Chapter 11 Gleim Questions

In allocating factory service department costs to producing departments, which one of the following items would most likely be used as an activity base?

Units of electric power consumed.

The allocation of costs to particular cost objects allows a firm to analyze all of the following except

Why the sales of a particular product have increased.

Fact Pattern: Lares Confectioners, Inc. What are the journal entries for Nagu if it is processed further and transferred to finished goods, with joint costs being allocated between Rey and Nagu based on relative sales value at the split-off point?

Work-in-process (Nagu) $4,500 Work-in-process (Rey) $4,500 Work-in-process (Nagu) $4,000 Direct materials $2,000 Direct labor 1,500 Manufacturing overhead 500 Finished goods (Nagu) $8,500 Work-in-process (Nagu) $8,500

By-products may have which of the following characteristics?

Yes Yes

Fact Pattern: Doe Corporation How much of the joint costs is allocated to crushed pineapple?

$17,980

Fact Pattern: Doe Corporation What is the gross margin for the pineapple juice?

$7,140

Which of the following is not a method to allocate joint costs?

Relative profitability.

The method of accounting for joint product costs that will produce the same gross profit rate for all products is the

Relative sales-value method

The main issues for accounting recognition of by-products are similar to those for

Scrap.

Fact Pattern: A company has two support departments, Power and Maintenance, and two production departments, Machining and Assembly. All costs are regarded as strictly variable. For September, the following information is available: If the company uses the direct method for allocating support department costs to production departments, what dollar amount of Power Department cost will be allocated to the Maintenance Department for September?

$0

Fact Pattern: Barnes Company has two support departments and three production departments, each producing a separate product. For a number of years, Barnes has allocated the costs of the support departments to the production departments on the basis of the annual sales revenue dollars. In a recent audit report, the internal auditor stated that the distribution of support department costs on the basis of annual sales dollars would lead to support inequities. The auditor recommended that maintenance and engineering hours be used as a better support cost allocation basis. For illustrative purposes, the following information was appended to the audit report: Assume that maintenance costs are allocated first because the Maintenance Department provides a greater percentage of its total support to the other support department. Using the step-down method of cost allocation, what amount of engineering costs is allocated to the Maintenance Department?

$0

Fact Pattern: Earl Corporation manufactures a product that gives rise to a by-product called Zafa. The only costs associated with Zafa are selling costs of $1 for each unit sold. Earl accounts for Zafa sales first by deducting its separable costs from such sales and then by deducting this net amount from cost of sales of the major product. This year, 1,000 units of Zafa were sold at $4 each. If Earl records Zafa inventory at net realizable value as it is produced this year, what is the profit recognized next year on a sale of 500 units?

$0

Inventory of Moy was recorded at net realizable value when produced in the previous month. No units of Moy were produced in the month just ended. What amount should be recognized as profit on Moy's sales?

$0

Fact Pattern: Barnes Company has two support departments and three production departments, each producing a separate product. For a number of years, Barnes has allocated the costs of the support departments to the production departments on the basis of the annual sales revenue dollars. In a recent audit report, the internal auditor stated that the distribution of support department costs on the basis of annual sales dollars would lead to support inequities. The auditor recommended that maintenance and engineering hours be used as a better support cost allocation basis. For illustrative purposes, the following information was appended to the audit report: Assume that maintenance costs are allocated first because the Maintenance Department provides a greater percentage of its total support to the other support department. Using the step-down method of cost allocation, what amount of maintenance cost is allocated to Department B?

$1,500

A company produces two main products and a by-product out of a joint process. The ratio of output quantities to input quantities of direct material used in the joint process remains consistent from month to month. The company has employed the physical-volume method to allocate joint production costs to the two main products. The net realizable value of the by-product is used to reduce the joint production costs before the joint costs are allocated to the main products. Data regarding the company's operations for the current month are presented in the chart below. During the month, the company incurred joint production costs of $2,520,000. The main products are not marketable at the split-off point and, thus, have to be processed further. The amount of joint production cost that the company would allocate to the Second Main Product by using the physical-volume method to allocate joint production costs would be

$1,500,000

Mig Co., which began operations in the month just ended, produces gasoline and a gasoline by-product. The following information is available pertaining to sales and production for the month:

$100,000 $0

Fact Pattern: The managers of Rochester Manufacturing are discussing ways to allocate the cost of service departments, such as Quality Control and Maintenance, to the production departments. To aid them in this discussion, the controller has provided the following information: If Rochester uses the step-down method of allocating service costs beginning with quality control, the maintenance costs allocated to the assembly department would be

$108,000

Fact Pattern: A company has two support departments, Power and Maintenance, and two production departments, Machining and Assembly. All costs are regarded as strictly variable. For September, the following information is available: Assume the company uses the sequential or step method for allocating support department costs to production departments. The company begins with the support department that receives the least support from other support departments. What dollar amount of Power Department costs will be allocated to the Maintenance Department for September?

$12,500

Fact Pattern: The Power and Maintenance Departments of a manufacturing company are support departments that provide support to each other as well as to the organization's two production departments, Plating and Assembly. The manufacturing company employs separate departmental manufacturing overhead rates for the two production departments requiring the allocation of the support department costs to the two manufacturing departments. Square footage of area served is used to allocate the Maintenance Department costs, and percentage of power usage is used to allocate the Power Department costs. Department costs and operating data are as follows: Assume that the manufacturing company employs the step-down allocation method to allocate support department costs. If it allocates the cost of the Maintenance Department first, then the amount of the Maintenance Department's costs that are directly allocated to the Plating Department would be

$120,000

Fact Pattern: Longstreet Company's Photocopying Department provides photocopy services for both Departments A and B and has prepared its total budget using the following information for next year: Assume that Longstreet uses the single-rate method of cost allocation and the allocation base is budgeted usage. How much photocopying cost will be allocated to Department B in the budget year?

$138,667

Fact Pattern: Barnes Company has two support departments and three production departments, each producing a separate product. For a number of years, Barnes has allocated the costs of the support departments to the production departments on the basis of the annual sales revenue dollars. In a recent audit report, the internal auditor stated that the distribution of support department costs on the basis of annual sales dollars would lead to support inequities. The auditor recommended that maintenance and engineering hours be used as a better support cost allocation basis. For illustrative purposes, the following information was appended to the audit report: Assume that maintenance costs are allocated first because the Maintenance Department provides a greater percentage of its total support to the other support department. Using the step-down method of cost allocation, what amount of engineering cost is allocated to Department C?

$14,250

Fact Pattern: The managers of Rochester Manufacturing are discussing ways to allocate the cost of service departments, such as Quality Control and Maintenance, to the production departments. To aid them in this discussion, the controller has provided the following information: Using the direct method, the total amount of overhead allocated to each machine hour at Rochester would be

$15.65

Fact Pattern: The Power and Maintenance Departments of a manufacturing company are support departments that provide support to each other as well as to the organization's two production departments, Plating and Assembly. The manufacturing company employs separate departmental manufacturing overhead rates for the two production departments requiring the allocation of the support department costs to the two manufacturing departments. Square footage of area served is used to allocate the Maintenance Department costs, and percentage of power usage is used to allocate the Power Department costs. Department costs and operating data are as follows: If Rochester uses the direct method of allocating service department costs, the total service costs allocated to the assembly department would be

$167,500

LM Enterprises produces two products in a common production process, each of which is processed further after the split-off point. Joint costs incurred for the current month are $36,000. The following information for the current month was also gathered:

$18,000

Fact Pattern: Doe Corporation What is the total amount of separable costs for the three main products?

$18,530

Fact Pattern: Sonimad Sawmill Assuming no further processing work is done after the split-off point, the amount of joint cost allocated to commercial building lumber (CBL) on a physical quantity allocation basis would be

$180,000

Lowe Co. manufactures products A and B from a joint process. Sales value at split-off was $700,000 for 10,000 units of A and $300,000 for 15,000 units of B. Using the sales value at split-off approach, joint costs properly allocated to A were $140,000. Total joint costs were

$200,000

Fact Pattern: Fabricating and Finishing are the two production departments of Ewell Company. Building Operations and Information Services are service departments that provide support to the two production departments as well as to each other. Ewell uses departmental overhead rates in the two production departments to allocate the service department costs to the production departments. Square footage is used to allocate Building Operations, and computer time is used to allocate Information Services. The costs of the service departments and relevant operating data for the departments are as follows: If Ewell employs the direct method to allocate the costs of the service departments, then the amount of Building Operations costs allocated to Fabricating would be

$220,000

Fact Pattern: Pickett Manufacturing Assume that Product T is treated as a by-product and that the company accounts for the by-product at net realizable value as a reduction of joint cost. Assume also that Products S and T must be processed further before they can be sold. What is Pickett's total cost of Product R in April if joint cost allocation is based on net realizable values?

$220,370

Fact Pattern: Barnes Company has two support departments and three production departments, each producing a separate product. For a number of years, Barnes has allocated the costs of the support departments to the production departments on the basis of the annual sales revenue dollars. In a recent audit report, the internal auditor stated that the distribution of support department costs on the basis of annual sales dollars would lead to support inequities. The auditor recommended that maintenance and engineering hours be used as a better support cost allocation basis. For illustrative purposes, the following information was appended to the audit report: Assume that the Engineering Department's total cost to be allocated is $60,000 after applying the simultaneous equations (reciprocal) method. What is the total Maintenance Department cost to be allocated?

$24,000

A company has two departments and allocates all overhead costs based on department revenues. The following information applies: Department 1 revenue $1,000,000 Department 2 revenue 1,500,000 Corporate overhead costs 250,000 Department overhead costs 175,000 What amount is the company's total overhead cost for Department 2?

$255,000

Fact Pattern: Earl Corporation manufactures a product that gives rise to a by-product called Zafa. The only costs associated with Zafa are selling costs of $1 for each unit sold. Earl accounts for Zafa sales first by deducting its separable costs from such sales and then by deducting this net amount from cost of sales of the major product. This year, 1,000 units of Zafa were sold at $4 each. If Earl records the net realizable value of Zafa as inventory as it is produced, what will the per-unit value be?

$3

Fact Pattern: Barnes Company has two support departments and three production departments, each producing a separate product. For a number of years, Barnes has allocated the costs of the support departments to the production departments on the basis of the annual sales revenue dollars. In a recent audit report, the internal auditor stated that the distribution of support department costs on the basis of annual sales dollars would lead to support inequities. The auditor recommended that maintenance and engineering hours be used as a better support cost allocation basis. For illustrative purposes, the following information was appended to the audit report: Assume that maintenance costs are allocated first because the Maintenance Department provides a greater percentage of its total support to the other support department. Using the step-down method of cost allocation, how much maintenance cost is allocated to the Engineering Department?

$3,000

Fact Pattern: N-Air Assuming that all products were sold at the split-off point during October, the gross profit from the production process would be

$3,000

Petro-Chem, Inc., is a small company that acquires high-grade crude oil from low-volume production wells owned by individuals and small partnerships. The crude oil is processed in a single refinery into Two Oil, Six Oil, and impure distillates. Petro-Chem does not have the technology or capacity to process these products further and sells most of its output each month to major refineries. There were no beginning inventories of finished goods or work-in-process on November 1. The production costs and output of Petro-Chem for November are shown in the next column. The portion of the joint production costs assigned to Six Oil based upon physical output is

$3,636,000

Ashwood Company manufactures three main products, F, G, and W, from a joint process. Joint costs are allocated on the basis of relative sales value at split-off. Additional information for June production activity follows:

$30,000

Fact Pattern Atlas Foods: Assuming Atlas Foods inventories Morefeed, the by-product, the joint cost to be allocated to Alfa using the net realizable value method is

$30,000

Warfield Corporation manufactures products C, D, and E from a joint process. Joint costs are allocated on the basis of relative sales value at split-off. Additional information is presented below. How much of the joint costs should Warfield allocate to product D?

$30,000

A company manufactures two products, X and Y, through a joint process. The joint (common) costs incurred are $500,000 for a standard production run that generates 240,000 gallons of X and 160,000 gallons of Y. X sells for $4.00 per gallon, while Y sells for $6.50 per gallon. If there are no additional processing costs incurred after the split-off point, what is the amount of joint cost for each production run allocated to X on a physical-quantity basis?

