Ch08SM
Short Description
Ch08SM...
Description
CHAPTER 8 DISCUSSION QUESTIONS
Q8-1. Joint products products represe represent nt two or or more prodproducts separated in the course of the same processing operation, with each product having such relative value that no one product can be designated as a major product. A by-product is relatively minor in terms of total value and is derived incidentally from the production or manufacture of one or more major products. Q8-2. Rev Revenue enue from from the sale of by-prod by-products ucts may may be listed as other income, additional sales revenue, a deduction from the cost of goods sold of the main product, or as a deduction from the cost of production of the main product. Q8-3. Yes, when by-prod by-product uct revenue revenue is deducted deducted from the total production cost of the main product, the unit cost of the main product is reduced; consequently consequently,, the cost of the the ending inventory changes also. Q8-4. The replacem replacement ent cost cost method method can be be used in such cases. cases. In this method, the the by-products by-products that go into making other units are valued at the cost the company would have to pay if it were to go out on the market and purchase such materials. Q8-5 Q8 -5.. (a (a)) Th The e trea treatm tmen entt desc describ ribed ed for for byby-pr prod oduc ucts ts may be justified when, relative to main value products, the revenue generated by the by-produ by-product ct is insignifica insignificant; nt; when no clearly defined basis of identifying byproductt costs exist; produc exist; or when the the cost of more refined accounting would be disproportionate to the benefits received. (b) The treatment treatment describe described d has severa severall shortcomings. shortcom ings. All gross profit profit is ascribed to major products and is incorrect as a measure of total gross profit, since the inventories of by-products that may be unsold at the end of the period will have a zero value. Failure to assign values values to byproducts may well mean they are not recognized as inventories inventories at all. This, in turn, could lead to their waste, theft, or other mishandling. If by-products by-products are sold irregularly and inventories are allowed to
Q8-6.. Q8-6
Q8-7.. Q8-7
Q8-8.. Q8-8
Q8-9.. Q8-9
8-1
accumulate, both a material understatement of inventories and a distortion of reported net income of successive periods may result. Yes, some of the initial initial manufacturin manufacturing g costs, additional manufacturing costs (when byproducts are further processed after separation), and perhaps even marketing and administrative expenses may be charged to the by-products. Methods Metho ds for for allocating allocating the total total joint producproduction cost to joint products are: (a) Alloca Allocate te the joint joint cost cost on the the basis basis of the the relative market value of the joint products. (b) Alloca Allocate te the joint joint cost cost by using using an averaverage unit cost obtained by dividing the total joint manufacturing cost by the total number of units produced. (c) Alloc Allocate ate the the joint joint cost cost on the basis basis of of weight factors such as size, difficulty of manufacture, or amount of materials used. (d) Alloca Allocate te the the joint cost on on the basis of some unit of measurement such as pounds, tons, tons, or gallons. If the joint products are not measured in the same way, they must be converted to a denominator that is common to all the units produced. The market market value value method method considers considers the revrevenue-producing ability of the joint products by assuming that each should be valued according to its cost cost absorption absorption ability ability. Resul Resulting ting inventory costs are in harmony with revenue producing ability and, if the combined joint products are profitable, the market value method avoids allocating more cost to a product than its revenue; revenue; thus achieving a neutral effect. Howe However ver,, this method may may be difficult to apply if the market value at the split-off point is not known. The average unit cost method, while simple to apply when units are measured in like terms, fails to consider the heterogeneous nature of the individual products. Joint costs costs must must be allocated allocated to joint joint products products when there is inventory to be costed.
8-2
Chapter 8
Q8-10.. Not exac Q8-10 exactly tly.. A new new manuf manufactur acturer er would would do well to consult the Internal Revenue Service about the methods to be used, so that an IRS agent can make a decision before the tax return is prepared. prepared. In other cases, cases, where where an allocation method has been applied consistently from year to year, to apply for a ruling would not be good strategy. strategy. Q8-11.. The method Q8-11 method used used in calculating calculating unit unit costs costs produces the same unit cost for all grades of lumber sold. The owner is then led to believe that the same costs in the same ratio are attributable to the low as well as the high grade lumber. It must also be recognized that because of the inherent nature of the materials and the
milling process, it is not possible to eliminate low grade lumber. lumber. Thus, the profitability of the operation can be viewed best by considering the aggregate of revenue and costs of both the high and low grades of lumber, coupled with controls to assure that all practical steps are taken to obtain high quality logs and to mill them properly. properly. A higher price for logs may be justified in terms of a greater amount of high grade lumber. l umber. Q8-12.. For decision Q8-12 decision making, making, joint costs costs are irrelevant irrelevant unless they are expected to change as a result of of the decision. decision. Usuall Usually y, only costs costs beyond the split-off are relevant.
8-2
Chapter 8
8-3
EXERCISES E8-1
(1 )
Net revenue method: Gross revenue from sale of by-product .............. Production cost after separation........................
$20,000 6,000
Net revenue from sale of by-product..................
$14,000
(2)
Market Mark et va valu lue e (re (reve vers rsal al co cost) st) me metho thod: d: Final ma market va value .. . .............................................. Less Le ss:: Pr Prof ofit it ($ ($20 20,0 ,000 00 × 10 10%) %).. .... .... ...... .... .... ...... .... .... .... ...... .... .... ..... Marketing an and ad administrative ex expenses .. ... Production cost after separation............. Joint cost allocated to the by-product .. . ......................
$20,000 $2,000 $2,0 00 1,000 6,000
9,000 $11,000
E8-2 (1)) (1
Calc Ca lcul ulati ation on of ma manu nufa factu cturi ring ng co cost st be befo fore re sep separ arati ation on fo forr byby-pr prod oduc ucts. ts. By-Product A B Sales .............................................................................. $6,000 $3,,500 $3 Manufacturing cost after separation .......................... Marketing and administrative expenses .. . ................... Profit allowance (A, 15%; B, 12%) .. ............................... Manufacturing cost before separation .......................
$1,100 750 900 $2,750 $3,250
$ 900 550 420 $1,870 $1,630
8-4
Chapter 8
E8-2 (Concluded) (2)
LOGAN COMPANY Income Statement For Month Ended April 30
Main Product Sales.. es............................................................... $75 75,,000 Cost of goods sold: Before separation (requirement (1)). )..... $32,620 After separation..................................... 11,500 $44,120 Gross profi fit.. t.................................................... $30 30,,880 Less marketing and administrative expenses .. ................................................. 6,000 Profit fr f rom op operations .................................. $24,880
By-Product A B $6,000 $3, 3,5 500
Total $84 84,,500
$3,250 1,100 $4,350 $1,650
$1,630 900 $2,530 $970
$37,500 13,500 $51,000 $33 33,,500
750 $ 900
550 $ 420
7,300 $26,200
E8-3
W X Y Z Total
Product ............................................................ ............................................................ ............................................................ ............................................................ ............................................................
Apportionment of Mark Ma rket et Val Value ue Jo Join intt Pr Prod oduc ucti tion on at Split-Off Cost* $ 80,000 $ 60,000 60,000 45,000 40,000 30,000 20,000 15,000 $200,000 $150,000
*$150, 000 = 75% $200, 000 E8-4
Z:
Market value per unit .. . ........................................ Gross profit profit,, consis consisting ting of: Operati tin ng profit ............................................. Marketing and administrative expenses .. .....
