Question 1

Joint products should be processed beyond the split-off point if ________.

Accepted Answer

Joint products should be processed beyond the split-off point only if the additional revenue from further processing exceeds the additional expenses from further processing. This is because the joint costs incurred up to the split-off point are sunk costs and should not be considered in the decision to continue processing. The decision to continue processing should be based on whether the additional revenue generated from the joint products beyond the split-off point exceeds the additional costs incurred in processing them. Therefore, option B is the correct choice.

Question 2

Which of the following cost is relevant to the decision whether to process joint products beyond the split-off point?

Accepted Answer

Separable costs are relevant because they are incurred only if the joint products are processed further beyond the split-off point.

Question 3

A scarce resource restricts or constrains the production or sale of a product.

Accepted Answer

When a resource is scarce, it is limited in quantity, which can lead to limitations or constraints in the production or sale of a product. This can result in higher prices or reduced availability for consumers.

Question 4

Brookfield Corporation has a joint process that produces three products: X,Y and Z.Each product may be sold at split-off or processed further and then sold.Joint-processing costs for a year amount to $100,000.Other data follows:
$\begin{array}{llll}
&\text { Sales Value }&\text {Separable Processing }&\text {Sales Value }\
 \text {Product }&\text {at Split-Off}&\text {Costs after Split-Off }&\text { at Completion}\
X & \$ 128,000 & \$ 16,000 & \$ 150,000 \
Y & 75,000 & 26,000 & 99,000 \
Z & 32,600 & 20,000 & 50,000
\end{array}$
Processing Product X beyond the split-off point will cause profits to ________.

Accepted Answer

Processing Product X beyond the split-off point increases profits by $6,000 because the sales value at completion ($150,000) minus the sales value at split-off ($128,000) minus the separable processing costs after split-off ($16,000) equals $6,000 ($150,000 - $128,000 - $16,000 = $6,000).

Question 5

In retail sales,the limiting resource is often floor space.

Accepted Answer

Floor space is a physical limitation in a retail setting. It determines how many products can be displayed and how much room customers have to move around in the store. Therefore, it is often considered the limiting resource in terms of sales potential.

Question 6

Which of the following is(are)characteristic(s)of joint products?

Accepted Answer

Joint products are generally characterized by the fact that they have significant sales value and are not separately identifiable as individual products until the split-off point. However, in some cases, it is possible to identify the joint products before the split-off point. Therefore, option A is also partially correct.

Question 7

Watson Corporation manufactures two products,Simple and Complex.The following annual information was gathered:
$\begin{array}{lll}&\text { Simple }&\text { Complex }\
\text { Selling price per unit } & \$ 47.00 & \$ 26.00 \
\text { Variable cost per unit } & 42.00 & 22.00
\end{array}$
Total annual fixed costs are $18,000.Assume demand for either product exceeds the factory's capacity.It takes one hour to make one unit of Complex.However,Simple takes 50% longer to manufacture when compared to Complex.Only 120,000 hours of plant capacity are available.How many units of Simple and Complex should Watson Corporation produce and sell in a year to maximize profits?

Accepted Answer

To maximize profits, Watson Corporation should focus on the contribution margin per unit and the time it takes to produce each unit. The contribution margin per unit is calculated as the selling price per unit minus the variable cost per unit. For Simple, it's $5 ($47 - $42), and for Complex, it's $4 ($26 - $22). However, since Simple takes 50% longer to manufacture, it effectively takes 1.5 hours to produce one unit of Simple, making its contribution margin per hour $3.33 ($5 / 1.5 hours), whereas Complex, taking 1 hour per unit, has a contribution margin per hour of $4. Given the limited plant capacity of 120,000 hours and the higher contribution margin per hour for Complex, Watson Corporation should produce and sell 120,000 units of Complex to maximize profits, assuming demand exceeds the factory's capacity for both products.

Question 8

Boston Corporation has a joint process that produces three products: X,Y and Z.Each product may be sold at split-off or processed further and then sold.Joint-processing costs for a year amount to $100,000.Other data follows:
$\begin{array}{llll}
&\text { Sales Value }&\text {Separable Processing }&\text {Sales Value }\
 \text {Product }&\text {at Split-Off}&\text {Costs after Split-Off }&\text { at Completion}\
X & \$ 128,000 & \$ 16,000 & \$ 160,000 \
Y & 50,000 & 25,000 & 77,000 \
Z & 25,600 & 20,000 & 40,000
\end{array}$
Processing Product Y beyond the split-off point will cause profits to ________.

Accepted Answer

The increase in profit from processing Product Y further is calculated as the difference between the sales value at completion and the sum of the sales value at split-off and the separable processing costs: ($77,000 - $50,000 - $25,000) = $2,000.

Question 9

Uptown Corporation has a joint process that produces three products: P,G and A.Each product may be sold at split-off or processed further and then sold.Joint-processing costs for a year amount to $20,000.Other data follows:
$\begin{array}{llll}
&\text { Sales Value }&\text {Separable Processing }&\text {Sales Value }\
 \text {Product }&\text {at Split-Off}&\text {Costs after Split-Off }&\text { at Completion}\
P & \$ 32,000 & \$ 5,000 & \$ 39,000 \
G & 16,500 & 7,500 & 29,000 \
A & 6,400 & 8,000 & 10,000
\end{array}$
Processing Product P beyond the split-off point will cause profits to ________.

Accepted Answer

Processing Product P beyond the split-off point increases profits by $2,000 because the sales value at completion ($39,000) minus the sales value at split-off ($32,000) minus the separable processing costs ($5,000) equals a $2,000 increase.

Question 10

When manufacturing multiple products that are not initially separately identifiable,manufacturing costs incurred after the split-off point are known as ________ costs.

Accepted Answer

Separable costs are those costs incurred after the split-off point when manufacturing multiple products that are not initially separately identifiable. These costs can be directly attributed to individual products.

Question 11

The ________ is the juncture in manufacturing where the joint products become individually identifiable.

Accepted Answer

The split-off point is the juncture in manufacturing where the joint products become individually identifiable. At this point, each product can be recognized as a separate and distinct item, and can be accounted for separately. This is important for costing and inventory purposes. The other choices are not commonly used or recognized terms in manufacturing.

Question 12

Cleveland Corporation has a joint process that produces three products: X,Y and Z.Each product may be sold at split-off or processed further and then sold.Joint-processing costs for a year amount to $100,000.Other data follows:
$\begin{array}{llll}
&\text { Sales Value }&\text {Separable Processing }&\text {Sales Value }\
 \text {Product }&\text {at Split-Off}&\text {Costs after Split-Off }&\text { at Completion}\
X&\$ 128,000 & \$ 16,000 & \$ 140,000 \
Y&50,000 & 27,000 & 76,000 \
Z&25,600 & 10,000 & 40,000
\end{array}$
To maximize profits,the corporation should process ________ further.

Accepted Answer

Product Z should be processed further because it has the highest contribution margin per unit after further processing ($40,000 - $10,000 = $30,000) compared to Products X ($140,000 - $16,000 = $124,000) and Y ($76,000 - $27,000 = $49,000).

Question 13

Mayfair Corporation has a joint process that produces three products: P,G and A.Each product may be sold at split-off or processed further and then sold.Joint-processing costs for a year amount to $15,000.Other data follows:
$\begin{array}{llll}
&\text { Sales Value }&\text {Separable Processing }&\text {Sales Value }\
 \text {Product }&\text {at Split-Off}&\text {Costs after Split-Off }&\text { at Completion}\
\mathrm{P} & \$ 62,000 & \$ 5,000 & \$ 88,000 \
\mathrm{G} & 12,500 & 6,500 & 19,500 \
\mathrm{~A} & 9,400 & 5,000 & 12,000
\end{array}$
Processing Product G beyond the split-off point will cause profits to ________.

Accepted Answer

Processing Product G beyond the split-off point increases profits by $500 because the additional revenue from processing ($19,500) minus the separable processing costs ($6,500) results in a net increase of $500 compared to selling at the split-off value ($12,500).

Question 14

Chicago Corporation has a joint process that produces three products: X,Y and Z.Each product may be sold at split-off or processed further and then sold.Joint-processing costs for a year amount to $100,000.Other data follows:
$\begin{array}{llll}
&\text { Sales Value }&\text {Separable Processing }&\text {Sales Value }\
 \text {Product }&\text {at Split-Off}&\text {Costs after Split-Off }&\text { at Completion}\
X & \$ 128,000 & \$ 16,000 & \$ 152,000 \
Y & 50,000 & 26,000 & 76,000 \
Z & 25,600 & 20,000 & 40,000
\end{array}$
Processing Product X beyond the split-off point will cause profits to ________.

Accepted Answer

Processing Product X beyond the split-off point increases profits by $8,000, calculated as the difference between the sales value at completion ($152,000) and the sum of the sales value at split-off ($128,000) and the separable processing costs after split-off ($16,000).

Question 15

Scarce resources include labor hours.

Accepted Answer

Labor hours are a limited resource as there are only a certain number of hours in a day and a limited number of people available to provide labor.

Question 16

Southridge Corporation has a joint process that produces two products: A and B.Each product may be sold at the split-off point or processed further and then sold.Joint-processing costs for a year are $20,000.
Product A can be sold at the split-off point for $32,000.Alternatively,Product A can be processed further and sold for $40,000.Additional processing costs are $5,000.
When deciding whether to sell Product A at the split-off point or to process further,the ________ is NOT relevant.

Accepted Answer

The joint processing cost of $20,000 is a sunk cost and not relevant to the decision of whether to sell Product A at the split-off point or process it further. Relevant costs are those that will change as a result of the decision, such as the additional processing cost and the sales values at split-off and after further processing.

Question 17

Inventory turnover is the number of times the average inventory is sold per year.

Accepted Answer

Inventory turnover is a ratio that measures the number of times a company sells its average inventory in a year. Therefore, the statement that inventory turnover is the number of times the average inventory is sold per year is true.

Question 18

If the limiting factor is demand,the most profitable product is the one with the highest contribution margin per unit.

Accepted Answer

This is true because when demand is the limiting factor, a company should focus on selling the products that generate the highest profit per unit sold. This will maximize the company's profitability and help it meet its demand without incurring additional costs. The contribution margin is a useful metric to determine which products are the most profitable because it shows the difference between the price of the product and the variable costs that are required to produce it. Therefore, the product with the highest contribution margin per unit is the most profitable when demand is the limiting factor.

Question 19

Which of the following item is irrelevant to the decision whether to process joint products beyond the split-off point?

Accepted Answer

Joint costs are relevant in the decision whether to process joint products beyond the split-off point because they represent the costs incurred up to the point where the joint products become separately identifiable. Separable costs and additional costs and revenue from further processing beyond the split-off point are all relevant factors to consider in this decision as they represent the costs and benefits associated with processing the joint products further.

Question 20

________ costs are costs of manufacturing two or more products that are not separately identifiable as individual products until their split-off point.

Accepted Answer

Joint costs are costs incurred in the process of manufacturing two or more products that are not separately identifiable until a specified point. These costs cannot be assigned to individual products. Joint costs are incurred up to the split-off point and include costs such as raw materials, labor, and overhead. Once products have been split off, they become separately identifiable and can be assigned additional costs.

Quiz 6: Relevant Information for Decision Making With a Focus on Operational Decisions