$300,000

Petro-Chem, Inc., is a small company that acquires high-grade crude oil from low-volume production wells owned by individuals and small partnerships. The crude oil is processed in a single refinery into Two Oil, Six Oil, and impure distillates. Petro-Chem does not have the technology or capacity to process these products further and sells most of its output each month to major refineries. There were no beginning inventories of finished goods or work-in-process on November 1. The production costs and output of Petro-Chem for November are shown in the next column. The portion of the joint production costs assigned to Two Oil based upon the relative sales value of output is

$4,000,000

Fact Pattern: Earl Corporation manufactures a product that gives rise to a by-product called Zafa. The only costs associated with Zafa are selling costs of $1 for each unit sold. Earl accounts for Zafa sales first by deducting its separable costs from such sales and then by deducting this net amount from cost of sales of the major product. This year, 1,000 units of Zafa were sold at $4 each. Earl sold 1,000 units of Zafa. Assuming that 1,500 units were produced for the year and that net realizable value is recorded as inventory, Earl's net income will increase by

$4,500

Fact Pattern Atlas Foods: Assuming Atlas Foods inventories Morefeed, the by-product, and that it incurs no additional processing costs for Alfa and Betters, the joint cost to be allocated to Alfa using the gross market value method is

$40,000

Fact Pattern: The managers of Rochester Manufacturing are discussing ways to allocate the cost of service departments, such as Quality Control and Maintenance, to the production departments. To aid them in this discussion, the controller has provided the following information: If Rochester uses the reciprocal method of allocating service costs, the total amount of quality control costs (rounded to the nearest dollar) to be allocated to the other departments would be

$421,053

Parat College allocates support department costs to its individual schools using the step method. Information for May is as follows: What is the amount of May support department costs allocated to the School of Education?

$46,100

Fact Pattern: A company has two support departments, Power and Maintenance, and two production departments, Machining and Assembly. All costs are regarded as strictly variable. For September, the following information is available: If the company uses the direct method for allocating support department costs to production departments, what dollar amount of Power Department cost will be allocated to the Machining Department for September?

$46,875

A processing department produces joint products Ajac and Bjac, each of which incurs separable production costs after split-off. Information concerning a batch produced at a $60,000 joint cost before split-off follows: What is the joint cost assigned to Ajac if costs are assigned using the relative net realizable value?

$48,000

Fact Pattern: Barnes Company has two support departments and three production departments, each producing a separate product. For a number of years, Barnes has allocated the costs of the support departments to the production departments on the basis of the annual sales revenue dollars. In a recent audit report, the internal auditor stated that the distribution of support department costs on the basis of annual sales dollars would lead to support inequities. The auditor recommended that maintenance and engineering hours be used as a better support cost allocation basis. For illustrative purposes, the following information was appended to the audit report: After applying the simultaneous equations (reciprocal) method, assume that the Engineering Department's total cost to be allocated is $60,000. How much of this cost is allocated to Departments A, B, and C?

$48,000

Fact Pattern: Sonimad Sawmill Using the net-realizable-value (NRV) basis, the completed cost assigned to each unit of commercial building lumber would be

$5.3125

Fact Pattern Atlas Foods: Assuming Atlas Foods inventories Morefeed, the by-product, the joint cost to be allocated to Betters using the weighted-quantity method based on caloric value per pound is

$50,400

Fact Pattern: Pickett Manufacturing Assume that all three products are main products and that they can be sold at the split-off point or processed further, whichever is economically beneficial to the company. What is Pickett's total cost of Product S in April if joint cost allocation is based on sales value at split-off?

$510,000

Fact Pattern: Doe Corporation What is the net realizable value at the split-off point of pineapple slices?

$52,000

Fact Pattern: Doe Corporation What is the total amount of joint costs for the Cutting Department to be assigned to each of the three main products in accordance with Doe's policy?

$58,000

Fact Pattern Atlas Foods: Assuming Atlas Foods inventories Morefeed, the by-product, the joint cost to be allocated to Alfa, using the physical quantity method is

$60,000

Fact Pattern: Barnes Company has two support departments and three production departments, each producing a separate product. For a number of years, Barnes has allocated the costs of the support departments to the production departments on the basis of the annual sales revenue dollars. In a recent audit report, the internal auditor stated that the distribution of support department costs on the basis of annual sales dollars would lead to support inequities. The auditor recommended that maintenance and engineering hours be used as a better support cost allocation basis. For illustrative purposes, the following information was appended to the audit report: After applying the simultaneous equations (reciprocal) method, what is the total Engineering Department cost to be allocated?

