Question 1

Which of the following is not a step needed to maximize the profits from joint products?
A) Forecasting the sales price of each final product.
B) Identifying alternative sets and quantities of final products possible from the joint process.
C) Determining how to allocate joint costs to the final products.
D) Estimating the costs required to further process joint products into salable products.

Accepted Answer

Allocating joint costs to final products is not necessary for maximizing profits, as it does not affect decision-making regarding production and sales strategies.

Question 2

Net realizable value at the split-off point is used to allocate:
$\begin{array} {cc } 
& \text { Costs After Split-off Point } & \text { Incurred Joint Costs } \\end{array}$
A.$\begin{array} {cc } &&&&& \text { No } &&&&&&&&&& \text { No } \\end{array}$
B.$\begin{array} {cc } &&&&& \text { No } &&&&&&&&&& \text { Yes } \\end{array}$
C. $\begin{array} {cc } &&&&& \text { Yes } &&&&&&&&&& \text { No } \\end{array}$
D.$\begin{array} {cc } &&&&& \text { Yes } &&&&&&&&&& \text { Yes } \
\end{array}$
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

Net realizable value at the split-off point is used to allocate incurred joint costs, not costs after the split-off point.

Question 3

For the purposes of allocating joint costs to joint products, the sales price at the point of sale, reduced by the cost to complete after split-off, is assumed to be equal to the: (CPA adapted)
A) Total costs.
B) Joint costs.
C) Sales price less a normal profit margin at point of sale.
D) Net realizable value at split-off.

Accepted Answer

The net realizable value at split-off is calculated by taking the sales price at the point of sale and reducing it by the cost to complete after split-off. This method is used to allocate joint costs to joint products.

Question 4

The following is a system of simultaneous linear equations to allocate costs using the reciprocal method. Matrix algebra is not required.
The following costs were incurred in three operating departments and three service departments in Westmoreland Company.
$$\begin{array} { l c c } 
\text { Department } & \text { Direct Costs } & \text { Label } \
\text { Subassemblies } & \$ 5 5 0 , 0 0 0& \text { P1 } \
\text { Final assembly } & 775,000 & \text { P2 } \
\text { Marketing } & 285,000 & \text { P3 } \
\text { Building occupancy } & 85,000 & \text {S 1 } \
\text { Research \& development } & 120,000 &  \text {S  2 } \
\text { Supervision } & 45,000 &  \text {S  3 }
\end{array}$$
Use of services by other departments is as follows.

-
The equation for department S1 (building occupancy) is:
A) S1 = 0.10S3.
B) S1 = $85,000 + 1.00S3.
C) S1 = $85,000 + 0.10S3.
D) S1 = $85,000 + 0.90S2 + 0.10S3.

Accepted Answer

The equation S1 = $85,000 + 0.10S3 represents the building occupancy for department S1, where $85,000 is a fixed cost and 0.10S3 is the variable cost dependent on S3.

Question 5

The following is a system of simultaneous linear equations to allocate costs using the reciprocal method. Matrix algebra is not required.
The following costs were incurred in three operating departments and three service departments in Westmoreland Company.
$$\begin{array} { l c c } 
\text { DepartMent } & \text { Direct Costs } & \text { Label } \
\text { Subassemblies } &5 5 0 , 0 0 0 & \text { P1 } \
\text { Final assembly } & 775,000 & \text { P2 } \
\text { Marketing } & 285,000 & \text { P3 } \
\text { Building occupancy } & 85,000 &  \text {  S 1 } \
\text { Research \& development } & 120,000 &  \text { S 2 } \
\text { Supervision } & 45,000 &  \text {  S 3 }
\end{array}$$
Use of services by other departments is as follows.

-
The equation for department P1 (subassemblies) is:
A) P1 = $550,000 + 0.25P2 + 0.20P3 + 0.15S2 + 0.10S3.
B) P1 = $550,000 + 0.30S1 + 0.50S2 + 0.20S3.
C) P1 = 0.30S1 + 0.50S2 + 0.20S3.
D) P1 = 0.30S1 + 0.50S.

Accepted Answer

The answer of The following is a system of simultaneous...

Question 6

Which of the following statements is false?
A) The estimated net realizable value for a product is its estimated selling price after processing the product beyond the split-off point.
B) In general, it is better to use a product's market value at the split-off point than its estimated net realizable value.
C) The estimated net realizable value at the split-off point is calculated by taking the sales value after further processing and deducting the additional processing costs.
D) It is better to use the net realizable value method for allocating joint costs than the estimated net realizable value method.