$ 9.00 $2. 2.0 00 1.00
Further pr processing co cost .. ...............................
3.00 $ 6.00 2.00
Value per unit of by-product at split-off ......
$ 4.00
Value of by-product to be credited to joint cost (2,000 units × $4) .. . ..........................................
$8,000
Chapter 8
8-5
8-4 (Concluded) X and Y: Y:
Product X Y
Ultimate Market Value per Unit $20 25
Units Produced 8,000 10,000
* Ratio to allocate cost prior to separation
Ultimate Market Value $160,000 250,000 $410,000
Processing Cost After Split-Off $ 40 40,000 70,000 $110,000
Hypothetical Market Value $120,000 180,000 $300,000
Apportionment of Joint Production Cost* $ 80 80,000 120,000 $200,000**
$200, 000 2 = $300, 000 3
**$208,000 cumulative joint cost less $8,000 value of credit for by-product.
E8-5 (1)
Ultimate Market Value per Units Product Unit Produced E $4.30 30,000 S 6.60 15,000 C 6.00 13,000 Total.................................................................
Ultimate Market Value $129,000 99,000 78,000 $306,000
Processing Cost After Split-Off $30,000 24,000 27,000 $81,000
Hypothetical Market Value $ 99 99,000 75,000 51,000 $225,000
Apportionment of Joint Production Cost $ 66 66,000* 50,000 34,000 $150,000
* $150,000 ÷ $225,000 = 2/3; $99,000 × 2/3 = $66,000 $66,000
(2)
Differential revenue (15,000 × ($6.60 – $5.50)) .. Diff Di ffer eren enti tial al co cost st .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Nett effe Ne effect ct of sep separ arab able le pr proc oces essi sing. ng... .... .... .... .... .... .... .... .... ....
$16,500 24,0 24 ,000 00 $ (7 (7,5 ,500 00))
Conclusion:: Based on the informati Conclusion information on given, S should be sold at the splitsplitoff point. CGA-Canada CGA-Ca nada (adapted). Reprin Reprintt with permis permission. sion.
8-6
Chapter 8
0 0 6 6 d g y 0 1 1 n r i t e o 0 8 6 t , , 3 . 7 , s n d g n n 5 1 9 6 o i 1 3 2 7 e C s $ v $ s E n o I A t y g r s 0 0 o t n t i i 0 0 0 n d e n 0 n v U 2 5 7 E n I n t o 0 0 8 i l t t i 0 n . 2 . 8 . a c s U 9 3 t u o r 7 6 1 4 o d T o C e $ r p P 0 0 0 0 l c t 0 0 0 0 u a n s , 6 , 4 , 0 , t d o o 0 9 9 9 8 o o i 0 7 T r t C 7 8 1 2 4 P $ $ n 0 0 0 0 n f i o * 0 0 0 0 o o t t i t t 0 n c * , 6 , 4 , 0 , r t i s u n 4 9 4 o e o d o 5 2 0 8 p J o C 1 1 8 2 p m r $ $ A P 0 0 0 t * 0 0 0 0 0 - l a e 0 o i c k e , 0 , 0 , 0 , u 5 p t r 0 5 l y e a a 7 8 4 0 0 H h t M V $ 1 1 4 $ g f n f 0 0 0 i r O 0 s t 0 0 0 e t - 0 s s 0 0 t , , 0 , 0 , e o f i l 5 0 5 c C A p 2 6 0 0 9 o S $ 1 1 r $ P
) 1 ( 6 8 E
0 0 0 e t 0 0 0 0 0 t e e a k u 0 , 0 , 0 . 0 , l 0 0 0 0 r m i a 0 4 5 9 t a V l 1 2 2 5 M $ $ U d e 0 0 0 . s . t i c 0 0 . . u 0 . 0 0 0 . n d , , , . . U o 1 3 5 . . r . . P . . . . . . . t e . i t t e e n . . a k u 0 0 0 . . U . l r 0 8 5 . m . i a r a 1 . t . l M V e $ . . p U . . . . . . . . t . . c . . u . d A B C . . . . o . r . . P . . . . . l a t o T
t n i o p f f o t i l p s e h t t A *
% 2 7 = 0 0 0 , 0 0 4 $ ÷ 0 0 0 , 8 8 2 $ : t s o c n o i t c u d o r p t n i o j e t a c o l l a o t e g a t n e c r e P * *
Chapter 8
8-7
E8-6 (Concluded) (2)
Product B $15
A $40
Differential revenue per unit .. ............................. Differential cost per unit: $25, 5,0 000 ÷ 1,000. 0........................................... $60,000 ÷ 3, 3,000.......................................... $105,000 ÷ 5,000........................................
C $25
25 20 $15
$ (5)
21 $ 4
Conclusion: Only product B’s B’s differential cost exceeds its differential revenue. revenue. Therefore, only product B should be sold at the split-off split-off point. (3)) (3
Yes es,, be beca caus use e the the sho shortrt-ru run n imp impac actt of of furth further er pr proc oces essi sing ng of B is th then en::
Differ Diff eren enti tial al re reve venu nue e ... ...... .... .... .... ...... .... .... ...... .... .... ...... .... .... ...... .... .... .... ...... .... .... ...... .... .. Differential co cost: ($60,000 - $18,000) ÷ 3,000 ............. Benefit to fu furt rth her pro processing.. g.......................................
B $15 $1 5 14 $ 1
(In the long-run long-run decisi decision on to invest invest in the capacity [facilities] [facilities] needed to further process proce ss B, B, the fixed fixed cost should should,, of course, course, be conside considered.) red.) (4)) (4
No. Fr No. From om pa part rt (3), (3), the ben benef efit it of fur furth ther er pr proc ocess essin ing g is is $1 $1 for for ea each ch of th the e 3,0 3,000 00 units of B, or $3,000. $3,000. But that must must be compared compared with the the benefit benefit of the alternaalternative use of faciliti facilities, es, $6,000 – $1,000 $1,000 = $5,000 $5,000 of short-run benefit. benefit. So it is better better in the short run to sell B at split-off and devote the facilities (the ones that would have been used to do B’s further processing) to their alternative use. CGA-Canada CGA-Ca nada (adapted). Reprin Reprintt with permission. permission.
E88-7 7 (1 (1))
Avera rage ge unit cost me method: Units Product Produced A 3,000 B 4,000 C 3,000 Total .............................
Apportionment of Joint Production Cost $ 30,000 40,000 30,000 $100,000
Processing Cost After Split-Off $ 20,000 30,000 50,000 $100,000
Total Production Cost $ 50,000 70,000 80,000 $200,000
8-8
Chapter 8
E8-7 (Concluded) (2)) Ma (2 Mark rket et val value ue met metho hod: d: Ultimate Market Product Value A $ 60,000 B 110,000 C 180,000 Total ....... $350,000
Processing Cost After Split-Off $ 20,000 30,000 50,000 $100,000
Hypothetical Market Value $ 40,000 80,000 130,000 $250,000
Apportion ment of Joint Production Cost $ 16,000* 32,000 52,000 $100,000
Total Production Cost $ 36,000 62,000 102,000 $200,000
* $100,000 ÷ $250,000 $250,000 = .4; $40,00 $40,000 0 × .4 = $16,000 E8-8 (1) Avera verage ge unit unit cost cost meth method: od: Product K L M N
*
Units Produced 5,000 20,000 15,000 10,000 50,000
Joint Cost Per Unit $1.40 1.40 1.40 1.40
Joint Cost $ 7,000 28,000 21,000 14,000 $70,000
Join Jointt Cost Cost $70, 000 = = $1.40 per un unit it Total To tal nu numb mber er of un unit its s produ produced ced 50, 000
(2) The weig weighte hted d average average meth method: od:
Product K L M N
*
Units Produced 5,000 20,000 15,000 10,000
× Points 3.0 2.0 4.0 2.5
=
Weighted Units 15,000 40,000 60,000 25,000 140,000
Joint Cost Per Weighted × Unit* $.50 .50 .50 .50
Join Jointt Cost Cost $70, 000 = = $.50 per per weig weight hted ed un unit it Total To tal nu numb mber er of weigh weighted ted un unit its s 140, 000 000
Joint Cost $ 7,500 20,000 30,000 12,500 $70,000
Chapter 8
8-9
E8-8 (Concluded) (3) The mar market ket va value lue met method hod:: Ultimate Market Value per Product Unit K $5.50 L 1.60 M 1.50 N 3.00
*
Units Produced 5,000 20,000 15,000 10,000
Ultimate Market Value $ 27 2 7,500 32,000 22,500 30,000 $112,000
Processing Cost After Split-Off $ 1, 1 ,500 3,000 2,500 5,000 $12,000
Hypothetical Market Value $ 26 2 6,000 29,000 20,000 25,000 $100,000
Joint Cost Allocation $18,200 20,300 14,000 17,500 $70,000
Joint Joint Cost Cost $70, 000 = = .70 = 70% Hypoth Hypothetic etical al market market value value $100, 000
E8-9 E8 -9 Ma Mater teria ials ls cos cost: t:
Product X Y
Unit 10,000 8,000
×
Points 3 2
Materials Cost per Total Weighted Weighted Materials Product = Units × Unit = Cost ÷ Units 30,000 $2 $60,000 10,000 16,000 2 32,000 8,000 46,000 $92,000
=
Materials Cost per Product Unit $6 4
Conversion cost:
Product X Y
Unit 10,000 8,000
×
Points 6 5
Conversion Conversion Cost per Total Cost per Weighted Weighted Conversion Product Product = Units × Unit = Cost ÷ Units = Unit 60,000 $1.50 $90,000 10,000 $9.00 40,000 1.50 60,000 8,000 7.50 100,000 $150,000
8-10
Chapter 8
PROBLEMS P8-1 (1) Avera verage ge unit unit cost cost meth method: od: Product B C Total .. ........
Units (kg) Produced 10 000 10 000 20 000
Apportionment of Joint Production Cost $265,000* 265,000 $530,000
Processing Cost After Split-Off $ 580,000 720,000 $1,300,000
Total Production Cost $ 845,000 985,000 $1,830,000
*Joint cost cost of $590,000 $590,000 less $60,000 $60,000 by-pro by-product duct credit credit ($15 × 4 000 kg) = $530,00 $530 ,000; 0; $53 $530,0 0,000 00 ÷ 20 000 000 kg = $26.50 $26.50 per unit; unit; $26. $26.50 50 × 10 000 kg = $265, $265,000 000.. Product B C
Total Pr Production Cost per Unit $84.50 98.50
Units in Fi Finished Goods Inventory 1 000 kg 500
(2) Mar Market ket va value lue met method hod:: Ultimate Market Product Value B $1,300,000 C 1,200,000 Total .. ..... $2,500,000
Processing Cost After Split-Off $ 580,000 720,000 $1,300,000
Hypothetical Market Value $ 720,000 480,000 $1,200,000
Finished Go Goods Inventory $ 84,500 49,250 $133,750 Apportionment of Joint Total Production Production Cost Cost $318,000 $ 898,000 212,000 932,000 $530,000* $1,830,000
* Joint cost cost less by-pr by-product oduct credit credit $530,000 $530,000 ÷ $1,200 $1,200,000 ,000 = .4417; .4417 × $720,0 $720,000 00 = $318,024 = approximatel approximately y $318,000; .4417 × $480,000 = $212,016 = approxiapproximately $212,000. Product B C
Total Production Cost per Unit $89.80 93.20
Units Sold 9 000 kg 9 500
Cost of Goods Sold $ 808,200 885,400 $1,693,600
Chapter 8
8-11
P8-1 (Concluded) (3)) (3
Neithe Neit herr the the ma mark rket et va valu lue e meth method od no norr ave avera rage ge un unit it co cost st me meth thod od of al allo loca cati ting ng joint cost is a more more accurate way of determining joint product costs. Joint cost, because of its nature, cannot be accurately accurately split split up among joint products, products, since joint cost cost is incurred incurred to produce produce one or all of of the joint products products.. That is, joint cost cannot cannot be reduced by dropping dropping one one of the products. products. Thus, to make decisions about joint production, production, one must look at the revenue and separable cost of each product product to determine whether whether it is profitable profitable on the margin. margin. In such decisions, decisi ons, joint cost is not relevant. relevant. The only purpose for allocating allocating joint joint costs is to determine a cost for inventories on the balance sheet and for cost of goods sold on the income statement. For financial financial statement statement purposes, purposes, in most situations situations,, better arguments arguments can can be made for a value-based allocation basis rather than a physically-based one. At times, the physical physical base can result result in absurd allocation allocations s of costs among products because of the disproportionate relationship between the relative value of the joint product and the units produced, produced, relative to other joint products.
