are 119 Chapter 16

the relative total sales value at the splitoff point

1. The sales value at splitoff method locates joint costs to joint products on the basis of...

Both A and B are correct (the manufacturer will attempt to allocate a large portion of its costs to these products; if the manufacturer successfully allocates a large portion of its costs to these products, then it will be able to sell its other nonreimbursed products at lower prices)

A business which enters into a contract to purchase a product (or products) and will compensate the manufacturer under a cost reimbursement formula, should take an active part in the determination of how joint costs are allocated because:

All of these answers are correct: (a physical measure such as volume is difficult to estimate because of shrinkage; physical volume usually has little relationship to the revenue producing power of products; a physical measure usually results in the costs being allocated to the product that weighs the most)

A reason why a physical-measure to allocate joint costs is less preferred than the sales value at splitoff is:

Separable costs

All costs incurred beyond the splitoff point that are assignable to one or more individual products are called

Main product becomes a joint product

All of the following changes may indicate a change in product classification of a manufacturing process which has a splitoff point EXCEPT a:

Present value allocation method

All of the following methods may be used to allocate joint costs EXCEPT the:

The physical-measure method:

Allocates joint costs to joint products on the basis of a comparable physical measure at the splitoff point

The net realizable value method:

Allocates joint costs to joint products on the basis of relative NRV

True

At or beyond the splitoff point, decisions relating to the sale or further processing of each identifiable product can be made independently of decisions about the other products. (T or F)

Amount of total sales value

Byproducts and main products are differentiated by the:

The differentiating factor between a joint product and a byproduct is the sales value at the splitoff point. Joint products have high total sales value at the splitoff point. A byproduct has a low total sales value at the splitoff point. Products can change from byproducts to joint products when their total sales values increase significantly.

Explain the difference between a joint product and a byproduct. Can a byproduct eventually become a joint product?

True

If the value of a joint product drops significantly, it could also be viewed as a byproduct. (T or F)

False (joint products are incurred prior to splitoff)

Joint costs are incurred beyond the splitoff point and are assignable to individual products (T or F)

True

Joint costs are the costs of a production process that yields multiple products simultaneously. (T or F)

True

Litigation may be a reason that joint costs are allocated to individual products. (T or F)

Added to joint production costs and allocated to joint or main products

Outputs with a negative sales value are:

byproducts

Products with a relatively low sales value are known as:

Both A and C are correct (inventory costing is essential for proper balance sheet presentation; cost of goods sold is an important component in the determination of net income)

Proper costs allocation for inventory costing and cost-of-goods-sold computations are important because:

True

Separable costs are incurred beyond the splitoff point that are assignable to each of the specific products identified at the splitoff point (T or F)

False (separable costs include manufacturing, marketing, distribution, and other costs)

Separable costs include manufacturing costs only (T or F)

Revenues are usually the best indicator of benefits received

The benefits-received criteria for allocating joint costs indicate market-based measures are preferred because:

False (the focus is accumulating costs incurred on the joint products)

The focus of joint costing is assigning costs to individual products as assembly occurs (T or F)

the split off point

The focus of joint costing is on allocating costs to individual products at...

False (the juncture in a joint production process when two products become separable is the splitoff point)

The juncture in a joint production process when two products become separable is the byproduct. (T or F)

False (called byproducts)

The products of a joint production process that have low total sales value compared with the total sales value of the main product are called joint products (T or F)

True

The products of a joint production process that have low total sales value compared with the total sales value of the main product or of joint products are called byproducts. (T or F)

Joint Cost

What type of cost is the result of an event that results in more than one product or service simultaneously?

joint products

When a joint production process yields two or more products with high total sales values, these products are called...

Main products and byproducts

When a single manufacturing process yields two products, one of which has a relatively high sales value compared to the other, the two products are respectively known as:

Physical measures

Which of the following is NOT a market-based approach to allocating costs?

To calculate the bonus of the chief executive officer

Which of the following is NOT a primary reason for allocating joint costs?

All of these answers are correct (rate regulation requirements, if applicable; cost of goods sold computations; insurance settlement cost information requirements)

Which of the following is a reason to allocate joint costs?

sales value at splitoff method, estimated net realizable value method, the constant gross-margin percentage method

Which of the following methods of allocating costs use market-based data?

There is no cause and effect relationship

Which of the following statements is true in regard to the cause-and-effect relationship between allocated joint costs and individual products?

Product classifications may change over time

Which of the following statements is true regarding main products and byproducts?

Define: main product, joint product, and byproduct. Give at least one example of each type of product.

o Main product - when one product has a high total sales value compared with the total sales value of other products of the process § Ex: timber processed into lumber o Joint product - when a joint production process yields two or more products with high total sales value compared with the total sales value of other products § Ex: crude oil processed into gasoline and kerosene o Byproduct - products of a joint production process that have low total sales value compared with the total sales value of the main product or joint products § Ex: woodchips created when timber is processed into lumber