Question 1

Silver Company uses one raw material, silver ore, for all of its products. It spends considerable time getting the silver from the ore before it starts the actual processing of the finished products, rings, lockets, etc. Traditionally, the company made one product at a time and charged the product with all costs of production, from ore to final inspection. However, in recent months, the cost accounting reports have been somewhat disturbing to management. It seems that some of the finished products are costing more than they should, even to the point of approaching their retail value. It has been noted by the accounting manager that this problem began when the company started buying ore from different parts of the world, some of which require difficult extraction methods.
Required:
Can you explain how the company might change its accounting system to reflect the reporting problems better? Are there other problems with the purchasing area?

Accepted Answer

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Question 2

Litigation may be a reason that joint costs are allocated to individual products.

Accepted Answer

If a company is involved in litigation or faced with the possibility of litigation, it may be necessary to allocate joint costs to individual products in order to demonstrate the actual costs associated with each product and to comply with legal regulations. Failure to adequately allocate costs could result in legal penalties or financial consequences.

Question 3

Joint costs are NOT allocated to individual products for the preparation of tax returns.

Accepted Answer

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Question 4

An example of a market-based approach to allocating joint costs is (are)allocating joint costs based on:
A)sales value at splitoff method
B)physical volume
C)constant gross-margin percentage method
D)Both A and C are correct.

Accepted Answer

Both the sales value at splitoff method and the constant gross-margin percentage method are market-based approaches to allocating joint costs. The sales value at splitoff method allocates joint costs based on the relative sales values of the individual products at the point of splitoff, while the constant gross-margin percentage method allocates joint costs based on each product's expected gross margin percentage. Both methods take into account market conditions and the expected value of the different products when allocating joint costs, making them market-based approaches.

Question 5

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

Accepted Answer

At the splitoff point, each identifiable product can be sold or further processed independently of the other products as they have acquired their own individual identities. Thus, the statement is true.

Question 6

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

Accepted Answer

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Question 7

A business which enters into a contract to purchase a product (or products)and will compensate the manufacturer under a cost reimbursement formula, should take an active part in the determination of how joint costs are allocated because:
A)the manufacturer will attempt to allocate as large a portion of its costs to these products
B)if the manufacturer successfully allocates a large portion of its costs to these products then it will be able to sell its other nonreimbursed products at lower prices
C)the FASB requires the business to participate in the cost allocation process
D)Both A and B are correct.

Accepted Answer

The manufacturer will naturally want to allocate as much of its costs to the products being reimbursed in order to maximize profits. If successful, it may be able to sell other products at lower prices, which would put the contracting business at a disadvantage. Therefore, the business should take an active part in the cost allocation process to ensure fair and accurate allocation of joint costs.

Question 8

If the value of a joint product drops significantly, it could also be viewed as a byproduct

Accepted Answer

If the value of a joint product drops significantly, it may be no longer economically feasible to recover the costs associated with producing it as a joint product. In such cases, the primary product may be deemed a byproduct while the secondary product becomes the main product.

Question 9

What are a joint cost and a splitoff point?

Accepted Answer

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Question 10

Which of the following is a reason to allocate joint costs?
A)rate regulation requirements, if applicable
B)cost of goods sold computations
C)insurance settlement cost information requirements
D)All of these answers are correct.

Accepted Answer

Allocating joint costs is necessary for various reasons, including rate regulation requirements, cost of goods sold computations, and insurance settlement cost information requirements. Therefore, all of these answers are correct.

Question 11

In each of the following industries, identify possible joint (or severable)products at the splitoff point.
a. Coal
b. Petroleum
c. Dairy
d. Lamb
e. Lumber
f. Cocoa Beans
g. Christmas Trees
h. Salt
i. Cowhide

Accepted Answer

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Question 12

Proper costs allocation for inventory costing and cost-of-goods-sold computations are important because:
A)inventory costing is essential for proper balance sheet presentation
B)most states have laws requiring proper balance sheet presentation and recommended allocation methods
C)cost of goods sold is an important component in the determination of net income
D)Both A and C are correct.

Accepted Answer

Proper costs allocation for inventory costing is important to ensure accurate balance sheet presentation. Cost of goods sold is a critical component in determining net income and profitability. Therefore, both A and C are correct. While there may be state laws regarding financial reporting, they are not the primary reason for proper inventory costing and cost-of-goods-sold computations.

Question 13

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

Accepted Answer

This statement is true - byproducts refer to the products of a joint production process that have low total sales values in comparison to the main or joint products.

Question 14

All products yielded from joint product processing have some positive value to the firm.

Accepted Answer

Not all products yielded from joint product processing have some positive value to the firm.

Question 15

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

Accepted Answer

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Question 16

The products of a joint production process that have low total sales values compared with the total sales value of the main product are called joint products.

Accepted Answer

These products are called by-products, not joint products. Joint products have significant sales value compared to the main product.

Question 17

Which of the following is NOT a primary reason for allocating joint costs?
A)cost justification and insurance settlement cost information requirements
B)cost justification and asset measurement
C)income measurement and rate regulation requirements
D)to calculate the bonus of the chief executive officer

Accepted Answer

Allocating joint costs is done for cost justification, asset measurement, income measurement and rate regulation requirements, and insurance settlement cost information requirements. It is not done for calculating the bonus of the chief executive officer.

Question 18

All of the following methods may be used to allocate joint costs EXCEPT the:
A)constant gross-margin percentage method
B)estimated net realizable value method
C)present value allocation method
D)sales value at splitoff method

Accepted Answer

The present value allocation method is not typically used for allocating joint costs. The other methods listed are commonly used for this purpose.

Question 19

List three reasons why we allocate joint costs to individual products or services. Give an example of when the particular cost allocation reason would come into use.

Accepted Answer

The answer of List three reasons why we allocate joint...

Question 20

What are six reasons that joint costs should be allocated to individual products or services?

Accepted Answer

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Quiz 16: Cost Allocation: Joint Products and Byproducts

Litigation may be a reason that joint costs are allocated to individual products.

Joint costs are NOT allocated to individual products for the preparation of tax returns.

An example of a market-based approach to allocating joint costs is (are) allocating joint costs based on:

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

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

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

If the value of a joint product drops significantly, it could also be viewed as a byproduct

What are a joint cost and a splitoff point?

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

In each of the following industries, identify possible joint (or severable)products at the splitoff point. a. Coal b. Petroleum c. Dairy d. Lamb e. Lumber f. Cocoa Beans g. Christmas Trees h. Salt i. Cowhide

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