Chapter 14

1

CHAPTER 14 Answers to Multiple Choice – Theoretical 1. 2. 3. 4. 5.

c b d c d

6. 7. 8. 9. 10.

b a a a b

11. 12. 13.

d a c

Solutions to Multiple Choice – Computational 1.

(a) P21,000 / 20,000 kilos =

2.

P1.05 per kilo for each product

(a) Product Red Blue

No. of Kilos 10,000 10,000

Sales Value Per Kilo P1.20 2.00

Total Sales Value P12,000 20,000 P32,000

Ratio 37.5% 62.5% 100.0%

Allocated to Red: (P21,000 x 37.5%) = P7,875 / 10,000 kilos = P0.79/kilo Allocated to Blue: (P21,000 x 62.5%) = P13,125 / 10,000 kilos = P1.31/kilo 3.

(a) Product Red Blue

Final Sales Value P12,000 20,000

Additional Processing Costs P -02,000

Adjusted Sales Value P12,000 18,000 P30,000

Ratio 40% 60% 100%

Allocated to Red: (P21,000 x 40%) = P8,400 / 10,000 kilos = P0.84 /kilo Allocated to Blue: (P21,000 x 60%) = P12,600 / 10,000 kilos = P1.26 /kilo 4.

(b) Sales value at split off point: Product A: (500 x P10) Product B: (1,000 x P14) Total

P 5,000 14,000 P19,000

Allocated to Product B: (P14,000/P19,000) x P4,560 = Additional processing costs: (1,000 x P2) Cost of Product B

P 3,360 2,000 P 5,360

2 5.

6.

(a) Joint costs Less sales value of By-product X Joint costs allocated to Product A and B

P264,000 10,000 P254,000

Allocation to Product B: (P150,000 / P440,000) x P254,000 =

P86,591

(a) P30,000 / 50% = P60,000 total joint costs

7.

(a) Sales value of Product Z Manufacturing costs: Allocated joint cost: [P450,000 x (60/750)] P36,000 Additional processing costs 12,000 Gross profit

8.

48,000 P39,000

(c) P12,000 / P20,000 x P10,000 =

9.

P87,000

P6,000

(c) Joint costs allocated to Product S and T: (80/200) x P120,000 = P48,000 Joint costs allocated to Product T 18,000 Joint costs allocated to Product S P30,000

10.

11.

(b) Sales value at split off point: Product L: (P10 x 5,000) Product M: [ (P15 – P7) x 12,500] Total

P 50,000 100,000 P150,000

Manufacturing costs – Product M: Allocated joint costs (P96,000 x 100/150) Additional processing costs Total

P 64,000 87,500 P151,500

Cost of ending inventory: (2,000/12,500 x P151,500)

P 24,240

(b) Sales value at split off point: Product 1: (P60,000 – P24,000) Product 2: (P60,000 – P36,000) Total

P36,000 24,000 P60,000

Allocated to Product 1: (36/60 x P55,000)

P33,000

3 12.

(d) Total production costs Less net realizable of By-Product: By-product sales Additional processing costs Cost of main product Less ending inventory – Main Product Cost of sales – Main Product

P120,000 P30,000 (25,000)

Cost of sales – By-Product 13.

P

P ( ( ( P

2,400 600) 240) 120) 1,440

(b) Sales: (2,000 x P1.50) Cost of by-product sales: Allocated joint cost Additional manufacturing costs Gain on sale

16.

P18,000 ( 4,800) ( 3,600) ( 1,800) P 7,800

(a) Estimated sales price: (2,000 x P1.20) Estimated manufacturing cost after separation: (2,000 x P.30) Estimated selling expenses: (P2,400 x 10%) Estimated normal profit: (P2,400 x 5%) Cost of by-product

15.

0

(a) Estimated sales price: (6,000 x P3) Estimated manufacturing cost after separation: (6,000 x P.80) Estimated selling and administrative expenses: (18,000 x 20%) Estimated normal net profit: (P18,000 x 10%) Value of by-product

14.

