chapter 11 allocation of joint costs and accounting for by-products

1. Chapter 11 Allocation of Joint Costs and Accounting for By-Products

7. Problem Caster Company uses a joint process to produce two products-widgets and wonders. The joint cost was $400,000. The company produced 3,000 widgets and 5,000 wonders. Widgets sell for $50 per unit and wonders sell for $90 per unit. The cost to dispose of the widgets is $10 per unit and the cost to dispose of the wonders is $14 per unit.

8. Problem Continued 1. What is the joint cost allocated to widgets and wonders using the sales value at split-off method? 2. What is the joint cost allocated to widgets and wonders using the net realizable value method?

10. Management Decisions Will revenues exceed total costs? What is the opportunity cost? How to classify outputs? Sell at split-off or process further?

11. Two Ways to Allocate Joint Costs Physical measure Common physical characteristic Monetary measure Each method may allocate a different cost to joint products

14. Problems Parker Company uses a joint process to produce two chemicals---AC22 and SD14. The company produced 10,000 gallons of AC22 and 30,000 gallons of SD14. AC22 sells for $10 per gallon, and SD14 sells for $12 per gallon. The joint cost was $80,000. Compute the joint cost allocated to each product using physical measure allocation.

15. Problems Pillow Company produces two chemicals---XB57 and JG42. The joint cost was $1,200,000. The company produced 20,000 barrels of XB57 and 25,000 barrels of JG42. Product XB57 sells for $40 per barrel, and Product JG42 sells for $48 per barrel. The cost to dispose of XB57 is $8 per barrel and the cost to dispose of JG42 is $14 per barrel. Compute sales value at split-off and net realizable value method.

17. Problem Collins Company produces X59 and Z47. The company produced 10,000 units of X59 and 8,000 units of Z47. Product X59 sells for $86 per unit after further processing costs of $6 per unit and disposal costs of $20 per unit. Product Z47 at the split-off point sells for $50 per unit and disposal costs are $10 per unity. The joint cost was $640,000. Compute the joint cost allocated to each product using the approximated net realizable value method.

18. Joints Costs Service Organizations Joint costs include Advertising for multiple products Printing for multipurpose documents Events held for multiple purposes Not required to allocate joint costs Allocation base Physical (number of locations) Monetary (sales volume)

20. Accounting for By-Products and Scrap Sales value of by-products/scrap is recorded using Net Realizable Value Method or Realized Value Method Choose method based on magnitude of net realizable value need for additional processing after split-off

21. Net Realizable ValueBy-Products and Scrap Indirect method Net realizable value reduces cost of goods sold for joint products Conservative; joint cost is reduced when the product/scrap is sold Direct method Net realizable value reduces work in process for joint products Joint cost is reduced when by-product/scrap is produced

23. Realized ValueBy-Products and Scrap By-product/scrap value is recognized when items sold First option Proceeds recorded as Other Revenue Costs of additional processing or disposal added to costs of primary products Provides little information to management as it does not match revenues and expenses

26. Job Order CostingBy-Products or Scrap Use net realizable value or realized value approach If most jobs create by-products or scrap Proceeds reduce the manufacturing overhead account The journal entry using the realized value approach is: Cash Manufacturing Overhead

28. Joint Costs Not-For-Profit Organizations Joint costs related to fundraising accomplishing an organizational program conducting an administrative function Joint costs must be allocated Clearly show the amount spent for various activities - especially fundraisers