Accepted Answer

The answer of Which of the following statements is false?
A)...

Question 7

Which of the following best describes the objective of joint cost allocation?
A) Inventory valuation.
B) Pricing goods for sale.
C) Making decisions about levels of production.
D) Making decisions about raw materials requirements.

Accepted Answer

Joint cost allocation is primarily used for inventory valuation to assign costs to products that are produced together in a joint process.

Question 8

Allocated joint costs are useful for:
A) Setting the selling price of a product.
B) Determining whether to continue producing an item.
C) Controlling user department costs.
D) Determining inventory cost for accounting purposes.

Accepted Answer

Allocated joint costs are useful for determining inventory cost for accounting purposes as they help in assigning costs to products for financial reporting.

Question 9

Which of the following cost items is not allocable as joint costs when a single manufacturing process produces several main products and several by-products?
A) Direct materials.
B) Variable overhead.
C) Direct labor.
D) Freight-out.

Accepted Answer

Freight-out costs are not considered joint costs as they are incurred after the production process, specifically related to the distribution of finished goods.

Question 10

The following is a system of simultaneous linear equations to allocate costs using the reciprocal method. Matrix algebra is not required.
The following costs were incurred in three operating departments and three service departments in Westmoreland Company.
$$\begin{array} { l c c } 
\text { Department } & \text { Direct Costs } & \text { Label } \
\text { Subassemblies } & \$ { 5 5 0 , 0 0 0 } & \text { P1 } \
\text { Final assembly } & 775,000 & \text { P2 } \
\text { Marketing } & 285,000 & \text { P3 } \
\text { Building occupancy } & 85,000 &  \text {S 1 } \
\text { Research \& development } & 120,000 &  \text {S2 } \
\text { Supervision } & 45,000 & \text {S 3 }
\end{array}$$
Use of services by other departments is as follows.

-
The equation for department S2 (research and development) is:
A) S2 = $120,000 + 0.15S1 + 0.65S2 + 0.20S3.
B) S2 = 0.15S1 + 20S3.
C) S2 = $120,000 + 0.15S1 + 0.20S3.
D) S2 = $120,000 + 0.40S1 + 0.60S3.

Accepted Answer

The answer of The following is a system of simultaneous...

Question 11

The following is a system of simultaneous linear equations to allocate costs using the reciprocal method. Matrix algebra is not required.
The following costs were incurred in three operating departments and three service departments in Westmoreland Company.
$$\begin{array} { l c c } 
\text { Department } & \text { Direct Costs } & \text { Label } \
\text { Subassemblies } & \${ 5 5 0 , 0 0 0 } & \text { P1 } \
\text { Final assembly } & 775,000 & \text { P2 } \
\text { Marketing } & 285,000 & \text { P3 } \
\text { Building occupancy } & 85,000 & \text {S 1 } \
\text { Research \& development } & 120,000 &  \text {S2 } \
\text { Supervision } & 45,000 &  \text {S 3 }
\end{array}$$
Use of services by other departments is as follows.

-
The equation for department S3 (supervision) is:
A) S3 = $45,000 + 0.90S1 + 0.10S2.
B) S3 = $45,000 + 0.10S1.
C) S3 = $45,000 + 1.00S1.
D) S3 = 0.10S1.

Accepted Answer

The answer of The following is a system of simultaneous...

Question 12

Which of the following statements about maximizing the profit of joint product processes is true?
A) Joint processing costs incurred prior to split-off should be allocated before making those decisions.
B) Only additional expenditures for further processing are relevant.
C) Only revenues from selling or processing beyond the split-off point are relevant.
D) Revenues from selling or processing beyond the split-off point and additional expenditures for further processing are relevant.

Accepted Answer

Revenues from selling or processing beyond the split-off point and additional expenditures for further processing are relevant because they help determine the profitability of further processing joint products.

Question 13

For purposes of allocating joint costs to joint products, the estimated net realizable value at split-off is equal to:
A) Final sales price reduced by cost to complete after split-off.
B) Sales price less a normal profit margin at the point of sale.
C) Separable product cost plus a normal profit margin.
D) Total sales value less joint costs at point of split-off.