5,000 115,000 15,000 P100,000

P 3,000 P1,440 600

2,040 P 960

(d) Sales – Main Product: (20,000 x P1.75) Cost of sales: Beginning inventory: (2,000 x P.70) Production costs: (25,000 x P0.75)] By-product sales Net production cost Less ending inventory: (7,000/27,000 x P19,300) Gross profit Selling expenses Net income

P35,000 P 1,400 18,750 (850) 19,300 5,004

14,296 20,704 12,000 P 8,704

4

17.

(d) Sales – Main Product Cost of sales: Production costs Less net revenue of by-product: Sales: (3,500 x P1.50) P5,250 Addt’l processing costs ( 300) Estimated expenses ( 900) Net production costs Ending inventory: (4,000/20,000 x P35,950) Gross profit Marketing and administrative expenses Net income

18.

P48,000 P40,000

4,050 35,950 7,020

28,930 19,070 4,200 P14,870

(a) Joint costs Less by-product cost (reversal cost method): Sales value: (1,000 x P5) Marketing and administrative expenses Operating income: (1,000 x P1) Allocated to main product D and E

P172,000 P 5,000 (2,000) (1,000)

Sales value at split off point: Main product D: (P250,000 – P50,000) Main product E: (P160,000 - P20,000) Total

2,000 P170,000 P200,000 140,000 P340,000

Sales – Main Product D P250,000 Manufacturing costs: Allocated joint cost: (P200,000/P340,000 x P170,000) P100,000 Additional processing costs 50,000 150,000 Gross profit – Main Product D P100,000 19.

(a) Cost of By-Product Sales Production cost after separation Selling costs Normal net profit Cost of by-product Sales – Main Product Production costs: Before separation: (75,000 - )9,200) After separation Gross profit Selling costs Net income

A B P12,000 P 7,000 (2,200) (1,800) (1,500) (1,100) (1,800) (1,400) P 6,500P 2,700 P150,000 P65,800 23,000

88,800 P 61,200 12,000 P 49,200

5

20.

(d) Sales Manufacturing costs: Before separation After separation Total Gross profit

21.

By-Product A P12,000

By-Product B P 7,000

6,500 2,200 8,700 P 3,300

2,700 1,800 4,500 P 2,500

(d) Sales – Main Product: (10,000 P8) Sales – By-Product Total revenue for sales Cost of sales: Manufacturing costs: (12,000 x P5) Less ending inventory (1,000 x P5) Gross profit Selling costs Net income

22.

P80,000 12,000 92,000 P60,000 5,000

(a) Units produced: (30,000 + 15,000) Unit sales price: (P45,000 / 30,000) Sales value at split off point – Product Red

23.

45,000 P 1.50 P67,500

(c) Total costs – Department One: Cost of Material X Direct labor Manufacturing overhead Total joint costs

24.

55,000 37,000 20,000 P17,000

P144,000 21,000 15,000 P180,000

(a) Product Red White Blue Total

Sales Value Before Allocation P 67,500 144,000 283,500

Additional Processing Costs P 0 99,000 171,000

Adjusted Sales Value at SOP P 67,500 45,000 112,500 P225,000

Allocation of joint costs: Red: (P67,500 / P225,000 x P180,000) White: (P45,000 / P225,000 x P180,000) Blue: (P112,500 x P225,000 x P180,000) Total

P 54,000 36,000 90,000 P180,000

Cost of sales of Product White: (P36,000 + P99,000)

P135,000

6

25.

(a) Cost of ending inventory – Red: (15,000/45,000 x P54,000)

26.

P18,000

(a) Sales – Potato skins Cost of goods sold: Production costs: (P30,000 x 80%) Net revenue – Potato skins: Sales Disposal cost: (90,000 x P.10) Gross profit Operating expenses Net income

P80,000 P24,000 P11,825 9,000

2,825

21,175 58,825 3,800 P55,025

7

Solutions to Problems Problem 14-1 1 a:

Sales value at split-off point method Copra Sales value at split-off point: Copra: (1,200 x P50) Vinegar: (800 x P75) Ratio: Copra: (P60,000/P120,000) Vinegar: (P6,000/P120,000) Allocated joint costs: Copra: (P100,000 x 50%) Alcohol: (P100,000 x 50%)

b:

P60,000

P120,000

50%

100%

P50,000

P100,000

Alcohol 800

Total 2,000

P60,000 50% P50,000

Copra 1,200 60%

40% P60,000 P40,000

P100,000

NRV method Copra Final sales value: Copra: (1,200 x P50) Alcohol: (500 x P200) Less separable costs NRV at splitoff point Ratio: Copra: (P60,000/P140,000) Alcohol:(P80,000/P140,000) Allocated joint costs: Copra: (P100,000 x 43%) Alcohol:(P100,000 x 57%)

2.a

Total

Physical-measure method Physical measure (tons) Ratio: Copra: (1,200/2,000) Alcohol: (800/2,000) Allocated joint costs: Copra: (P100,000 x 60%) Alcohol: (P100,000 x 40%)

c.

Alcohol

Alcohol

Total

P60,000 0 P60,000

P100,000 20,000 P 80,000

P160,000 20,000 P140,000

43% 57% P43,000 57,000

P100,000

Physical Measure P60,000 60,000 P 0 0%

NRV P60,000 43,000 P17,000 28.33%

Copra:

Sales Less joint costs Gross margin Gross margin percentage

Sales Value At Splitoff Point P60,000 50,000 P10,000 16.67%

8

Problem 14-1 (continued) b.

Alcohol:

Sales Less: Joint costs Separable costs Total production costs Gross margin Gross margin percentage 3.

Sales Value At Splitoff Point P100,000 50,000 20,000 70,000 P 30,000 30%

Physical Measure P100,000 40,000 20,000 60,000 P 40,000 40%

NRV P100,000 57,000 20,000 77,000 P 23,000 23%

Incremental revenues from further processing of vinegar into alcohol: (500 tons x P200) – (800 tons x P75) Incremental costs of further processing vinegar into alcohol Incremental operating income from further processing

P40,000 20,000 P20,000

The operating income would be reduced by P20,000 if Bulacan sold 800 tons of vinegar to Laguna chemicals instead of further processing the vinegar into alcohol.

Problem 14-2 1.

2.

3.

Work in process – First Department 95,372.99 Materials Payroll payable Applied overhead To record costs incurred in the First Department. By-product inventory Work in process – First Department To record by-product at estimated sales value and removed from the main product. 200 x 5% = 10 x P130 = P1,300. Cash Loss on sale of by-product By-product inventory To record sale of by-product.

76,292.27 11,232.32 7,847.40

1,300.00 1,300.00

618.00 32.00 650.00

9

Problem 14-3 1.

2.

Sales Price : (400 units x P26.50) Less: Labor: (400 units x P4) Overhead: (400 units x P2) Selling costs: (400 units x P3) Normal profit: (10% x P10,600) Costs assigned to By-Product

P1,600 800 1,200 1,060

P10,600

Selling Price: (400 units x P26.50) Less: Common cost assigned to By-Product Additional processing costs Selling costs Profit on sale

P5,940 2,400 1,200

4,660 P 5,940 P10,600 9,540 P 1,060

3.

Materials Labor Overhead Total production costs Less: cost of By-product Cost of main product Divided by Unit cost of main product

4.

Yes the company was wise to process the by-product per computation below: Sales price of By-product after further processing Additional processing and selling costs after separation: Labor costs P1,600 Overhead costs 800 Selling costs 1,200 Net proceeds from further processing Proceeds from sale of product if sold at time of separation: (400 units x P14) Additional contribution from further processing

P 600,000 160,000 200,000 P 960,000 5,940 P 954,060 ÷ 7,600 P 125.53

P10,600

3,600 P 7,000 5,600 P 1,400

10

Problem 14-4 1.

a. Recognized at Production

b. Recognized at Sale

Revenues: Main Product P1,600,000 (a) By-product 0 Total revenues 1,600,000 Cost of goods sold: Manufacturing costs 1,200,000 Less by-product revenue 40,000 (b) Net manufacturing costs 1,160,000 Less main product inventory 232,000 (c) Cost of goods sold 928,000 Gross profit P 672,000 (a) (b) (c) (d) (e)