8-12
Chapter 8
0 0 0 0 t 0 0 0 0 i y s f s 0 a o o , , 5 , 0 , 5 r r 7 7 5 9 M G P 1 6 4 2 2 1 $ $ f s 3 0 0 0 o d d 0 0 0 0 0 y t l , 5 a s o o 0 , 0 , 5 , 3 7 0 o M o S 4 6 5 0 6 C G 1 2 $ $ 2
0 0 0 0 0 0 0 0 s 0 y l , 0 , 0 , , 0 a e 0 5 5 0 a 3 9 9 M S 6 2 1 4 $ $ 0 0 0 0 0 0 0 l t 0 a s 0 , 0 , 0 , 0 , t 5 5 0 o o C 6 7 0 0 T 1 1 4 3 $ $ n n f i o 0 0 0 0 o o t 0 0 0 t 1 i t 0 t 0 0 n t s , , 0 , 0 , r n i c u o 0 0 0 0 o e o d 9 5 6 0 p J o C 2 p m r $ $ A P 0 0 0 t * 0 - l 0 0 0 0 a e e o i c k u 0 , , 0 , 0 , 0 p t 5 5 0 y e r a l a 2 2 5 0 0 H h 1 1 5 t M V 2 $ $ e g l 0 0 0 n 0 0 0 0 0 b i s t 0 a s , 0 , , 0 , 0 r s o 5 5 0 0 a e 4 7 2 4 C p c 1 e o r $ S P $ 0 0 0 e t 0 t 0 0 0 e e 0 a k 0 0 , , 0 , 0 , u l r m 0 0 0 0 i a a 5 9 4 t l M V 0 3 1 1 6 U $ $ d 0 0 0 e 0 0 0 s t i c u 0 , 0 , 0 , n d 5 0 0 U o 1 1 2 r P
2 8 ) P 1 (
. . . . . . . . . . . . . . . . . . . . . t e . i 0 0 0 . . t t . e e 0 5 . a k u n 0 . . . . . U l 0 5 9 r . m . i a 2 1 r a . t . l M V e $ . . p . U . . t . . c . . u . d C L T l a o t r o P T
0 0 0 , 3 4 1 $ = 0 0 0 , 3 1 × 1 1 % $ 0 ; 4 0 1 1 = 0 0 $ , 0 0 = 0 6 0 0 , 2 $ 0 0 0 = 0 , 5 5 $ 0 1 ÷ 2 $ ÷ 0 × 0 0 0 0 , 0 0 , 0 0 5 0 0 , 6 2 3 1 $ 1 $ 1 2 3
0 0 0 0 0 0 0 , 0 , 0 , 0 0 0 5 4 1 $ $ $ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ) . . ) . . . . 7 . . . . $ . . . . . . – . . . . . . . 0 . . . . . 5 . . . . . . 9 . . $ . ( ) t . . . × s . o . . 0 c d 0 e e 0 , l t p 0 b a 2 r ( a e c e p c n e a o ( s s i g r g r e o n f f i f e v o u a i s f n t e s s v s e o o R C L
) 2 (
. d e t p e c c a e b t o n d l u o h s r e f f o e h T
Chapter 8
8-13
P8-3 (1) Ultimate Market Value pe r Units Product Unit Produced1 Alpha ........... $ 5 46,200 Gamma .......... 12 40,000 Total ............................................. 1Diagram
Market Value $231,000 15,6602 480,000 $726,660
{
Processing Cost After Split-Off $ 38,000 23,660 165,000 $226,660
{
of Flow of Pounds (not required) $38,000 (2)) 66 (2 66,0 ,000 00 po poun unds ds
(4 )
Joint Cost Allocation3 $ 44,400
315,000 $500,000
75,600 $120,000
$23,660 Alpha 46,200 pounds 19,800 pounds Beta
$120,000 (1) 110,000 pounds $165,000 (3)) 44 (3 44,0 ,000 00 po poun unds ds –4,0 –4 ,000 00 po poun unds ds los lostt 40,0 40 ,000 00 po poun unds ds**
Hypothetical Market Value $185,000
Gamma
*Computation of pounds of good output of Gamma: Let X = good output 44,000 44, 000 – .1X = X 40,000 =X 2Ma Mark rket et
value valu e of of Bet Beta a (19 (19,8 ,800 00 po poun unds ds × $1 $1.2 .20).. 0).... .... .... .... .... .... .... .... .... .... .. Less Le ss ma mark rket etin ing g exp expen ense se of Be Beta... ta..... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Nett re Ne real aliz izab able le value value of Be Beta ta .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... 3The
joint cost is 24% of the hypothetical market value.
$23,76 $23, 760 0 8,10 8, 100 0 $15,6 $15 ,660 60
8-14
Chapter 8
P8-3 (Concluded) (2)
SHAFFNER CORPORATION Statement of Gross Profit for Alpha
Sales (38,400 pounds × $5) .. . ..................................................... Production costs: Allo Al locat cated ed jo join intt co cost st .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Depa De partm rtmen entt 2. 2... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Depa De partm rtmen entt 4. 4... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Gross Gr oss cos costt of pr produc oductio tion n ... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ... Less Le ss ne nett rea reali liza zabl ble e val value ue of Be Beta ta .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Net cost of pro produc ductio tion.... n....... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... Less Le ss en endi ding ng in inve vento ntory ry .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Cost of goods sold ................................................................... Gross profit. t.................................................................................
$192,000 $102,0 $102 ,000 00 38,0 38 ,000 00 23,6 23 ,660 60 $163,6 $16 3,660 60 15,9 15 ,900 00** $147,7 $14 7,760 60 29,5 29 ,552 52** ** 118,208 $ 73,792
* Net realizable realizable value value of Beta equals equals the revenue revenue from from Beta ($24,000) ($24,000) less its related related marketing expense ($8,100). ** Ending inventory inventory equals the net cost of production ($147,760) times 20%. P8-4 (1) Jana Sale Sa les s .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... $250, $250,00 000 0 Cost of goods sold: Joint cost ($236,000 – Bynd net revenue ($11,000 – $5,000 separable cost)) ....... Separable cost ($215,000 – $5,000 for Bynd) .. ....................................................... Total cost .. ...................................................... Gross profit (20% of sales) .. ...............................
Reta $300, $3 00,000 000
Total $550, $55 0,00 000 0
$230,000 210,000
210,000 $440,000 $110,000
(2) Total Jana Reta Ulti Ul tima mate te sa sale les s va valu lue e .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. $5 $550, 50,00 000 0 $2 $250, 50,000 000 $300 $300,0 ,000 00 Less 20 20% gr gross pr profit ....................................... 110,000 50,000 60,000 Tota otall cost cost .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... $440, $440,00 000 0 $200, $200,000 000 $2 $240 40,0 ,000 00 Separable cost ................................................... 210,000 210,000 Join Jo intt co cost st al allo loca cati tion.. on.... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. $2 $230 30,0 ,000 00 $2 $200 00,0 ,000 00 $ 30 30,0 ,000 00 (3)
Gross Gro ss prof profit it for for Jana Jana and and Reta— Reta—see see line line 2 of requ require iremen mentt (2). (2).
Chapter 8
8-15
P8-5 (1) Ultimate Market Value per Product Unit SPL-3 $4.00 PST-4 6.00
Units Produced 700,000 350,000
Ultimate Market Value $2,800,000 2,100,000 $4,900,000
Processing Cost After Split-Off $ 874,000 816,000 $1,690,000
Hypothetical Market Value $1,926,000 1,284,000 $3,210,000
Apportionment of Joint Production Cost* $ 960,000 ** 640,000 $1,600,000
* Joint Joint producti production on cost cost .... ......... .......... ......... ......... .......... ......... ......... ......... ......... ....... .. $1,702,000 $1,702,000 Less cost assigned to by-product RJ-5 RJ -5 (17 (170, 0,00 000 0 gall gallon ons s × ($. ($.70 70 – $. $.10 10)).. )).... .... .... .... .... .... .... .... .... 102, 10 2,00 000 0 $1,600,000 **($1,926,000 ÷ $3,210,000) × $1,600,000 =
$960,000
(2) Joint co Joi cost st al allo loca cati tion on ... .... .... ...... .... .... ...... .... .... ...... .... .... .... ...... .... .... ...... .... .... ...... Additi tio onal processing cost .................................... Tota otall co cost st .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Divided by by ga gallons pr produced. d.................................. Cost per gallon .................................................... Inventory costing: November 1 inventory (g (gallons) ...................... November pro production.. n........................................ November sales. s.................................................. November 30 3 0 in inventory .................................... Cost per gallon .. .................................................. Cost assigned to November 30 finished goods inventory ...........................