Accepted Answer

The estimated net realizable value at split-off is calculated as the final sales price reduced by the cost to complete after split-off. This method allocates joint costs based on the potential revenue each product can generate after accounting for additional processing costs.

Question 14

Products X, Y, and Z are produced from the same process at a cost of $5,200. Five thousand pounds of raw material yields 1,500 X, 2,500 Y, and 1,000 Z. Selling prices are: X $2 per unit, Y $4 per unit, and Z valueless. The ending inventory of X is 50 units. What is the value of the ending inventory if joint costs are allocated using net realizable value?
A) $21.67.
B) $31.20.
C) $40.00.
D) $42.00.

Accepted Answer

The net realizable value (NRV) method allocates joint costs based on the proportion of each product's NRV to the total NRV. NRV for X is $3,000 (1,500 units * $2), for Y is $10,000 (2,500 units * $4), and for Z is $0. Total NRV is $13,000. The allocation for X is ($3,000/$13,000) * $5,200 = $1,200. The cost per unit of X is $1,200/1,500 = $0.80. The value of the ending inventory of 50 units of X is 50 * $0.80 = $40.00.

Question 15

Advanced Computer Solutions, Inc. has two main services: (1) time on a timeshared computer system and (2) proprietary computer programs. The operation department (Op) provides computer time and the programming department (P) writes programs.
The percentage of each service used by each department for a typical period is:
$\begin{array}{c}
\quad\quad\quad\quad\quad\quad\text { Supplied }\\begin{array}{lll}
\text { User } & \text { Op } & P \
\text { Op } & --- & 40 \% \
\text { P } & 30 \% & --- \
\text { Sold to customers } & 70 \% & 60 \%
\end{array}\end{array}$
In a typical period, the operation department (Op) spends $4,500 and the programming department (P) spends $2,500.
-
Under the step method (Op first), what is the cost of the computer time and the computer programs for sale?
$\begin{array} {cc} 
& \text { Time } &  { \text { Programs } } \\end{array}$
A.$\begin{array} {cc}  & \$ 4,500 & \$ 2,500 \\end{array}$
B.$\begin{array} {cc}  & \$ 3,150 & \$ 3,850 \\end{array}$
C.$\begin{array} {cc} & \$ 1,350 & \$ 5,650 \\end{array}$
D.$\begin{array} {cc} & \$ 2,700 & \$ 4,300
\end{array}$
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

The cost of computer time is $4,500 x 70% = $3,150. The cost of computer programs is $2,500 x 60% + $4,500 x 40% x 60% = $3,850.

Question 16

The method of accounting for joint product costs that will produce the same gross margin percentage for all products is the:
A) Replacement method.
B) Physical quantities method.
C) Net realizable value method.
D) Units produced method.

Accepted Answer

The net realizable value method allocates joint costs based on the final sales value minus any additional processing costs, ensuring the same gross margin percentage for all products.

Question 17

Advanced Computer Solutions, Inc. has two main services: (1) time on a timeshared computer system, and (2) proprietary computer programs. The operation department (Op) provides computer time and the programming department (P) writes programs.
The percentage of each service used by each department for a typical period is:
$\begin{array}{c}
\quad\quad\quad\quad\quad\quad\text { Supplied }\\begin{array}{lll}
\text { User } & \text { Op } & P \
\text { Op } & --- & 40 \% \
\text { P } & 30 \% & --- \
\text { Sold to customers } & 70 \% & 60 \%
\end{array}\end{array}$
In a typical period, the operation department (Op) spends $4,500 and the programming department (P) spends $2,500.
-
Under the reciprocal method what is the algebraic solution to the cost allocation problem?
A) Op = $4,500 + 0.40P; P = $2,500 + 0.30Op.
B) Op = $4,500 + 0.70P; P = $2,500 + 0.60Op.
C) Op = $2,500 + 0.40P; P = $4,500 + 0.30Op.
D) Op = $2,500 + 0.70P; P = $4,500 + 0.60Op.

