Question 1

Joint costs are most frequently allocated based upon relative

Accepted Answer

Joint costs are allocated based on the sales value of each product because it gives a fair representation of the relative value of each product, taking into account market demand and willingness to pay. Profitability, conversion costs, and prime costs do not necessarily reflect the value of each product to consumers.

Question 2

While preparing a salad,the chef removes the core from a head of lettuce.This core would be classified as

Accepted Answer

The core of a head of lettuce is not usable for the salad and cannot be sold or repurposed, making it a type of waste.

Question 3

Witte Company produces three products from a joint process.The products can be sold at split-off or processed further.In deciding whether to sell at split-off or process further,management should

Accepted Answer

The decision to sell at split-off or process further should be based on the incremental costs and benefits after the split-off point. Joint costs are sunk costs at the decision-making point and should not influence the decision.

Question 4

Under an acceptable method of costing by-products,inventory costs of the by-product are based on the portion of the joint production cost allocated to the by-product

Accepted Answer

Under an acceptable method of costing by-products, inventory costs of the by-product are based on the portion of the joint production cost allocated to the by-product plus any subsequent processing cost. This means that any additional processing cost incurred for the by-product after it has been separated from the main product is added to its inventory cost. This is because the by-product's sale price should reflect its total cost including any additional processing cost.

Question 5

Scrap is defined as a

Accepted Answer

Scrap is the residual of the production process that has limited sales value because it is usually the unusable or rejected material that cannot be sold as a regular product but may have some value in certain applications or as a source of raw materials. It is not a finished unit of product nor can it be reworked for sale as an irregular product.

Question 6

The split-off point is the point at which

Accepted Answer

The split-off point is the point in the production process where joint products can be recognized as distinct items, joint costs are allocated to these products, and some of these products may potentially be sold. Thus, it encompasses all the options provided.

Question 7

By-products are

Accepted Answer

By-products are items resulting from a joint process that have some value, but not enough to justify the cost of production on their own. They are not completely without value, as in option A, nor the primary reason for production, as in option D. Scrap refers to unusable or waste material, which is not necessarily the same as a by-product, so option C is incorrect.

Question 8

Which of the following is a false statement about scrap and by-products?

Accepted Answer

Management's goal is typically to minimize the amount of scrap produced, while maximizing the production of high-value, marketable by-products. Therefore, statement C is false.

Question 9

Which of the following is/are synonyms for joint products?
$\text {\underline{ Main products} }$                                                     $\text {\underline{ Co- products } }$

Accepted Answer

Joint products and co-products are synonyms, referring to products that are produced at the same time from a common process or raw material. Both terms mean multiple products that are equally valuable and cannot be separated without incurring significant costs or loss of quality.

Question 10

Which of the following has sales value?
$\text {\underline{ By-proclucts} }$                                   $\text {\underline{ Waste} }$

Accepted Answer

By-products have sales value, but waste does not. Therefore, only option B ("yes no") is correct.

Question 11

Each of the following is a method to allocate joint costs except

Accepted Answer

Average unit cost is not a method to allocate joint costs. All the other options (A, B, and C) are commonly used methods for allocating joint costs.

Question 12

In a lumber mill,which of the following would most likely be considered a primary product?

Accepted Answer

2´4 studs are typically the main product of a lumber mill and are considered primary products because they are directly produced from cutting and processing logs. Sawdust, wood chips, and tree bark are considered secondary products or byproducts of the milling process.

Question 13

The net realizable value approach mandates that the NRV of the by-products/scrap be treated as

Accepted Answer

The net realizable value approach mandates that the NRV of the by-products/scrap be treated as a reduction of joint costs. This is because the NRV is considered a revenue that offsets the joint costs of producing both the main product and the by-products/scrap. Therefore, the joint costs are reduced by the revenue generated from the sale of the by-products/scrap, resulting in a lower overall cost for the production process. Thus, option C is the correct choice.

Question 14

If two or more products share a common process before they are separated,the joint costs should be assigned in a manner that

Accepted Answer

Assigning joint costs in a proportionate manner based on a quantitative basis is the most reasonable and objective method for allocating costs among multiple products. This method ensures that each product bears a justifiable amount of the joint cost relative to its share of production, and avoids introducing subjectivity or arbitrary estimation in the allocation process. Maximizing total earnings or minimizing variations in unit production costs are important goals, but they are not directly relevant to the issue of cost allocation.

Question 15

The definition of a sunk cost is

Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered, regardless of future decisions or actions. It is also known as a historical cost.

Question 16

In a joint costing process,which of the following would not be considered a sunk cost?

Accepted Answer

Sunk costs are costs that have already been incurred and cannot be changed, regardless of the decision made. Direct material cost and direct labor cost are incurred before the point of separation of joint products, and joint cost is the cost incurred in the joint production process. Therefore, they are all considered sunk costs. However, costs incurred to further refine a product created by the joint process are not yet sunk, as the decision to further refine or not can still be made.

Question 17

A product may be processed beyond the split-off point if management believes that

Accepted Answer

Management may decide to process a product beyond the split-off point if they believe that its marketability will be enhanced and if the incremental cost of further processing will be less than the incremental revenue of further processing. This choice allows for the best combination of potential marketability and financial benefits. However, it is also important to consider if the joint cost assigned to the product is not already greater than its prospective selling price, as processing beyond this point may result in a loss.

Question 18

Which of the following statements is true regarding by-products or scrap?

Accepted Answer

Job order costing systems may have instances where by-products or scrap result from the production process. This can occur when a job or project requires a certain amount of raw materials, but the actual amount needed may be less than what was initially purchased. The excess or leftover material may become a by-product or scrap that can be sold or reused in other production processes.

Question 19

Waste created by a production process is

Accepted Answer

Waste created by a production process is generally not accounted for in the same manner as defective units but is discarded rather than sold. Therefore, option D is the correct answer.

Question 20

When allocating joint process cost based on tons of output,all products will

Accepted Answer

When allocating joint process cost based on tons of output, all products will have the same joint cost per ton. This is because the joint process cost is incurred jointly for all the products produced in the process. Therefore, the costs are allocated based on the tons of output produced by each product, resulting in the same joint cost per ton for all products. The other options (A, C, and D) are not necessarily true for all products, and thus, not the best choice.

Quiz 11: Allocation of Joint Costs and Accounting for By-Products