SPL-3 $ 96 960, 0,00 000 0 874 87 4,00 000 0 $1,8 $1 ,834 34,0 ,000 00 700,000 $2.62
PST-4 RJ-5 $ 64 640, 0,00 000 0 $1 $102 02,,00 000 0 816, 6,0 000 $1,4 $1 ,456 56,0 ,000 00 $102, $102,000 000 350,000 170,000 $4.16 $.60
18,000 700,000 718,000 650,000 68,000 $2.62
52,000 350,000 402,000 325,000 77,000 $4.16
3,000 170,000 173,000 150,000 23,000 $.60
$ 178,160
$ 320,320
$ 13,800
(3) Per ga gallon sa sales va value be beyond th the sp splitt-o off point. t............. Per ga gallon sal ale es value at th the e splitt-o off point .................... Diff Di ffer eren enti tial al sales sales value value .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Additional processing cost per gallon ($81 ($ 816, 6,00 000 0 ÷ 35 350, 0,00 000 0 ga galllo lons ns).. )...... ...... .... .... .... ...... .... .... ...... .... .... ...... .... .... ...... .... .. Per ga gall llon on ga gain in (l (los oss) s) of fu furt rthe herr pr proc oces essi sing ng .. .... .... ...... .... .... .... ...... .... ..
$6.00 3.80 $2.2 $2 .20 0 2.33 2.33 $(..13 $( 13))
Meritt Industries should sell PST-4 PST-4 at the split-off point, as the differential revenue of the sales beyond the split-off point is less than the additional cost of further processing.
8-16
s i s i h T . 7 d n a 6 s r e t p a h C n i m e l b o r p t s o c s s e c o r p r o f d e s u t a h t m o r f d e r e t l a y l t h g i l s s i 6 8 P r o f t a . e m z r i o s f s n ’ o m i t l e u b l o o s r e p h e h T : t s e r t o a t d c o u r m t s m n o i e c c h t a o o t t e e t o n o N d
Chapter 8
d o h t e M Y e N g a A r P e v M A y O — r C t r a r E o u L p b e e L I R V F N n r o o F O i L t K c u C d E o r R P f o t s o C
) 1 ( 6 8 P
t i t n s o 3 U C s s e c o r l a t s P t o o C T
3 0 1 3 0 9 3 5 3 8 . 1 . 2 . 3 3 3 $ $
t i t n s o 2 U s C s e c o r l a t s P t o o C T
0 0 9 0 0 6 0 0 7 0 . 1 . 0 . 2 2 2 $ $
t i t n s o 1 U C s s e c o r l a t s P t o o C T
0 0 0 0 0 0 5 , 0 , 5 , 1 3 4 1 6 7 $ $
0 0 0 0 0 0 0 , 0 , 0 , 6 1 7 2 2 $ $
4 6 8 3 . 3 $ 0 0 0 , 3 $
0 0 0 , 2 $
0 0 0 0 0 0 0 . 0 . 3 3 $ $
4 6 8 3 . 6 $
0 0 0 0 0 , 0 , 0 3 6 6 $
0 0 5 , 7 3 1 $
0 0 0 0 0 0 0 . 0 . 2 2 $ $
9 6 7 0 . 4 $
0 0 0 0 0 , 0 , 8 0 1 2 $
0 0 0 , 7 4 $
5 5 0 2 7 0 1 3 5 8 . 9 . 7 . 1 2 $ $
0 0 0 8 . 2 $
0 0 0 0 0 0 0 , 0 , 0 , 8 0 8 5 3 8 $ $
0 0 0 0 0 , 0 , 4 4 8 $
7 2 7 , 7 2 1 $
3 0 7 0 7 , 5 , 9 7 3 1 $ 3 0 — 7 0 7 , 0 , 6 3 $
2 9 6 , 6 3 $
8 0 0 0 3 , 0 , 0 7 1 4 $ 8 0 3 , 8 $
0 0 0 , 4 8 $
0 — 0 0 , 2 0 0 0 , 4 8 $
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ) . . . . . . . . . . . . . . ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . s . . . . t t . . . . . . . . . . . . . . . . . . . . . . . . i . . . . . . . . . . . . . . . . . . . . . . . . . . . . n n . . . . . . . . . . . . . . . . . . . . . . . . . . . . e . . . u . . . . . . . . . . . : . . . . . . . . . . . . . . . . . . . . . . . . . . y t y m . . . . . . . . . . . . . r r . . . . . . . . . . . . . t s . . . . . . . . . . . . . r o o . . . . . . . . . . . . o . a l t . . . . . . r . . . . . . . . . . . t . . . . . . . . . . . . . . . . . . . n n . . : t o . p 0 e . . . . . . . . . o t . . . . . . . . . e d . f y e . . . . . . . . . . 0 r . . . . . . . . . . v r v n : d . . . . . . . . . . 0 d o . . . . . . . . t i o n n i o e , . . . . . . . . i t e d d . . . . g . . . g n r . 1 t t . . . . . . . . e n m a a . . . . . . . . n n g t e g e t . . . . n . . . . n i h i e – e e . d . . . . . p r t n n m r n : . . . . e . u d v i i h h . . . . . s a s e t . . . . . o d r r e s n p c . e t : n e o . o . o d . r n i . m m . i t . . . w t . c . e . t . . c . a f m a i n v i o i n h e r . . . . . n i n o t v e c e r t g e d . . . . . l a o d . r p . r u e g o e . . o . a l e r i . . . . . n d r h e e g a d . . . . p . p g p e o r t e e p . . . n . . m 0 t y y e F e r d g n p b i . . . . n e b . r . r . . n m . 0 r o g . g . b e g r . d u o d i v m n i . . . . o t 0 s t s e d o . a — e s . . . o t n t , D i o o u . . . . n — o i a r . . r 3 p s c r . c c d s t t r x — e f . . . d f e d s y . . e s s a u . a d a c t 2 e s s c t t r c . t f f ( h . . e e e d a a o n u s f n d s e t c c i . o t s ÷ c d d . r s n t . . d t e d o o . y o o u e . c b o o e p c c s o e s n s l o c d t . n d t r o r d . 0 r a o e l e o a r l t e d o . a a m g c a f p p p . 0 r o m i d c d t c d d v p a . d r r r r r . 5 r t n e d o e e m e d l . e , d n o e o n f e . p f r t a n l s y o u r t 4 d i i e a a a . g t r b t a b t s b T o e h n t s p a t r o s l s 7 d k r k a a e e i u o o a f u f r c r s n a $ a o L s M L T L s j d r T t j ( t h t o a c s i k o d d o o n r o i C s W A n s f r o C A b t o T T A o W C t a r a s C s T W C L o o ‘ C C
Chapter 8
8-17
P8-6 (Continued) Additional Computations: Equivalent production:
Transferred out .................................................... Ending inventory (work this period) .. ...................... Unit costs: Materials, Process 1 ................................................
Labor and Factory Overhead Process 2 Process 3 9,000 units 20,000 un units 1,000 1,000 10,000 units 21,000 units $58, 000 32, 000 $30, 000 32, 000
= $1.8125 per unit
Total cost to be accounted for, Process 1 .............
$84, 000 30, 000
= $2.8000 per unit
Labor and factory overhead, Process 2 ................
$2, 00 0 00 + $18, 00 0 00 10, 000
= $2.0000 per unit
Labor and factory overhead, Process 3 ................
$3, 00 0 00 + $60, 00 0 00 21, 000 000
= $3.0000 per unit
Cost from preceding department, Process 2 .. ........
$27, 000 13, 000
= $2.0769 per unit
Cost from preceding department, Process 3 .. ........
$74, 500 23, 000
= $3.2391 per unit
Labor and factory overhead, Process 1 .. . ...............
= $ .9375 per unit
Joint cost apportionment:
Sales price ................................................................ Less processing cost subsequent to split-off point Hypothetical market value at split-off point: $8 × 10,000 un units tra ran nsfer errred .....................
Process 2 Product $10 2 $ 8 $80 80,,000
$12 × 20,000 units transferred .. ................... Joint cost allocation: $80, $8 0,00 000 0 × .2 .262 625*. 5*... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. $240,000 × .2625 .......................................... * $84,000 ÷ ($80,000 + $240,000) = .2625
Process 3 Product $15 3 $12
$240,000 $21, $2 1,00 000 0 $ 63,000
8-18
Chapter 8
P8-6 (Continued) Unit cost: $21, $2 1,00 000 0 ÷ 10 10,,00 000 0 units. units..... ...... .... .... ...... .... .... .... ...... .... .... ...... .... .... ...... .... .... ...... .... .... .... ..
$2..10 $2
$63,000 ÷ 20,000 units ..................................................
$3.15
Transferred to finished goods storeroom: Proces Pro cess s 2 ... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... $4. $4.0769 0769 × 9,000 9,000 units units = $ 36, 36,692 692 Process Proce ss 3 .... ........ ......... ......... ......... ......... ......... .......... ......... ......... .......... ......... ...... $6.3864 $6.3864 × 20,000 units = $127,7 $127,727* 27* *$6.3864 × 20,000 units = $127,728. To avoid a decimal decimal discrepancy, discrepancy, the cost transferred to finished goods storeroom is computed as follows: follows: $137,500 – $9,773 cost assigned to ending inventory = $127,727. Work in process—ending inventory: Process 2: Cost from from preceding preceding department department .... ........ ......... ......... ........ .... Labor and factory factory overhead overhead .... ........ ......... ......... ......... .......... ....... .. Process 3: Adjusted cost from preceding department...... departmen t........... ......... ......... .......... ......... ......... .......... ......... .... Labor and factory factory overhead overhead .... ........ ......... .......... ......... ......... ....... .. (2)
$2.0769 × 4,000 4,000 units = $8,308 $8,308 $2.0000 $2.000 0 × 1,000 units = $2,000 $3.3864 × 2,000 units $3.3864 units = $6,773 $6,773 $3.0000 $3.000 0 × 1,000 units = $3,000
Finished goods.. s.............................................................. Wor ork k in Pr Proc oces ess— s—Pr Proc oces ess s 2 .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Wor ork k in Pr Proc oces ess— s—Pr Proc oces ess s 3 .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Work in Process—Process 1 .. ..............................
4,000 21,0 21 ,000 00 63,0 63 ,000 00
Fini Fi nish shed ed Goo Goods ds .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Work in Process—Process 2 .. ..............................
36,6 36 ,692 92
Fini Fi nishe shed d Go Good ods s .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Work in Process—Process 3 .. ..............................
127, 12 7,72 727 7
88,000 36,692 127,727
Chapter 8
8-19
t t 3 i n s o s U C s e c o r l a t s P t o o C T
t t i n s o 2 U C s s e c o r t P l a s t o o T C d o h t Y e N M t A o i t P f n s o 1 U i M F s C O — s , e C t y c r E r a o r l t L o p u a s L r P t I e b o o C V R e T N n F o r O i L t o F K c u C d E o r R P f o t s o C
) d e u n i t n o C ( 6 8 ) P 3 (
5 1 . 3 $ 0 0 5 , 4 1 $
0 0 0 , 8 $
2 3 . 3 $
0 0 0 . 0 . 3 3 $ $
2 3 . 6
0 0 5 , 0 2 $ 5 0 0 0 0 5 , 0 , 4 6 1 $
6
2
0 0 0 , 3 6 $
0 0 0 0 0 , 0 , 0 0 6 6 $ $
$ 0 0 5 , 7 3 1 $
0 1 . 2
0 0 0 . 0 . 2 2
0 1 . 4
$
$ $
$
0 0 0 , 2 1 $
0 0 0 , 1 2 $
0 0 0 0 0 , 0 , 8 8 1 1 $ $
0 0 0 , 7 4 $
0 0 0 0 0 , 0 , 8 4 $
5 5 0 2 7 0 1 3 5 8 . 9 . 7 . 1 2 $ $
0 0 0 8 . 2 $
0 0 0 0 0 0 0 , 0 , 0 , 8 0 8 5 3 8 $ $
0 0 0 0 0 , 0 , 4 4 8 $
0 0 6 6 3 , , 8 7 7 0 2 1 1 $
0 0 4 0 6 , 5 , 9 7 3 1 $ 7 8 0 0 4 0 6 , 0 , 6 3 $
0 0 0 0 6 , , 6 4 6 2 3 $
1
0 0 0 0 4 , 0 , 0 7 1 4 $ 3 4
0 0 0 0 4 , 0 , 8 2 $
0 0 0 , 4 8 $
0 0 0 , 4 8 $
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . t ) . . . . . . . . . . . . . . . . . . ) . . . . . . . . . . . . . . . . . . . . s n . . . . . . . . . t . . . . . . . . . i e . . . . . . . . . . . m n . . . . . . . . . . d . . . . . . . . . . . . . . . e u . . t . . . . . . . . . . . . . . d r t . . . . . . . t y . . . . . . . d a c . p s . . . . . . . a . r . . . . . . . . . . . . u o o o . e l . . . . . . t t . . . . . . d d . . . . . . n : h r d . . . . . . o 0 t a . . . . . e t n g 0 r . . . . . r o e . . . . . : v n o n 0 p . . . . . o t h . . . . f y , n . . . . t i e i 1 r n d r . . . . y — . . . . m d e n g t e d a m . . . o b s . . . t v e n r e e – t d e e : m . . . m o n . . e t w t e c s n . . i a h m . h . h . o n l : h r . r o e . o t t e t . . . y t p r i . . . r n e e . n i s l a r v . n e g p n m . . . o u a i o o p e n . r o n . o i i . v r t n u t t p g d i o c e t t i . F d o g s c c f . y d e e g r m 0 r e d c . a . s t t a u d a u o . r D b i n o f 0 n d e d r 0 p . a x s i . c f o n e n d . e — d t , e . t a g b r e s n d d o a y h c n s 0 d . n d e i r o i . n n i t s r . f t a 2 s c d o s . p o a f y g o ( o . t d t o o e t r t t e d c b . o e e . d s t o s c r e ÷ s a t n g e n r o b r p c t s e b e d o r d a l n 0 d e o n d l d t r e e e a v e r e a 0 a m t u r p r i a e m f c u n d l g r t a l o r h o I L u s 0 s s o r i , d r n o o v a c f s e s r e r u c i n j 3 a t b a t T F t a 6 s i h k f c a d t t a n r s o m n i C r s T A $ s M L A n ( T f s o a o o o t t r e r U s W C s T C L F o o C C
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . t . . . . n . . . e . . . . . . . m . . t . . . r . . . . a . . . . . p . . . . e . . . . . : d . . . . y . . g r n . . . . o . i d t d a r n e e f o e c h v e r d n r e e i t g p v o n n u i m y r d o r o o c n f c e t t a c s a t — o f s s c s d o e d n c c t e a l a o r s r o t o u b p j T d n a i A L k r o W
0 0 4 0 6 , 0 , 6 3 $ $ = = 2 0 3 . 0 . 3 3 $ $ × × 0 0 0 0 0 , 0 , 2 1 7 8
, y c l o n f a s p a e r d c t s e i d u l p a m m o c i . c i e s 0 d n 6 , o 3 a i 7 t d 0 i c 1 o u $ v d a o = ) o r p 0 T . t 4 6 0 n , 4 e 9 r 4 r , $ 7 u 0 c + 1 0 $ m 0 0 = o , r 5 0 2 f 0 0 , . d 2 $ 6 3 e ( r $ 6 r $ e – = × f 0 s s 0 0 n 0 5 . t , i a 3 n t r $ u 7 3 × 0 t s 1 0 0 o $ c : 0 0 s , 0 , 7 e w 2 1 t l o 5 6 h
0 0 0 0 0 0 6 , 0 0 0 , 4 4 , 0 , 4 2 8 2 $ $ $ $ = = = = 0 0 0 0 0 . 1 . 1 . . 0 2 4 2 2 $ $ $ $ × × × × 0 0 0 0 0 0 0 0 0 , 0 , 0 , 0 , 2 6 4 1 1 2 3 4
8-20
Chapter 8
P8-6 (Continued) Additional Computations: Equivalent production:
Transferred out ..................................................... Less beginning inventory (all units) ....................... Start rte ed an and fi finished th this per periiod. d............................... Add beginning inventory (work this period) .......... Add ending inventory (work this period) ................
Unit costs: Materials, Process 1... 1.....................................................
Labor and Factory Overhead Process 2 Process 3 9,000 units 20,000 units 3,000 3,000 6,00 000 0 units 17,000 units 2,000 2,000 1,000 1,000 9,000 units 20,000 units
$58, 000 = $1 $1.8125 pe per un unit 32, 000
Labor and factory overhead, Process 1 .. .....................
$30, 000 32, 000
Total cost to be accounted for, Process 1 .................
$84, 000 = $2.8000 per unit 30, 000
Labor and factory overhead, Process 2 .. . ....................
$18, 000 9, 000
= $2.0000 per unit
Labor and factory overhead, Process 3 .. . ....................
$60, 000 20, 000
= $3.0000 per unit
= $ .9375 per unit
Joint cost apportionment:
Sales price ...................................................................... Less processing cost subsequent to split-off point ............. Hypothetical market value at split-off point: $8 × 10,000 10,000 units units trans transfe ferr rred. ed... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..
Proces Proc ess s 2 Pr Proc oces ess s3 Product Product $ 10 $ 15 2 3 $ 8 $ 12 $80, $8 0,00 000 0
$12 × 20,000 units transferred ..................................... Joint cost allocation: $80,000 $80, 000 × .26 .2625* 25* ... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ... $240,000 × .2625 ........................................................... * $84,000 ÷ ($80,000 + $240,000) = .2625
$240,000 $21,000 $21, 000 $63,000
Chapter 8
8-21
P8-6 (Concluded) Unit cost: $21, $2 1,00 000 0 ÷ 10,0 10,000 00 uni units. ts..... .... .... ...... .... .... ...... .... .... .... ...... .... .... ...... .... .... ...... .... .... ...... .... ..
$2.1 $2 .10 0
$63,000 ÷ 20,000 units .................................................. (4)
$3.15
Finished goods.. s.............................................................. Wor ork k in Pr Proc oces ess— s—Pr Proc oces ess s 2 .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Wor ork k in Pr Proc oces ess— s—Pr Proc oces ess s 3 .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Work in Process—Process 1 .. ..............................
4,000 21,0 21 ,000 00 63,0 63 ,000 00
Fini Fi nish shed ed Goo Goods ds .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Work in Process—Process 2 .. ..............................
36,6 36 ,600 00
Fini Fi nish shed ed Go Good ods s .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Work in Process—Process 3 .. ..............................
127, 12 7,86 860 0
88,000 36,600 127,860
CASES C8-1 (1) The mar market ket val value ue meth method od of joi joint nt cos costt alloc allocatio ation n assi assigns gns cos costt in in propo proportio rtion n to each product’s market value to all products as follows: Market Value Value of Each Product at Split-off Total Market Value of All Products at Split-off
×
Joint Production Cost
If there is no market market value at split-off, split-off, then the value value at the first sales sales point, less separable separab le cost, cost, is used. used. If joint joint products products have have a market market value value at the split-off split-off point, the margin for all joint products at the split-off will be the same. The joint cost is allocated in proportion to revenue generating ability (as contrasted to some some quantitati quantitative ve measures measures not related related to revenue). revenue). Theref Therefore, ore, this accomplishes Jim Simpson’s objective “that inventoriable cost should be based on each product’s ability to contribute to the recovery of joint production cost.”
8-22
Chapter 8
C8-1 (Continued) (2)) (2
(a)) (a
Becaus Beca use e bot both h mai main n pr prod oduc ucts ts ha have ve a mar marke kett val value ue at th the e spl spliitt-of offf poi point nt,, th thiis value, rather than the the final sales sales value, is used to allocate allocate the joint joint cost.
Jointt produ Join producti ction on cost cost to be alloc allocate ated d .. .... .... .... .... .... .... .... .... .... .... .... .... .... .. Net re revenue value of of by by-product (2 (240 40,,000 × (. (.55 – .05)) Join Jo intt cos costt to to be be all alloc ocate ated d to to mai main n pro produ duct cts s .. .... .... .... .... .... .... .... ....
Product Pepco-1 ............. Repke-3 .. ............
Units Produced 900,000 gallons 720,000 gallons
$2,64 $2, 640, 0,00 000 0 120,000 $2,52 $2, 520, 0,00 000 0
Market Value a att Sp Split-off Per Unit Total $2.00 $1,800,000 1.50 1,080,000 $2,880,000
Allocation of Joint Cost November Pepco-1 ($2,520,000 × .625).. ).......................................... Repke-3 ($2,520,000 × .375) .. ......................................... SE-5 ............................................................................... November joint production cost ........................ ( b) Allocation of joint production cost ........................................... Additional processing cost after split-off ............................... Total man manufacturing cos cost ................ Divide by gallons produced ............ Manufacturing cost per gallon. ..... Inventory costing: Inventory, November 1............... November production................ Inventory available ..................... November sales ........................ Inventory, November 30............. Manufacturing cost per gallon .. . ...... Cost of finished goods inventory .. .....................................
Pepco-1
Percentage of Total Market Value 62.5% 37.5 100.0%
$1,575,000 945,000 120,000 $2,640,000 Repke-3
SE-5
$1,575,000
$ 945,000
$120,000
1,800,000 $3,375,000 900,000 $ 3.75
720,000 $1,665,000 720,000 $ 2.3125
— $120,000 240,000 $ .50
20,000 900,000 920,000 800,000 120,000 × $3.75
40,000 720,000 760,000 700,000 60,000 × $2.3125
10,000 240,000 250,000 200,000 50,000 × $.50
$ 450,000
$ 138,750
$ 25,000
Chapter 8
8-23
C8-1 (Concluded) (3)) (3
When SE When SE-5 -5 bec becom omes es a ma main in pr prod oduc uct, t, th the e joi joint nt pro produ duct ctio ion n cost cost wou would ld be all alloocated proportionally to all three products on the basis of the market value of each product at the split-off point. The net revenue of SE-5 will no longer be deducted from the joint production cost prior to allocation because SE-5 will no longer be a by-product.
C8-2 There are a number of areas that appear to be problematic problematic in Harvard Products’ Products’ costing and decision-m decision-making aking processes. processes.These These areas, areas, whic which h are outlined below below,, need to be reviewed and perhaps modified. (1)) (1
The use The use of the the aver averag age e unit unit cos costt meth method od for for all alloc ocati ating ng joi joint nt pro produ duct ct cos cost. t. Un Unit its s produced, produ ced, althou although gh a simple method method of allocatio allocation, n, is not necessaril necessarily y the best method for apportioning cost across joint products.This products. This method can distort the cost-value relationship of a joint product and give an especially misleading picture of the gross margin margin provided provided by a joint product. product. For example, example, assume that in meat meat proces processing sing of cattle, cattle, one produ produced ced groun ground d beef beef and and steaks. steaks. Each pound of ground beef would be assigned the same joint cost as each pound of steak, yet the the sales sales prices prices per per pound pound are quite differ different. ent. For this this reason, reason, it is better to use some value-relate value-related d allocation allocation base, such as the market or sales value valu e method, to allocate allocate cost.
(2)) (2
Inclu Inc lusi sion on of all all sp spoi oila lage ge cos costs ts in in pro produ duct ct cos cost. t. Sp Spoi oila lage ge in in pro produ duct ctio ion n processes can be assessed as normal or abnormal.Whether abnormal. Whether spoilage is normal (expected) or abnormal (unexpected) should guide the way in which spoilage costs are handled in product costing. Normal spoilage is part of product cost since it is planned for in implementating implementating the production technology. technology. Abnormal spoilage should be written off as a loss in the period, and if the amount is material or the spoilage continues for a long time, the source of spoilage should be found and corrected. The company does not seem to be distinguishing clearly clearly between normal and and abnormal abnormal spoilage. spoilage. This needs needs to be studied, studied, and some some changes need to be made in the application of spoilage costs to product.
(3)) (3
Decisi Deci sion on ma maki king ng bas based ed on on full fully y allo alloca cate ted d cost cost.. Th The e comp compan any y appe appear ars s to be about to make a product line decision on fully allocated cost data with joint cost included. Decisions with relation to any of the products products should be based on the separable separab le contribution contribution margin margin of products, i.e., separab separable le revenue revenue less separable variable cost.This cost. This problem needs to be looked at closely since the allocated joint cost figures should be used only for financial statement purposes.
8-24
Chapter 8
C8-3 (1)) (1
The mark The market et va valu lue e meth method od do does es no nott prov provid ide e addi additi tiona onall data data fo forr the the mark marketi eting ng decision. decisi on. Joint cost cost allocation allocation is necessaril necessarily y arbitrary and, and, althoug although h used for for financial accounting purposes, is not relevant relevant to the decision to market DMZ-3 and Pestrol. The VDB joint cost is irrelevant irrelevant to this decision because it it is incurred incurre d in both cases, i.e., the method method of cost allocation allocation has no impact impact on the differential profit. The company should calculate the differential profit of its alternate choices by comparing the differential revenues and differential costs.
(2)) (2
The comp The compan any’ y’s s anal analysi ysis s is inc incorr orrect ect be beca caus use e it inc incor orpo porat rates es all alloc ocat ated ed port portio ions ns of the joint cost of VDB. The weekly cost of VDB ($246,000) will be incurred whether or not RNA-2 is converted converted through through further processing. processing. Thus, any alloallocation of the joint cost of VDB is strictly arbitrary and not relevant to the decision to market DMZ-3 and Pestrol. The company’s company’s decision not to process RNA-2 further is incorrect. The decision results in a loss of $20,000 in profit profit per week, as indicated by the following analysis: Revenue from further processing of RNA-2: DMZ-3 DMZ3 (400,0 (400,000 00 × ($57.5 ($57.50 0 ÷ 10 100)) 0)) .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Pest Pe stro roll (4 (400, 00,00 000 0 × ($5 ($57. 7.50 50 ÷ 10 100)) 0)) .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Tota otall reve revenu nue e from from furth further er proce process ssin ing. g... .... .... .... .... .... .... Less Le ss re reve venu nue e fr from om sal sale e of RN RNAA-2 2 .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Differ Dif ferenti ential al rev revenu enue e ... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ... Diff Di ffer eren enti tial al co cost*.... st*...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Diff Di ffer eren enti tial al pr prof ofit.. it.... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..
$230,000 $230, 000 230,0 230 ,000 00 $460 $4 60,0 ,000 00 320, 32 0,00 000 0 $140,0 $14 0,000 00 120, 12 0,00 000 0 $ 20 20,0 ,000 00
* The cost of VDB VDB is not relevant relevant and, thus, is omitted from from the solution. solution. C8-4 (1)) (1
(The requ (The requir irem emen entt does does not not ask ask for for a lis listt of resp respon onsi sibi bili liti ties es Vi Vick ckery ery has has vio viola lated ted,, but, merely merely,, which of the fifteen responsibilities apply to Vickery’ Vickery’s s situation.) Management accountants have a responsibility to: Competence: Perf Competence: Perform orm their professional professional duties duties in accor accordance dance with relevant laws, laws, regula regulations, tions, and technical technical standar standards. ds. (The inventory inventory cost cost Vick Vickery ery is being asked to accept violates accounting principles of conservatism and of matching current cost against current revenue.) Prepare complete and clear reports and recommendations after appropriate analyses of relevant relevant and reliable information. information. (Vickery has convincing convincing evidence that failure to make the adjustment will misstate the resulting financial statements.)
Chapter 8
8-25
Integrity: Refrai Integrity: Refrain n from either actively actively or passively passively subverting subverting the attainment of the organization’s organization’s legitimate and ethical objectives. objectives. (There is pressure to subvert legitimate and ethical objectives to the immediate need for favorable financial statements.) Communicate unfav Communicate unfavorabl orable, e, as well as favorabl favorable, e, info information rmation and and profesprofessional judgments or opinions. (Vickery is being asked to thwart communication of unfavorable information.) Refrain from engaging in or supporting any activity that would discredit the profession. (Preparing deliberately misleading financial statements clearly is a discredit to the profession.) Objectivit Objecti vity: y: Com Commu munic nicate ate inform informati ation on fairly fairly and objec objectiv tively ely.. (Vi (Vick ckery ery would violate this responsibility if the inventory were not restated.) Disclose fully all relevant information that could reasonably be expected to influence influence an intended intended user’ user’s s understandin understanding g of the reports, reports, commen comments, ts, and recommendati recomm endations ons presented. presented. (This material material overstatement overstatement of inventory inventory and profit violates this ethical responsibility.) (2)) (2
In ad addi diti tion on to hi his s eth ethic ical al re resp spon onsi sibi bili liti ties es to hi his s comp compan any y, Vi Vick ckery ery ha has s ethi ethica call responsibilities to: (a) the bank (b)) th (b the e com compa pan ny’ y’s s stoc stockh khol olde ders rs (c) the ma mana nagem gement ent ac accou count ntin ing g pr prof ofes essi sion on
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