P1,600,000 28,000 (d) 1,628,000 1,200,000 0 1,200,000 240,000 (e) 960,000 P 668,000

16,000 x P200 4,000 x P20 2,000/10,000 x P1,160,000 = P232,000 1,400 x P20 2,000/10,000 x P1,200,000 = P240,000

2. Coke Pepse

Recognized at production P232,000 12,000 (a)

Recognized at Sale P240,000 0

(a) Ending inventory shown at unrealized selling price. BI + Production - Sales -= EI 0 + 2,000 - 1,400 = 600 gallons Ending inventory = 600 x P20 = P12,000/

Problem 14-5 1.

Allocation of Joint Costs of P300,000.

a.

Sales value at splitoff point method Narra A Sales value at splitoff: (30,000 x P8) (50,000 x P4) (20,000 x P3) Ratio: (240/500); (200/500); (60/500) Allocated joint costs, (48%;40%;12%) Total costs: Joint costs Separable processing costs Total costs Divided by total production Cost per board foot

Narra B

P240,000

Narra C

Total

48% P144,000

40% P120,000

) ) P60,000 ) P500,000 12% P36,000 P300,000

P144,000 60,000 P204,000 ÷ 25,000 P 8.16

P120,000 90,000 P210,000 ÷ 40,000 P 5.25

P36,000 15,000 P51,000 ÷15,000 P 3.40

P200,000

P300,000 165,000 P465,000

11

Problem 14-5 (continued) b.

Physical-measures method Production (board feet) Ratio: (30/100; 50/100; 20/100) Allocated joint costs: (30%, 50%, 20% x P300,000) Total costs computation: Joint costs Separable processing costs Total costs Total board feet Cost per board foot

c.

Narra A 30,000 30%

Narra B 50,000 50%

Narra C 20,000 20%

Total 100,000

P 90,000

P150,000

P60,000

P300,000

P 90,000 60,000 P150,000 25,000 P 6.00

P150,000 90,000 P240,000 40,000 P 6.00

P60,000 15,000 P75,000 15,000 P 5.00

P300,000 165,000 P465,000

Narra A

Narra B

Narra C

Total

60,000 P340,000

90,000 P270,000

) ) P105,000) 15,000 P 90,000

P865,000 165,000 P700,000

0.4857

0.3857

Net realizable value method Final sales value: (25,000 x P16) (40,000 x P 9) (15,000 x P 7) Less separable costs NRV at splitoff Ratio:340/700;270/700;90/700) Allocated joint costs: 0.4857 x P300,000 0.3857 x P300,000 0.1286 x P300,000 Total costs computation: Joint costs Separable costs Total costs Total units Unit cost

2. Sales value at splitoff: P8.16 x 1,000 P5.25 x 2,000 P3.40 x 500 Physical measures: P6.00 x 1,000 P6.00 x 2,000 P5.00 x 500 Estimated NRV: P8.23 x 1,000 P5.14 x 2,000 P3.57 x 500

P400,000 P360,000

P145,000 P115,710

P145,000 60,000 P205,710 ÷ 25,000 P 9.23

P115,710 90,000 P205,710 ÷ 40,000 P 5.14

Narra A

Narra B

P 8,160 P10,500 6,000 12,000 8,230 10,280

0.1286 ) ) P 38,580) P 38,580 15,000 P 53,580 ÷ 15,000 P 3.57 Narra C

P300,000 P300,000 165,000 P465,000

Total

) ) P1,700 )

P20,360

) ) 2,500 )

20,500

) ) 1,785 )

20,295

12

Problem 14-6 1a.

Sales value at split0ff method: Dark-Chocolate Milk-Chocolate Powder Powder Sales value at splitoff: 200* x P21 300** x P26 Ratio: P4,200/P12,000 P7,800/P12,000 Allocated joint costs: 35% x P10,000 65% x P10,000

Total

P4,200 P7,800

P12,000

35% 65% 3,500 6,500

P10,000

* (2,000/200) x 20 **(3,400/340) x 30

1b.

Physical-measure method: Dark-Chocolate Milk-Chocolate Powder Powder Gallons: 10 x 20 gallons 10 x 30 gallons Ratio: 200/500 300/500 Allocated joint costs: .40 x P10,000 .60 x P10,000

1c.

200 gallons

) 300 gallons )

Total 500 gallons

40% 60% P4,000

) P 6,000 )

P10,000

Net realizable value method: Dark-Chocolate Powder Final sales value: 2,000 x P4 3,400 x P5 Less separable costs NRV at splitoff point Ratio: P3,750/P12,000 P8,250/P12,000 Allocated joint costs: 31.25% x P10,000 68.75% x P10,000

P8,000 4,250 P3,750

Milk-Chocolate Powder ) P17,000 ) 8,750 P 8,250

Total P25,000 13,000 P12,000

31.25% 68.75% P3,125 P 6,875

P10,000

13

Problem 14-6 (continued) 2. a.

b.

c.

Revenues Joint costs Separable costs Total costs Gross margin

Dark-Chocolate Powder P8,000 3,500 4,250 7,250 P 250

Milk-Chocolate Powder Total P17,000 P25,000 6,500 10,000 8,750 13,000 15,250 23,000 P 1,750P 2,000

Gross-margin %

3.125%

10.294%

Revenues Joint costs Separable costs Total costs Gross margin (loss)

P8,000 4,000 4,250 8,250 P(250)

P17,000 P25,000 6,000 10,000 8,750 13,000 14,750 P23,000 P 2,250P 2,000 13.235%

8%

Gross-margin %

(3.125%)

8%

Revenues Joint costs Separable costs Total costs Gross margin

P8,000 3,125 4,250 7,375 P 625

P17,000 P25,000 6,875 10,000 8,750 13,000 15,625 23,000 P 1,375P 2,000

Gross-margin %

7.812%

8.088%

8%

Problem 14-7 1.

Day 1 Selling price Allocated joint costs Operating income (loss)

Pork Chops P120 45 P 75 P 75

Day 2 Selling price Allocated joint costs Operating income

P120.00 112.50 P 7.50

Day 3 Selling price Allocated joint costs Operating income

P 120.00 300.00 P(180.00)

Day 4 The butcher loses P300.

Ham Bacon P150 P144 75 180 P(38) P114

Total P414 300

P150.00 187.50 P(37.50)

-

P270.00 300.00 P(30.00)

-

P 120.00 300.00 P(180.00)

-

14

Problem 14-7 (continued) 2.

Sales Value at Splitoff P120 150 144 P414

Product Pork chops Ham Bacon

Allocated Joint Costs P 86.97 108.69 104.34 P300.00

Ratio 28.99% 36.23% 34.78% 100.00%

3. No. The decision to sell or not sell individual products should consider relevant revenues and relevant costs. In the butcher’s context, the relevant costs would be the additional time and other incidentals to take each pig part and make it a salable product. The relevant revenues would be the differences between the selling price at the consumer level for the pig parts and what the butcher may receive for the whole pig.

Problem 14-8 1.

For the month of May 2010, Prince Corporation’s output was:    

Apple slices Applesauce Apple juice Animal feed

89,100 81,000 67,500 27,000

These were computed as follows: Product Slices Sauce Juice Feed

Input 270,000 kilos 270,000 270,000 270,000

Proportion 0.33 0.30 0.27 0.10 1.00

*Net kilos: 1.08 net kilos Net kilos

= = =

Product Slices Sauce Juice

Final Sales Value P 71,280 44,550 27,000 P142,830

Total

Kilos

Net

Kilos 89,100 81,000 72,900 27,000 270,000

Lost 5,400 5,400

Kilos 89,100 81,000 67,500* 27,000 264,600

72,900 – (0.08 x net kilos) 72,900 67,500

2.

Net Separable Realizable Costs Value P11,280 P 60,000 8,550 36,000 3,000 24,000 P22,830 P120,000

15

Problem 14-8 (continued) 3.

The net realizable value of the byproduct is deducted from the production costs prior to allocation to the joint products, as presented below: Allocation of Cutting Department costs to joint products and byproducts: NRV of byproduct

= = =

Byproduct sales value – separable costs P0.10 (27,000 kilos) – P700 P2,000

Costs to be allocated

= = =

Joint costs – NRV of by product P60,000 - P20,000 P58,000

4. Product Slices Sauce Juice

Sales Value P 71,280 44,550 27,000 P142,830

Separable Joint Gross Costs Costs* Margin P11,280P29,000 P31,000 8,550 17,400 18,600 3,000 11,600 12,400 P22,830 P58,000 P62,000

*Allocated using NRV of the three joint products from requirement 2: Slices: (P60,000/P120,000) x P58,000 = P29,000 Sauce: (P36,000/P120,000) x P58,000 = 17,400 Juice: (P24,000/P120,000) x P58,000 = 11,600

Problem 14-9 Rizal Corporation Income Statement Date Sales: Main product By-product Cost of goods sold: Production costs: Main product (schedule 1) P478,750 By-product (schedule 2) 21,250 Less ending inventory of main product: (P478,750/312,500) x 17,000 Gross profit Operating expenses: Selling expenses: Main product By-product Net income

P916,050 25,000

P941,050

500,000 26,044

P73,426 5,374

473,956 467,094

78,800 P388,294

16

Problem 14-9 (continued) Schedule 1: Production cost of main product Total production costs: [P500,000 – (2.5% x P500,000)] Less cost of by-product (reversal cost method): Sales value P 25,000 Further processing cost (2.5% x P500,00) (12,500) Expected gross profit (15% x P25,000) ( 3,750) Production cost of main product

P487,500

8,750 P478,750

Schedule 2: Production cost of by-product Joint cost applicable to by-product Further processing costs Production cost of by-product

P 8,750 12,500 P 21,250

Problem 14-10 a.

b.

56,000 gallons of output in Dept. 1: Transferred to Dept. 2 (30%) Transferred to Dept. 3 (70%)

16,800 gallons 39,200 gallons

39,200 gallons of input to Dept. 3: Pulp (20%) Jelly (80%)

7,840 gallons 31,360 gallons

c.

Sales value (7,840 x P0.40) Distribution expenses NRV

d.

Joint Product Juice Jelly

Gallons 16,800 31,360

P3,136 550 P2,586 Sales Price P26.25 17.25

Total Sales P441,000 540,960

Separate Costs P48,100 29.664*

*P32,250 - P2,586 e.

Joint Product Juice Jelly

NRV P393,400 511,296 P904,696

Ratio 43% 57 100%

Joint Cost* P167,485 222,015 P389,500

* Total joint cost: P221,000 + 168,500 = P389,500

f.

Juice: (P167,485 + P48,100) x 15% Jelly: (P222,015 + P29,664) x 15%

= =

P32,338 37.752

NRV P393.400 511,296

17

Problem 14-11 1.

Computation of Cost of By-Product Estimated sales price (600 units x P140) Estimated selling and administrative expenses (P10 x 600) Estimated normal net profit (8% of sales) Total estimated manufacturing cost Estimated further processing costs: Materials (300 units x P50) P15,000 Labor (600 units x P10) 6,000 Overhead (600 units x P15) 9,000 Estimated manufacturing cost before separation

2.

P84,000 ( 6,000) ( 6,720) P71,280

(30,000) P41,280

Macho Manufacturing Company – Finishing Department Cost of Production Report Month of June 2010 Quantity Schedule Transferred In from prior department

Units 4,000

Transferred Out to finished goods By-Product recovered Total accounted for

3,700 300 4,000

Cost Schedule Cost transferred in from prior dept. Cost added in this department: Labor Overhead Total costs to account for

Total Cost P 954,600 55,500 66,600 P1,076,700

Cost accounted for: Production completed in current month P1,076,700 Less value of by-product recovered 41,280 Adjusted cost of main product Transferred out to finished goods 1,035,420 Cost of by-product 41,280 Total costs accounted for P1,076,700

÷

EUP 3,700 =

Unit Cost P258.00

÷ ÷

3,700 = 3,700 =

15.00 18.00 P291.00

= ÷

3,700 = 3,700 =

P291.00 11.16

÷

3,700 =

279.84