Accepted Answer

The reciprocal method allocates costs based on the percentage of services used by each department. In this case, the operation department (Op) uses 40% of the programming department's (P) services, and the programming department uses 30% of the operation department's services. Therefore, the algebraic solution to the cost allocation problem is:Op = $4,500 + 0.40PP = $2,500 + 0.30Op

Question 18

The following is a system of simultaneous linear equations to allocate costs using the reciprocal method. Matrix algebra is not required.
The following costs were incurred in three operating departments and three service departments in Westmoreland Company.
$$\begin{array} { l c c } 
\text { Department } & \text { Direct Costs } & \text { Label } \
\text { Subassemblies } & \$ 5 5 0 , 0 0 0 & \text { P1 } \
\text { Final assembly } & 775,000 & \text { P2 } \
\text { Marketing } & 285,000 & \text { P3 } \
\text { Building occupancy } & 85,000 & \text {S1 } \
\text { Research \& development } & 120,000 &  \text {S 2 } \
\text { Supervision } & 45,000 & \text {S 3 }
\end{array}$$
Use of services by other departments is as follows.

-
The equation for department P3 (marketing) is:
A) P3 = $285,000 + 0.20S1 + 0.20S3.
B) P3 = $285,000 + 0.20S1 + 0.60S2 + 0.20S3.
C) P3 = $285,000 + 0.20S1 + 0.20S2 + 0.60S3.
D) P3 = $285,000 + 0.50S1 + 0.50S3.

Accepted Answer

The equation for department P3 (marketing) is P3 = $285,000 + 0.20S1 + 0.20S3. This means that the budget for department P3 is $285,000 plus 20% of the sales from department S1 and 20% of the sales from department S3.

Question 19

Bonanza Co. manufactures products X and Y from a joint process that also yields a by-product, Z. Revenue from sales of Z is treated as a reduction of joint costs. Additional information is as follows: $\begin{array}{lrrrr}
&&\text { PRODUCTS }\
&\mathrm{X} & \mathrm{Y} & \mathrm{Z} & \text { TOTAL }\
\text { Units produced } & 20,000 & 20,000 & 10,000 & 50,000 \
\text { Joint costs } & ? & ? & ? & \$ 262,000 \
\text { Sales value at split-off } & \$ 300,000 & \$ 150,000 & \$ 10,000 & \$ 460,000
\end{array}$ Joint costs were allocated using the net realizable value method at the split-off point. The joint costs allocated to product X were
A) $75,000.
B) $100,800.
C) $150,000.
D) $168,000.

Accepted Answer

The net realizable value method allocates joint costs based on the proportion of the sales value at split-off. First, reduce the total joint costs by the sales value of the by-product Z: $262,000 - $10,000 = $252,000. Then, calculate the proportion for product X: $300,000 / ($300,000 + $150,000) = 2/3. Finally, allocate the joint costs to product X: 2/3 * $252,000 = $168,000.

Question 20

The following is a system of simultaneous linear equations to allocate costs using the reciprocal method. Matrix algebra is not required.
The following costs were incurred in three operating departments and three service departments in Westmoreland Company.
$$\begin{array} { l c c } 
\text { Department } & \text { Direct Costs } & \text { Label } \
\text { Subassemblies } &\$ 5 5 0 , 0 0 0  & \text { P1 } \
\text { Final assembly } & 775,000 & \text { P2 } \
\text { Marketing } & 285,000 & \text { P3 } \
\text { Building occupancy } & 85,000 & \text {S1 } \
\text { Research \& development } & 120,000 &  \text {S 2 } \
\text { Supervision } & 45,000 &  \text {S3 }
\end{array}$$
Use of services by other departments is as follows.

-
The equation for department P2 (final assembly) is:
A) P2 = 0.25S1 + 0.50S2 + 0.30S3.
B) P2 = $775,000 + 0.25P2 + 0.20P3 + 0.15S2 + 0.10S3.
C) P2 = $775,000 + 0.30S1 + 0.50S2 + 0.20S3.
D) P2 = $775,000 +0.25S1 + 0.50S2 + 0.30S3.

Accepted Answer

The equation for department P2 (final assembly) includes a fixed cost of $775,000 and variable costs based on the proportions of S1, S2, and S3, which matches option D.

Quiz 11: Service Department and Joint Cost Allocation

Which of the following is not a step needed to maximize the profits from joint products?

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

Which of the following statements is false?

Which of the following best describes the objective of joint cost allocation?

Allocated joint costs are useful for:

Which of the following cost items is not allocable as joint costs when a single manufacturing process produces several main products and several by-products?

Which of the following statements about maximizing the profit of joint product processes is true?

For purposes of allocating joint costs to joint products, the estimated net realizable value at split-off is equal to:

The method of accounting for joint product costs that will produce the same gross margin percentage for all products is the: