodsof
assigni
ngthecosts.
e. Careful
lyseparatemai nproductsfrom by productsinthecosti
ngsy stem.
f. Donotal l
ocatethejointcostsforinternaldecisions.
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

42
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right©2015Pear
sonEducat
ion,
Inc.
77)Par agonUni versi
tyoper atesanext ensi
v eandanexpensi veregistr
ation,t
est
ing, andcounsel i
ng
center,throughwhi challstudentsar erequiredt opasst hroughwhent heyentertheuni versi
ty.The
regi
strationef f
or t
'scosts(fort hemostpar t)ar ealmosti mpossi bletoallocat
ebaseduponwhi ch
studentsr equiretime,effort,etc.Thecostoft hiscenterisappr oximately15%oft het ot
al costsof
Paragon.Thi sdepar t
mentengagesi nnoot heract i
v i
ti
est hanther egi
strati
onofst udents.Paragonis
i
nterestedi ndet erminingthepr ofit
abili
tyoft hethreetechni caldepartment si
toper at
es.Par agonhasthe
perceptiont hatsomedepar tmentsar emor epr ofi
tablethanot hers,anditwouldliket odeterminean
appropriatemet hodofal l
ocat i
ngt hecostsoft hi
sr egi
strati
oncent er.

Requi
red:
Recommendt oParagonUniver
sityamethod(
ormethods)ofal
locati
ngthecost
sofregi
str
ati
ont
ot he
thr
eedepartment
s.
Answer: Thejoi
ntcostsoftheregi
str
ati
onef
for
tcouldbeall
ocatedbasedonphysi
calvol
umeorthe
sal
es(tui
ti
on)dol
larsofeachdepartment
.

Volume.Al
locat
ingonv ol
umewouldbebasednotuponphysi
calmeasures,butupont henumberof
credi
thour
seachoft hethr
eedepart
mentsoff
ereachsemest
er.I
ftherati
oofcredithoursforthet
hree
depart
mentswer e25%,45%,and30%thent
hecostswouldbeall
ocat
edbasedupont heserati
os.

Sal
esDoll
ars.I
tispossi
blet
hatsomedepart
mentschargemorepercredi
thourthanother
s.I
nthiscase
i
tmightbeappropri
atet
oall
ocatet
hecostsbaseduponthet
otalt
uit
ionrevenuesofeachdepar
tment.
Di
ff
:2
Obj
ecti
ve: 3
AACSB: Appli
cat
ionofknowl
edge

Obj
ect
ive16.
4

1)I
nj oi
ntcosti
ng, thesalesvalueatspl
itoffmet hodisusedfr
equentl
y____
____
.
A)inady namicbusi nessenvir
onmentwher ethesell
ingpri
ceschangefr
equentl
y
B)inanti
cipati
onofsubsequentmanagementdeci si
ons
C)whensel l
ingpricesar edependentonf ur
therprocessi
ngdecisi
ons
D)sincethesell
ing-pricedataexist
satthespl i
toff
Answer:D
Di
ff
:1
Obj
ecti
ve: 4
AACSB: Analy
tical
thi
nki
ng

2)Whenthesell
ingpricesofal lpr
oduct
satthespl
i
tof
fpoi
ntar
eunav
ail
abl
e,t
he_
___
___
_ist
hebest
al
ter
nati
veforall
ocati
ngj ointcosts.
A)sal
esval
ueatspl i
toffmet hod
B)NRVmet hod
C)physi
calmeasuresmet hod
D)const
antgross-marginper cent
agemethod
Answer:B
Di
ff
:2
Obj
ecti
ve: 4
AACSB: Analy
tical
thi
nki
ng

43
Copy
right©2015Pear
sonEducat
ion,
Inc.
3)Whichofthef ol
l
owingstatementsist r
ueoft hemet hodsf orall
ocat
ingj
ointcosts?
A)Thesalesv al
ueatspli
tof
fmet hodlacksacommonbasi sforall
ocat
ingjoi
ntcoststoproducts.
B)Thecompl exi
tyoft
hesalesv alueatspli
toffmet hodincreaseswhenmanager smakef requent
changest
ot hesequenceofpost -
spli
toffprocessingdecisions.
C)TheNRVmet hodassumest hatnoneoft hemar kupisattri
butabl
etotheseparablecost
s.
D)TheNRVmet hodtreat
sthejointproductsast hought heycompr i
seasingleproduct
.
Answer:C
Di
ff
:2
Obj
ecti
ve: 4
AACSB: Analy
tical
thi
nki
ng

4)Thedr awbackoft heconst antgross-marginper centageNRVmet hodinjoi

ntcost
ingist
hat__
_____
_.
A)itrecognizest
hatpr of
itsarederi
vedfrom thecost si ncurredaft
erspl
i
toff
B)itassumest hepr ofitmargintobeidenticalacrossal lproducts
C)itattemptstoappr oximatet hesal
esv al
uesatspl i
toffbysubt r
acti
ngfr
om fi
nalsell
i
ngpri
cesthe
separablecostsincurredaf t
erthespli
toffpoint
D)itignoresthesepar ablecostsoffurt
herpr ocessing
Answer :B
Di
ff
:2
Obj
ecti
ve: 4
AACSB: Analy
tical
thi
nki
ng

5)I
njointcosti
ng,the_ __
____
_assumesthatal
lthemar
kupi
sat
tr
ibut
abl
etot
hej
ointpr
ocesscost
s.
A)sal
esv al
ueatspl i
toffmethod
B)NRVmet hod
C)constantgross-
mar ginpercent
agemet
hod
D)physicalmeasuresmet hod
Answer:B
Di
ff
:2
Obj
ecti
ve: 4
AACSB: Analy
tical
thi
nki
ng

6)I
nprocesscost
ing,t
hesal
esv
alueatspl
i
tof
fmet
hoddoesnotr
equi
rei
nfor
mat
ionont
hepr
ocessi
ng
st
epsaft
erthespl
itof
f.
Answer
: TRUE
Di
ff
:1
Obj
ecti
ve: 4
AACSB: Analy
tical
thi
nki
ng

7)Phy sicalmeasuressuchaswei
ghtorvol
umearet
hebestindicat
orsofthebenef
it
srecei
vedfor
al
locatingjointcost
s.
Answer : FALSE
Explanation: Salesval
ueisabet
teri
ndi
cat
oroft
hebenef
it
sr eceiv
edthanthephysi
calmeasur
es.
Di
ff
:2
Obj
ecti
ve: 4
AACSB: Analy
tical
thi
nki
ng

44
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sonEducat
ion,
Inc.
8)I
njointcost
ing,t
heconstantgross-
margi
nper
centagemethodrecognizesthatthepr
ofi
tmar
gini
snot
j
ustatt
ribut
abl
et othej
ointprocessbuti
sal
soderi
vedfrom t
hecostsincurr
edaf t
erspl
it
off
.
Answer: TRUE
Di
ff
:2
Obj
ecti
ve: 4
AACSB: Analy
tical
thi
nki
ng

9)Theconstantgr
oss-margi
npercentageNRVmethodmakest
hesi
mpl
i
fyi
ngassumpt
ionoft
reat
ingt
he
j
ointpr
oductsasthoughtheycompriseasingl
epr
oduct
.
Answer: TRUE
Di
ff
:1
Obj
ecti
ve: 4
AACSB: Analy
tical
thi
nki
ng

10)Listthereasonsthatt
hesalesval
ueatspli
toffmet
hodofjoi
ntcostal
locat
ionshoul
dbeused.
Answer :
1. Measur ementoft hev
alueofthej
ointpr
oductsatspl
i
tof
f-Salesval
ueatspli
toffi
sthebestmeasur
e
ofthebenefitsrecei
vedasaresul
tofjoi
ntprocessi
ng.

2. Noanti
cipat
ionofsubsequentmanagementdeci
si
ons-Thi
smet
hoddoesnotr
equi
rei
nfor
mat
ionon
pr
ocessi
ngstepsafterspl
i
toff
.

3. Av
ail
abil
i
tyofacommonbasi
stoal
l
ocat
ejoi
ntcost
stopr
oduct
s-Rev
enuei
sthecommonbasi
sto
al
l
ocatecost
s.

4. Si
mpli
cit
y-Iti
sthesi
mpl
estmet
hodcompar
edt
otheNRVandconst
antgr
oss-
mar
ginper
cent
age
NRVmethods.
Di
ff
:2
Obj
ecti
ve: 4
AACSB: Analy
tical
thi
nki
ng

11)Explai
nwhysomecompani eschoosenottoallocatej
ointcost
stopr oducts.
Answer : Somecompani eschoosenott oal
l
ocat ejoi
ntcoststoproductsduet othecomplexi
tyoft
heir
producti
onorextracti
onprocessesandthediff
icult
yofgatheringasuffi
cientamountofdatatoall
ocate
thecostscorrect
ly.Rat
herthanall
ocati
ngjoi
ntcost s,
somef ir
mssimplysubt ractt
hem di
rectl
yfr
om tot
al
revenuesinthemanagementaccount s.
Di
ff
:2
Obj
ecti
ve: 4
AACSB: Analy
tical
thi
nki
ng

45
Copy
right©2015Pear
sonEducat
ion,
Inc.
12)Whatarethefourmethodsofall
ocati
ngjoi
ntcoststoindivi
dualproducts?Whichofthesemet hodsis
pref
err
ed,andwhataretwoadvantagesofthi
smet hod?
Answer: Thefourmethodsofal
locati
ngjoi
ntcoststoindi
vidualproductsare:t
hesales-
valueatsplit
off
method,est
imatednet
-real
i
zabl
ev al
ue(NRV)method, t
heconst antgrossmar gi
npercent
ageNRV, and
physi
calmeasuresmethods.

Ofthesemethods,thesales-
val
ueatspli
toffmethodispr ef
err
edwhenmar ketpr
icesareavai
lable,
becausei
tisconsistentwit
hthebenef
it
s-receiv
edcrit
erion,i
tdoesnotdependoranti
cipat
efurther
manageri
aldeci
sionsonf urt
herpr
ocessi
ng, anditi
srelati
vel
ysimple.
Di
ff
:2
Obj
ecti
ve: 4
AACSB: Analy
tical
thi
nki
ng

13)Explai
nwhysomecompani escarr
yt hei
rinventor
iesatNRVmi nusanest i
mat edoperat
ingi
ncome
mar gi
ninsteadoftheNRVi t
self.
Answer : Somecompani escarrythei
rinventor
iesatNRVmi nusanest i
mat edoperati
ngincomemar gi
n
i
nsteadoft heNRVi t
sel f
.Thisi
sbecauseaccount ant
sdonotor dinari
lyrecordinvent
ori
esatNRV
becausethispracti
cer ecogni
zest hei
ncomeoneachpr oductattheti
met heproduct
ioniscomplet
edbut
beforeiti
ssold.Whenanyend- of-
peri
odi nvent
oriesaresoldinthenextper i
od,thecostofgoodssold
thenequalsthiscarr
yingv al
ue.
Di
ff
:2
Obj
ecti
ve: 4
AACSB: Appli
cat
ionofknowl
edge

Obj
ect
ive16.
5

1)Whenapr oductisther esultofajointpr

ocess,thedeci
siontopr
ocesst
hepr
oductpastt
hespl
i
tof
f
poi
ntfurt
hershouldbei nfluencedbythe_ __
_____
.
A)tot
alamountoft hejointcost s
B)port
ionofthejoi
ntcost sal l
ocatedtotheindi
vidualpr
oducts
C)ext
rarevenueearnedpastt hespli
toffpoi
nt
D)ext
raoperati
ngincomeear nedpastthespli
tof
fpoint
Answer:D
Di
ff
:1
Obj
ecti
ve: 5
AACSB: Analy
tical
thi
nki
ng

2)Injointcost i
ng,thepotenti
alconfl
ictbet
weencostconcept
susedfordeci
sionmaki
ngandcost
concept susedf orevaluati
ngtheperformanceofmanagerswil
lbemostsever
ewhenthe___
_____
methodi sused.
A)salesv alueatspli
toff
B)phy sical measure
C)const antgr oss-
mar gi
npercentageNRV
D)estimat edNRV
Answer :B
Di
ff
:2
Obj
ecti
ve: 5
AACSB: Analy
tical
thi
nki
ng

46
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sonEducat
ion,
Inc.
3)Whi choft hefollowingstat
ement sistrueofsel l-
or-process-fur
therdeci
sionsinjointcosti
ng?
A)Jointcost sincurredbeforethesplit
offpoi ntarerelevantindecidingwhet hert
opr ocesstheproduct
furt
her.
B)Allseparablecost sinjoi
nt-costal
locationsar eincrement alcosts.
C)Separ abl
ecost sincur
redbeforethespl it
offpointar eirr
elev
anti ndeci
dingwhet hertoprocessthe
productfurther.
D)Cost sthatdifferbetweent healt
ernati
vesofsel lingpr oduct
sorpr ocessingfurt
herar er
elevant
.
Answer :D
Di
ff
:2
Obj
ecti
ve: 5
AACSB: Analy
tical
thi
nki
ng

4)Whatfactormostoft
endri
vesj
ointcostal
l
ocat
ion?
A)per
formanceev al
uat
ion
B)managercompensation
C)sel
li
ngprices
D)si
mplici
tyofthemethod
Answer:C
Di
ff
:2
Obj
ecti
ve: 5
AACSB: Analy
tical
thi
nki
ng

5)Separ
ablecost
sthatdonotdi
ff
erbet
weenal
ter
nat
ivesar
eir
rel
evantf
ordeci
sionmaki
ng.
Answer: TRUE
Di
ff
:1
Obj
ecti
ve: 5
AACSB: Analy
tical
thi
nki
ng

6)Joi
ntprocessi
ngcostsarerel
evanti
ndecidi
ngwhethertopr
ocessthepr
oductfurt
her
.
Answer: FALSE
Expl
anat
ion: Jointpr
ocessi
ngcostsarei
rrel
evanti
ndecidi
ngwhethert
oprocessthepr
oductf
urt
her
.
Di
ff
:1
Obj
ecti
ve: 5
AACSB: Analy
tical
thi
nki
ng

7)Al
lseparabl
ecost
sinjoi
nt-
costal
locat
ionsar
eal
waysincr
emental
cost
s.
Answer: FALSE
Expl
anat
ion: Someoftheseparabl
ecostsmaybefi
xedandther
efor
enoti
ncr
ement
al.
Di
ff
:2
Obj
ecti
ve: 5
AACSB: Analy
tical
thi
nki
ng

47
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sonEducat
ion,
Inc.
8)NewYorkLibertyCor
porati
onmakesmi niatur
estatuesoftheEmpireStateBuildingfrom castir
on.
Sal
estotal
50,000unit
say ear.Thestatuesar ef
ini
shedeit
herroughorpolished,
wi thanav er
agedemand
of60%roughand40%pol i
shed.Ironingots,thedir
ectmateri
al,
costs$6perpound.Pr ocessingcostsar
e
$300toconvert30poundsinto60statues.Roughst at
uesaresoldfor$15each, andpol ishedstat
ues
canbesoldfor$18orengravedforanaddi t
ionalcostof$5.Poli
shedstat
uescant henbesol dfor$30.

Requi
red:
Deter
minewhet
herNewYorkLiber
tyCompanyshoul
dsellt
heengrav
edstatut
es.Why?
Answer: NewYor
kLiber
tyshoul
dengrav
ethestat
utesbecauset
heyincr
easeprof
it
sby$7perst
atut
e.

Pol
i
shed
Rough
Sal
es $15.
00 $18.
00
CostofSales:
Materi
als($6×30)/
60 $3.
00 $3.
00
Conversi
on$300/60 5.
00 8.
00 5.
00 8.
00
Operat
ingIncome $7.
00 $10.
00

Sal
es, polishedandengr aved $30.
00
Costs:
Mat eri
als $3.
00
Conv ersion 5.
00
Addi t
ional Pr
ocessing 5.
00 13.
00
OperatingI ncome $17.
00
Advantagei nfavorofsel
li
ngtheengr
aved $7.
00
st
atutes
Di
ff
:3
Obj
ecti
ve: 5
AACSB: Appli
cat
ionofknowl
edge

9)Whatr evenueorexpenseamount sarenecessarytomakeasel l

-or-
process-f
urtherdeci
sionandwhy ?
Whatitemsar eirr
elevanttothedecisi
onandwhy ?
Answer : Therevenuesandexpensest hatoccurafterspl
i
toffarethenecessaryitemst omakea
sel
l-
or-process-
furt
herdecision. Ifi
ncrementalr
evenuesarehigherthanincrementalcosts,processi
ng
fur
theristhecorrectdecisi
on. Expensesthatoccurbeforethespli
toffpoint
,call
edjointprocessing
costs,
arei r
rel
evanttothedeci si
on. Theseexpenseshaveoccur r
edandhav enoef f
ectont hedecisi
on
tosell
-or-
process-f
urt
her.
Di
ff
:2
Obj
ecti
ve: 5
AACSB: Analy
tical
thi
nki
ng

48
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sonEducat
ion,
Inc.
10)Fir
msshoul dbewar yofusi ngthefullcostofaj ointpr oductast hebasisformaki ngpricingdeci si
ons.
Why ?
Answer : Firmsshouldbewar yofusingt hef ul
lcostofaj ointproduct(t
hatis, t
hecostafterj ointcost
s
areall
ocated)ast hebasisf ormakingpricingdeci si
onsbecausei nmanysi t
uat i
ons,t
hereisnodi rect
cause-and-eff
ectrel
ationshipthatidenti
fi
est heresour cesdemandedbyeachj ointpr
oductt hatcant hen
beusedasabasi sforpr i
cing.Infact,
theuseoft hesal esv alueatspli
tofforthenetreali
zabl ev alue
methodt oallocat
ejointcost sresul
tsinar everseeffect :
Thesel li
ngpr i
cesofj oi
ntproductsdr ive
j
oint-
costal l
ocati
ons,ratherthancostallocationsservingast hebasisforthepr ici
ngofjoi
ntpr oducts.
Di
ff
:2
Obj
ecti
ve: 5
AACSB: Analy
tical
thi
nki
ng

Obj
ect
ive16.
6

1)Whi chmethodofaccount
ingr
ecogni
zesby
product
sint
hef
inanci
alst
atement
satt
het
imet
hei
r
producti
oniscompleted?
A)grossmar gi
nmet hod
B)salesmethod
C)producti
onmethod
D)mar ketv
aluemethod
Answer :C
Di
ff
:1
Obj
ecti
ve: 6
AACSB: Analy
tical
thi
nki
ng

Answert
hef
oll
owi
ngquest
ionsusi
ngt
hei
nfor
mat
ionbel
ow:

Tori
dCompanypr ocesses17,
500gallonsofdi
rectmat eri
alstoproducetwopr oduct
s,ProductXand
ProductY.Pr
oductXsel lsf
or$5pergal l
onandProductY, themai nproduct
,sell
sfor$150pergall
on.
Thefoll
owinginformati
onisforDecember :
Begi nni
ng Endi
ng
Producti
on Sales Inventory Inventory
ProductX: 5,
375 5,300 0 75
ProductY: 9,
975 9,990 25 10

Themanuf
act
uri
ngcost
stot
all
ed$25,
000.

2)Underproduct
ionmethod,Pr
oductXNRVwoul
dbeof
fsetagai
nstt
hecost
sofPr
oductYby_
___
___
_.
A)$26,
500
B)$26,
875
C)$50,
000
D)$48,
125
Answer:B
Expl
anati
on: B)5,375gall
ons×$5=$26,875
Di
ff
:2
Obj
ecti
ve: 6
AACSB: Appli
cat
ionofknowl
edge

49
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sonEducat
ion,
Inc.
3)Howmuchi stheendi
ngi
nvent
oryf
ort
heby
producti
fby
product
sar
erecogni
zedi
nthegener
all
edger
att
hepointofsal
e?
A)$0
B)$375
C)$1,
500
D)$2,
500
Answer
:A
Di
ff
:2
Obj
ecti
ve: 6
AACSB: Appli
cat
ionofknowl
edge

4)Theproduct
ionmet
hodwill
repor
tPr
oductXi
nthebal
ancesheetat_
___
___
_.
A)$0
B)$1,
500
C)$375
D)$2,
500
Answer:C
Expl
anat
ion: C)75gal
lons×$5=$375
Di
ff
:3
Obj
ecti
ve: 6
AACSB: Appli
cat
ionofknowl
edge

5)Ifthebypr
oductinventor
yisrecor
dedatNRVl
esspr
ofi
tmar
ginof20%,
thebal
ancesheetwi
l
lrepor
t
_______
_ofbyproductinv
entor
y.
A) $375
B)$0
C)$1,500
D)$300
Answer :D
Explanati
on: D)$375×80%=$300
Di
ff
:3
Obj
ecti
ve: 6
AACSB: Appli
cat
ionofknowl
edge

6)Anegat i
veconsequenceofrecordingbypr
oductsintheaccount
ingrecor
dswhenthesal
eoccursi
s
that_
_______.
A)therevenuefr
om theby pr
oductsisusuall
yfair
lyl
argeandtheaccounti
ngrecor
dswil
lbedi
stor
ted
B)earni
ngscannotbet i
medundert hismethod
C)manager scanbetempt edtostockpil
ebyproduct
s
D)iti
nvol
v escomplexcalcul
ati
onscompar edtotheproduct
ionmet hod
Answer:C
Di
ff
:2
Obj
ecti
ve: 6
AACSB: Analy
tical
thi
nki
ng

50
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sonEducat
ion,
Inc.
7)Whi chofthef oll
owi
ngstatementsist
rueoftheproducti
onmethodofaccounti
ngf
orby
product
s?
A)Itmakesnoj ournal
entri
esuntilt
hebypr
oductissol
d.
B)Iti
st hepreferredmethodbecauseofthemat chi
ngpri
ncipl
e.
C)Itrecordsrevenuesoftheby pr
oducti
ntheincomestatementasrevenue.
D)Itaddsr ev
enuesoft hebyproducttot
hecostofgoodssol di
ntheincomestat
ement
.
Answer :B
Di
ff
:2
Obj
ecti
ve: 6
AACSB: Analy
tical
thi
nki
ng

8)Whichoft hef oll

owingstatementsistrueofthesalesmet hodofaccounti
ngforbyproduct
s?
A)Itmakesj ournalentri
eswhent heby pr
oductsareproduced.
B)Iti
st hepreferredmet hodbecauseofthemat chingprinciple.
C)Ital
lowsaf irmt omanagei t
sreport
edearningsbyt i
mi ngt hesaleofbypr
oduct
s.
D)Thismet hodr ecognizesthebyproductinv
entoryintheaccount ingperi
odinwhichiti
sproduced.
Answer:C
Di
ff
:2
Obj
ecti
ve: 6
AACSB: Analy
tical
thi
nki
ng

9)Whi choft hef ol

lowingjournalent
ri
escanhappenonl
yundert
hepr
oduct
ionmet
hodofr
ecor
ding
byproducts?
A)Wor kinPr ocess
Fi
nishedGoods-By product
Account sPayable
B) CashorAccount sReceivabl
e
Revenues-Mai nproduct
C) ByproductInventory
Fi
nishedGoods-Mai npr oduct
Worki nProcess
D)CashorAccount sReceivabl
e
Revenues-By product
Answer :C
Di
ff
:3
Obj
ecti
ve: 6
AACSB: Appli
cat
ionofknowl
edge

10)Bypr
oductsar
erecogni
zedi
nthegener
all
edgerei
theratt
het
imepr
oduct
ioni
scompl
etedoratt
he
ti
meofsale.
Answer: TRUE
Di
ff
:1
Obj
ecti
ve: 6
AACSB: Analy
tical
thi
nki
ng

51
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sonEducat
ion,
Inc.
11)Thesal esmet hodforr
ecognizingbypr
oduct
sisconceptual
l
ycorr
ectbecauseiti
sconsistentwit
hthe
matchi
ngpr i
nci
ple.
Answer: FALSE
Expl
anation: Thepr oduct
ionmet hodforr
ecogni
zi
ngby pr
oductsi
sconceptual
lycor
rectbecauseiti
s
consi
stentwi t
hthemat chi
ngprincipl
e.
Di
ff
:2
Obj
ecti
ve: 6
AACSB: Analy
tical
thi
nki
ng

12)Theproducti
onmethod f
orrecogni
zi
ngby
product
sreducest
hecostofmanuf
act
uri
ngt
hemai
nor
j
ointpr
oductsinthei
ncomest
atement.
Answer: TRUE
Di
ff
:1
Obj
ecti
ve: 6
AACSB: Analy
tical
thi
nki
ng

13)Theproduct
ionmethodforr
ecognizi
ngby pr
oductsi
ssimpl
erandisoft
enusedinpract
ice,
pri
maril
y
becausethedol
laramount
sofbyproductsareimmateri
al.
Answer: FALSE
Expl
anati
on: Thesalesmethodi
ssimpl erandisof
tenusedi
npract
ice,
pri
mari
lybecausethedol
lar
amountsofbyproduct
sareimmateri
al.
Di
ff
:1
Obj
ecti
ve: 6
AACSB: Analy
tical
thi
nki
ng

14)TheCarol
inaCompanypr eparesl
umberforcompanieswhomanuf acturefurni
ture.Themai nproduct
i
sfini
shedlumberwi t
haby productofwoodshavings.Thebypr
oductissol dtopl y
woodmanuf acturers.
ForJul
y,t
hemanuf actur
ingpr ocessi
ncurr
ed$332,000intot
alcosts.Eightythousandboar dfeetof
l
umberwer eproducedandsol dalongwit
h6,800poundsofshav i
ngs.Thef ini
shedl umbersoldf or$6.00
perboar
dfootandt heshavingssoldfor$0.
60apound.Therewer enobegi nningorendi nginventori
es.

Requir
ed:
Prepareanincomest at
ementshowingt heby product(
1)asacostr educti
ondur
ingpr
oduct
ion,
and(
2)as
arevenueitem whensol d.
Answer :
Costreductionwhen
Rev enuewhensol d
produced
Sales: Lumber $480,000 $480,000
Shavings 4,080
TotalSales: $480,000 484,
080
CostofGoodSol d:
Totalmanuf actur
ingcosts $332,000 $332,000
Byproduct 4,080 0
TotalCOGS 327,
920 332,
000
GrossMar gin $152,080 $152,
080
Di
ff
:2
Obj
ecti
ve: 6
AACSB: Appli
cat
ionofknowl
edge

15)Disti
nguishbet weent hetwopr i
ncipalmet hodsofaccount i
ngforbyproducts,theproducti
on
byproductmet hodandt hesal eby productmet hod.Brieflydi
scusst herel
ati
v emer i
ts(orl
ackthereof
)of
each.
Answer :
a. Productionby productmet hod.
Thismet hodr ecognizesby productsint hefinancialstat
ement sattheti
met heirpr
oducti
onis
completed.Theest imatednetr ealizablevaluefrom theby productproducedisof f
setagainstt
hecostsof
themain( orjoi
nt)product s,
andi tisreportedint hebalancesheetasi nventory
.Account i
ngentri
esare
52
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Inc.
madeandt
heby
product
sar
erepor
tedi
nthebal
ancesheetatt
hei
rsel
l
ingpr
ice.

b. Sal ebypr
oductmet hod.
Thismethoddelaysr ecogni
ti
onofthebyproductsunt
iltheti
meoft hei
rsale.Revenuescoul
dbe
recordedinoneaccount i
ngper i
od,whil
etheexpenseinanear l
i
erperi
od.Compani esmayf i
ndit
necessarytokeepani nventoryofthebypr
oductprocessi
ngcost si
nasepar at
eaccountuntilt
he
byproductsaresold.Thispracti
cecanber at
ional
i
zedont hegroundsthatt
hedol l
aramount sof
byproductsareimmat er
ial.Butmanagerscanuset hi
smet hodtomanager eport
edear ni
ngsbyti
ming
whent heysellby
products.
Di
ff
:2
Obj
ecti
ve: 6
AACSB: Analy
tical
thi
nki
ng

16)Whatar ethet womet hodstoaccountf orby products.Whichisthemor eappropr i

atemet hodtouse
andwhy ?
Answer : Thetwomet hodsaret heproducti
onmet hodandt hesalesmet hod. Thepr oductionmet hod
recognizesbyproductsinthefi
nanci al
statement satthet i
mepr oducti
oniscompl eted. Thesal es
met hoddelaysrecognit
ionofby productsunti
lthet i
meofsal e. Thepr oducti
onmet hodist he
appropriat
emet hodtousebecausei tisconsi
stentwi ththemat chi
ngpr i
ncipl
e. Ifthesal esmet hod
wereused, thebyproductcostrecogniti
oncouldbedel ayedforseveralperi
odsunt i
ltheinv entor
yissold.
Di
ff
:2
Obj
ecti
ve: 6
AACSB: Analy
tical
thi
nki
ng

53
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sonEducat
ion,
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