Question 1

Sealy Company has a joint process,which produces three products called A,B and C.Each product may be sold at split-off or processed further and then sold.Joint processing costs for a year are $20,000.Other relevant data are:
 $\begin{array}{llll}
&\text { Sales Value }&\text {Separable Processing }&\text {Sales Value }\
 \text {Product }&\text {at Split-Off}&\text {Costs after Split-Off }&\text { at Completion}\
A&\$ 94,000 & \$ 28,000 & \$ 115,000 \
B&60,000 & 10,000 & 82,000 \
C&66,000 & 14,000 & 79,000
\end{array}$ 
Required: 
A) Which products should be processed further? Why?
B) If the Sealy Company maximizes profits, what is the operating income?

Accepted Answer

The answer of Sealy Company has a joint process,which produces...

Question 2

The split-off point is the juncture in manufacturing where the joint products become individually identifiable.

Accepted Answer

The split-off point is indeed the juncture in manufacturing where the joint products become individually identifiable.

Question 3

BEE Company is considering the replacement of a machine that is presently used in production.Which of the following items are irrelevant to the replacement decision?

Accepted Answer

The original cost of the old machine is irrelevant because it is a sunk cost and cannot be changed. The decision should be based on the future costs and benefits. A, B, and C are all relevant factors that should be considered in the decision-making process.

Question 4

Benson Company is considering the replacement of a machine that is presently used in production.The following data are available:
$\begin{array}{lll}&\text { Old Machine }&\text { NEW Machine }\
\text { Original cost } & \$ 57,000 & \$ 35,000 \
\text { Useful life in years } & 17 & 5 \
\text { Current age in years } & 12 & 0 \
\text { Book value } & \$ 39,000 & -\
\text { Disposal value now } & \$ 8,000 & - \
\text { Disposal value in } 5 \text { years } & 0 & 0 \
\text { Annual cash operating costs } & \$ 7,000 & \$ 4,000
\end{array}$
Adding all five years together,the total relevant costs to consider if the new machine is purchased is ________.

Accepted Answer

The total relevant costs for the new machine over five years include the purchase cost, the disposal value of the old machine that is forgone, and the difference in operating costs for five years. Purchase cost of new machine = $35,000. Disposal value of old machine forgone = $8,000. Difference in operating costs for five years = ($7,000 - $4,000) * 5 = $15,000. Total = $35,000 + $8,000 + $15,000 = $58,000.

Question 5

The relevant information for a sell or process further decision for joint products includes the costs incurred before the split-off point.

Accepted Answer

The relevant information for a sell or process further decision for joint products includes only the costs and revenues that occur after the split-off point; costs incurred before the split-off point are sunk costs and not relevant to the decision.

Question 6

Which of the following cost is relevant to an equipment replacement decision?

Accepted Answer

The cost of new equipment is relevant to the decision as it represents the cash outflow required to acquire the replacement equipment. The cost of old equipment, book value of old equipment, and depreciation expense on old equipment are not relevant costs as they are sunk costs and do not represent future cash flows.

Question 7

Separable costs are part of a joint process and cannot be exclusively identified with individual products.

Accepted Answer

Separable costs are costs incurred after the split-off point in a joint production process and can be directly identified with specific products, not part of the joint process costs.

Question 8

Equipment to be sold has a book value of $4,000.The cost of the equipment is $10,000.The cash received at sale is $2,000.What is the gain or loss on disposal of the equipment?

Accepted Answer

The loss on disposal is calculated as the book value minus the cash received: $4,000 - $2,000 = $2,000 loss.

Question 9

Ernie Company is considering replacing a machine that is currently used in the production process.The ________ is irrelevant to the replacement decision.

Accepted Answer

The book value of the old machine is irrelevant because it relates to the historical cost of the machine and not to its current usefulness or replacement value. The cost of the new machine, disposal value of the old machine, and annual operating cost of the old machine are all important factors to consider in the replacement decision.

Question 10

Foster Corporation has a joint process,which produces three products,A,B and C.Each product may be sold at split-off or processed further and then sold.Joint processing costs for a year are $40,000.Other relevant data are:
 $\begin{array}{llll}
&\text { Sales Value }&\text {Separable Processing }&\text {Sales Value }\
 \text {Product }&\text {at Split-Off}&\text {Costs after Split-Off }&\text { at Completion}\
A&\$ 15,500 & \$ 2,200 & \$ 17,700 \
B&18,000 & 8,000 & 23,000 \
C&24,000 & 11,500 & 37,500
\end{array}$ 
Required: 
A) Which products should be processed further? Why?
B) If the Foster Company maximizes profits, what is the operating income?

Accepted Answer

The answer of Foster Corporation has a joint process,which produces...

Question 11

The allocation of joint costs to joint products should affect the decision to sell or process the joint products further.

Accepted Answer

The allocation of joint costs to joint products is irrelevant for the decision to sell or process further; this decision should be based on the incremental costs and revenues associated with further processing.

Question 12

Naperville 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 $25,000.The production level for each product is 10,000 units.Other data follows:
$\begin{array}{llll}
&\text { Sales Value }&\text {Separable Processing }&\text {Sales Value }\
 \text {Product }&\text {at Split-Off}&\text {Costs after Split-Off }&\text { at Completion}\
P &\$ 12 & \$ 8 & \$ 21 \
G&10 & 4 & 17 \
A&15 & 6 & 19
\end{array}$
Processing Product P beyond the split-off point will cause profits to ________.

Accepted Answer

Processing Product P beyond the split-off point increases its sales value by $9 per unit ($21 - $12) while incurring an additional cost of $8 per unit. Thus, the profit increases by $1 per unit. With 10,000 units, the total profit increase is $10,000.

Question 13

When considering the replacement of old equipment,which of the following item is relevant?

Accepted Answer

When considering the replacement of old equipment, it is important to consider the future maintenance costs of old equipment. This would give an idea of how much money would be required to maintain the old equipment in working condition. This information would then help in making a decision about whether it would be more cost-effective to replace the old equipment with new equipment or to continue with the old equipment. Loss on disposal of old equipment, book value of old equipment and accumulated depreciation on old equipment are all relevant, but not as important as future maintenance costs.

Question 14

It is profitable to extend processing or to incur additional costs on a joint product if the additional revenue exceeds the joint cost.

Accepted Answer

The decision to extend processing or incur additional costs on a joint product should be based on whether the additional revenue exceeds the separable costs incurred after the split-off point, not the joint costs.

Question 15

Lisle 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 $25,000.The production level for each product is 10,000 units.Other data follows:
$\begin{array}{llll}
&\text { Sales Value }&\text {Separable Processing }&\text {Sales Value }\
 \text {Product }&\text {at Split-Off}&\text {Costs after Split-Off }&\text { at Completion}\
P&\$ 12 & \$ 9 & \$ 21 \
G&10 & 3 & 17 \
A&15 & 6 & 19
\end{array}$
Product G ________.

Accepted Answer

The answer of Lisle Corporation has a joint process that...

Question 16

Woodridge 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 $25,000.The production level for each product is 1,000 units.Other data follows:
$\begin{array}{llll}
&\text { Sales Value }&\text {Separable Processing }&\text {Sales Value }\
 \text {Product }&\text {at Split-Off}&\text {Costs after Split-Off }&\text { at Completion}\
P & \$ 12 & \$ 9 & \$ 21 \
G & 10 & 4 & 17 \
A & 15 & 6 & 19
\end{array}$
Assume Woodridge Corporation processes the joint products beyond the split-off point that will maximize net income.Woodridge Corporation's net income is ________.

Accepted Answer

The answer of Woodridge Corporation has a joint process that...

Question 17

Which of the following costs is NOT relevant to an equipment replacement decision?

Accepted Answer

The cost of old equipment is not relevant to the decision of replacing it with new equipment. The focus should be on the costs related to the new equipment and the operating costs of both the old and new equipment. The fact that the old equipment has several years left does not make its operating cost relevant to the decision as the focus is on the future costs and benefits of replacing it.

Question 18

DesPlaines 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 $25,000.The production level for each product is 10,000 units.Other data follows:
$\begin{array}{llll}
&\text { Sales Value }&\text {Separable Processing }&\text {Sales Value }\
 \text {Product }&\text {at Split-Off}&\text {Costs after Split-Off }&\text { at Completion}\
P & \$ 12 & \$ 8 & \$ 20 \
G & 10 & 4 & 17 \
A & 15 & 6 & 19
\end{array}$
If Product P is processed beyond the split-off point,profits will ________.

Accepted Answer

The answer of DesPlaines Corporation has a joint process that...

Question 19

Downers Grove 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 $25,000.The production level for each product is 10,000 units.Other data follows:
$\begin{array}{llll}
&\text { Sales Value }&\text {Separable Processing }&\text {Sales Value }\
 \text {Product }&\text {at Split-Off}&\text {Costs after Split-Off }&\text { at Completion}\
P & \$ 12 & \$ 10 & \$ 21 \
G & 12 & 4 & 17 \
A & 10 & 6 & 19
\end{array}$
To maximize profits,Downers Grove Corporation should process ________ further.

Accepted Answer

To determine which products should be processed further, we calculate the incremental profit from further processing by subtracting the separable processing costs after split-off from the increase in sales value at completion. For each product:- Product P: $ \$21 - \$12 = \$9 $ increase in sales value, with \$10 processing costs, resulting in a $-\$1$ change in profit.- Product G: $ \$17 - \$12 = \$5 $ increase in sales value, with \$4 processing costs, resulting in a \$1 change in profit.- Product A: $ \$19 - \$10 = \$9 $ increase in sales value, with \$6 processing costs, resulting in a \$3 change in profit.Thus, processing Products G and A further maximizes profits.

Question 20

Book value on a depreciable asset is defined as ________.

Accepted Answer

Book value on a depreciable asset is the cost of the asset less the accumulated depreciation. Therefore, the correct answer is option C, cost less accumulated depreciation.

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