$60,000

Fact Pattern Atlas Foods: Assuming Atlas Foods does not inventory Morefeed, the by-product, the joint cost to be allocated to Betters using the net realizable value method is

$62,000

Fact Pattern: Sonimad Sawmill If there are no further processing costs incurred after the split-off point, the amount of joint cost allocated to the mine support braces (MSB) on a relative sales-value basis would be

$75,000

Fact Pattern: Longstreet Company's Photocopying Department provides photocopy services for both Departments A and B and has prepared its total budget using the following information for next year: Assume that Longstreet uses the dual-rate cost allocation method, and the allocation basis is budgeted usage for fixed costs and actual usage for variable costs. How much cost would be allocated to Department A during the year if actual usage for Department A is 1,400,000 pages and actual usage for Department B is 2,100,000 pages?

$75,333

A cheese company produces natural cheese from cow's milk. As a result of the process, a secondary product, whey, is produced in the proportion of one pound for each pound of cheese. The following are the standards for 1,000 pounds of milk: Given that the company allocates common costs on the basis of NRVs, the allocated common costs per 1,000 pounds of milk (rounded) are

$750 (Cheese) $250 (Whey)

Fact Pattern: Fabricating and Finishing are the two production departments of Ewell Company. Building Operations and Information Services are service departments that provide support to the two production departments as well as to each other. Ewell uses departmental overhead rates in the two production departments to allocate the service department costs to the production departments. Square footage is used to allocate Building Operations, and computer time is used to allocate Information Services. The costs of the service departments and relevant operating data for the departments are as follows: If Ewell employs the step method to allocate the costs of the service departments and if Information Services costs are allocated first, then the total amount of service department costs (Information Services and Building Operations) allocated to Finishing would be

$762,000

Andy Company manufactures products N, P, and R from a joint process. The following information is available:

$80,000 (Product N) $70,000 (Product P)

Fact Pattern: Sonimad Sawmill If Sonimad Sawmill chose not to process the mine support braces beyond the split-off point, the contribution from the joint milling process would be

$80,000 lower.

A company processes a 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: F1 F2 F3 Additional processing costs per unit $28 $30 $25 Selling price per unit 30 35 35 If joint costs are allocated based on the net realizable value of finished product, what proportion of joint costs should be allocated to F1?

20%

Fact Pattern: Doe Corporation How many net pounds of pineapple juice were produced in May?

67,500

Fact Pattern: Barnes Company has two support departments and three production departments, each producing a separate product. For a number of years, Barnes has allocated the costs of the support departments to the production departments on the basis of the annual sales revenue dollars. In a recent audit report, the internal auditor stated that the distribution of support department costs on the basis of annual sales dollars would lead to support inequities. The auditor recommended that maintenance and engineering hours be used as a better support cost allocation basis. For illustrative purposes, the following information was appended to the audit report: Assume that the Maintenance Department's total cost to be allocated is $24,000. Under the reciprocal method, what portion of Maintenance Department cost is allocated to Department A?

800 ÷ 1,600

Which of the following statements best describes cost allocation?

A company's total income will remain unchanged no matter how indirect costs are allocated.

The variable costs of support departments most likely should be allocated to production departments by using

Actual short-run output based on predetermined rates.

There is a market for both product X and product Y. Which of the following costs and revenues would be most relevant in deciding whether to sell product X or process it further to make product Y?

Additional cost of making Y, given the cost of making X, and additional revenue from Y.

Cost objects

All of the answers are correct.

Fact Pattern: Earl Corporation manufactures a product that gives rise to a by-product called Zafa. The only costs associated with Zafa are selling costs of $1 for each unit sold. Earl accounts for Zafa sales first by deducting its separable costs from such sales and then by deducting this net amount from cost of sales of the major product. This year, 1,000 units of Zafa were sold at $4 each. If Earl changes its method of accounting for Zafa sales by recording the net amount as additional sales revenue, Earl's gross margin will

Be unaffected.

Fact Pattern: Lares Confectioners, Inc. Select the proper journal entry for Nagu if it is recorded as inventory at sales value without further processing, with a corresponding reduction of Rey's manufacturing costs.

By-product inventory $3,000 Work-in-process $3,000

Fact Pattern: Lares Confectioners, Inc. What is the journal entry for Nagu if it is further processed as a by-product and recorded as inventory at net realizable value, which reduces Rey's manufacturing costs?

By-product inventory (Nagu) $9,000 Direct materials $2,000 Direct labor 1,500 Manufacturing overhead 500 Work-in-process (Rey) 5,000

Which of the following is(are) often subject to further processing in order to be salable?

Byproduct (Yes) Scrap (No)

The principal disadvantage of using the physical quantity method of allocating joint costs is that

Costs assigned to inventories may have no relationship to value.

The allocation of general overhead costs to operating departments can be least justified in determining

Costs for short-term decisions.

The diagram represents the production and sales relationships of joint products P and Q. Joint costs are incurred until split-off; then separable costs are incurred in refining each product. Market values of P and Q at split-off are used to allocate joint costs. If the market value of P at split-off increases and all other costs and selling prices remain unchanged, then the gross margin of

Decrease (P) Increase (Q)

A manufacturing company properly classifies and accounts for one product as a by-product rather than as a main product because it

Has low sales value when compared with the main products.

The step-down method of support department cost allocation often begins with allocation of the costs of the support department that

Provides the greatest percentage of its support to other support departments.

Fact Pattern: Earl Corporation manufactures a product that gives rise to a by-product called Zafa. The only costs associated with Zafa are selling costs of $1 for each unit sold. Earl accounts for Zafa sales first by deducting its separable costs from such sales and then by deducting this net amount from cost of sales of the major product. This year, 1,000 units of Zafa were sold at $4 each. If Earl changes its method of accounting for Zafa sales by recording the net amount as other income, Earl's gross margin will

Decrease by $3,000.

Allocation of support department costs to the production departments is necessary to

Determine overhead rates.

Joint costs are useful for

Determining inventory cost for accounting purposes.

Which overhead allocation methods do not charge support department costs to a support department after its costs have been allocated?

Direct and step-down methods.

Which of the following components of production are allocable as joint costs when a single manufacturing process produces several salable products?

Direct materials, direct labor, and overhead.

A computer company charges indirect manufacturing costs to a project at a fixed percentage of a cost pool. This project is covered by a cost-plus government contract. Which of the following is an appropriate guideline for determining how costs are assigned to the pool?

Establish separate pools for variable and fixed costs.

Fact Pattern: Lares Confectioners, Inc. If the joint costs of $300,000 are allocated based on relative net realizable values, and Nagu is considered a joint product rather than a by-product, what are the journal entries for Nagu and Rey to record the cost allocation and subsequent processing to the point at which both are in finished goods inventory?

Finished goods (Rey) $292,574 Work-in-process (Nagu) 7,426 Work-in-process (joint) $300,000 Work-in-process (Nagu) $ 4,000 Direct materials $ 2,000 Direct labor 1,500 Manufacturing overhead 500 Finished goods (Nagu) $ 11,426 Work-in-process (Nagu) $ 11,426

Kode Co. manufactures a major product that gives rise to a by-product called May. May's only separable cost is a $1 selling cost when a unit is sold for $4. Kode accounts for May's sales by deducting the $3 net amount from the cost of goods sold of the major product. There are no inventories. If Kode were to change its method of accounting for May from a by-product to a joint product, what would be the effect on Kode's overall gross margin?

Gross margin increases by $1 for each unit of May sold.

To identify costs that relate to a specific product, an allocation base should be chosen that

Has a cause-and-effect relationship.

Copeland, Inc., produces X-547 in a joint manufacturing process. The company is studying whether to sell X-547 at the split-off point or upgrade the product to become Xylene. The following information has been gathered: Selling price per pound of X-547 Variable manufacturing costs of upgrade process Avoidable fixed costs of upgrade process Selling price per pound of Xylene Joint manufacturing costs to produce X-547 Which items should be reviewed when making the upgrade decision

I, II, III, and IV.

Actual sales values at the split-off point for joint products Y and Z are not known. For purposes of allocating joint costs to products Y and Z, the relative sales value at split-off method is used. An increase in the costs beyond split-off occurs for Product Z, while those of Product Y remain constant. If the selling prices of finished products Y and Z remain constant, the percentage of the total joint costs allocated to Product Y and Product Z will

Increase for Product Y and decrease for Product Z.

A joint process is a manufacturing operation yielding two or more identifiable products from the resources employed in the process. The two characteristics that identify a product generated from this type of process as a joint product are that it

Is identifiable as an individual product only upon reaching the split-off point, and it has relatively significant sales value when compared with the other products.

A company produces three products (B-40, J-60, and H-102) from a single process. The company uses the physical volume method to allocate joint costs of $22,500 per batch to the products. Based on the following information, which product(s) should the company continue to process after the split-off point in order to maximize profit?

J-60 only.

If a company obtains two salable products from the refining of one ore, the refining process should be accounted for as a(n)

Joint Process.

Costs are allocated to cost objects in many ways and for many reasons. Which one of the following is a purpose of cost allocation?

Measuring income and assets for external reporting.

For purposes of allocating joint costs to joint products, the sales price at point of sale, reduced by cost to complete after split-off, is assumed to be equal to the

Net sales value at split-off.

For the purposes of cost accumulation, which of the following are identifiable as different individual products before the split-off point?

No No

One hundred pounds of raw material W is processed into 60 pounds of X and 40 pounds of Y. Joint costs are $135. X is sold for $2.50 per pound, and Y can be sold for $3.00 per pound or processed further into 30 pounds of Z (10 pounds are lost in the second process) at an additional cost of $60. Each pound of Z can then be sold for $6.00. What is the effect on profits of further processing product Y into product Z?

No change.

For purposes of allocating joint costs to joint products, the relative sales-value method could be used in which of the following situations?

No cost beyond split off (yes) Cost beyond split off (yes)

Which of the following would be a reasonable basis for allocating the materials handling costs to the units produced in an activity-based costing system?

Number of components per completed unit.

A firm produces two joint products (A and B) from one unit of raw material, which costs $1,000. Product A can be sold for $700 and product B can be sold for $500 at the split-off point. Alternatively, both A and/or B can be processed further and sold for $900 and $1,200, respectively. The additional processing costs are $100 for A and $750 for B. Should the firm process products A and B beyond the split-off point?

Only A should be processed further.

Under an acceptable method of costing by-products, inventory costs of the by-product are based on the portion of the joint production cost allocated to the by-product

Plus any subsequent processing cost.

In accounting for by-products, the value of the by-product may be recognized at the time of

Production Yes Sales Yes

Fact Pattern: N-Air Assuming sufficient demand exists, N-Air could sell all the products at the prices previously mentioned at either the split-off point or after further processing. To maximize its profits, N-Air Corporation should

Sell product C at split-off and perform additional processing on products A and B.

In joint-product costing and analysis, which one of the following costs is relevant when deciding the point at which a product should be sold to maximize profits?

Separable costs after the split-off point.

The method for allocating service department costs that best recognizes the mutual services rendered to other service departments is the

Simultaneous-equations method.

A company has two production and two support departments that are housed in the same building. The most reasonable basis for allocating building costs (rent, insurance, maintenance, security) to the production and support departments is

Square feet of floor space occupied.

Several methods are used to allocate support department costs to the production departments. The method that recognizes support provided by one department to another but does not allow for two-way allocation of costs among support departments is the

Step-down method.

Fact Pattern: The Power and Maintenance Departments of a manufacturing company are support departments that provide support to each other as well as to the organization's two production departments, Plating and Assembly. The manufacturing company employs separate departmental manufacturing overhead rates for the two production departments requiring the allocation of the support department costs to the two manufacturing departments. Square footage of area served is used to allocate the Maintenance Department costs, and percentage of power usage is used to allocate the Power Department costs. Department costs and operating data are as follows: The allocation method that would provide this manufacturer with the theoretically best allocation of support department costs would be

The reciprocal (or linear algebra) allocation method.

The fixed costs of support departments should be allocated to production departments based on

The support department's expected costs of long-run capacity.

Under an acceptable method of costing by-products, inventory costs of a by-product are based on the portion of the joint production cost allocated to a by-product plus any subsequent processing cost. Why was joint cost allocated to by-products?

They were treated as joint products even though they presumably met the definition of by-products because of their small relative sales values.

If the values of by-products are recorded as produced, why should they be recorded at net realizable value minus normal profit?

To permit a sales profit to be recognized upon sale.