1

CHAPTER 14
Answers to Multiple Choice Theoretical
1.
2.
3.
4.
5.

c
b
d
c
d

6.
7.
8.
9.
10.

b
a
a
a
b

11.
12.
13.

d
a
c

Solutions to Multiple Choice Computational

1.

(a)
P21,000 / 20,000 kilos =

2.

P1.05 per kilo for each product

(a)
Product
Red
Blue

No. of
Kilos
10,000
10,000

Sales Value
Per Kilo
P1.20
2.00

Total
Sales Value
P12,000
20,000
P32,000

Ratio
37.5%
62.5%
100.0%

Allocated to Red: (P21,000 x 37.5%) = P7,875 / 10,000 kilos = P0.79/kilo

Allocated to Blue: (P21,000 x 62.5%) = P13,125 / 10,000 kilos = P1.31/kilo
3.

(a)
Product
Red
Blue

Final
Sales Value
P12,000
20,000

Additional
Processing Costs
P -02,000

Adjusted
Sales Value
P12,000
18,000
P30,000

Ratio
40%
60%
100%

Allocated to Red: (P21,000 x 40%) = P8,400 / 10,000 kilos = P0.84 /kilo

Allocated to Blue: (P21,000 x 60%) = P12,600 / 10,000 kilos = P1.26 /kilo
4.

(b)
Sales value at split off point:
Product A: (500 x P10)
Product B: (1,000 x P14)
Total

P 5,000
14,000
P19,000

Allocated to Product B: (P14,000/P19,000) x P4,560 =

Additional processing costs: (1,000 x P2)
Cost of Product B

P 3,360
2,000
P 5,360

2
5.

6.

(a)
Joint costs
Less sales value of By-product X
Joint costs allocated to Product A and B

P264,000
10,000
P254,000

Allocation to Product B: (P150,000 / P440,000) x P254,000 =

P86,591

(a)
P30,000 / 50% = P60,000 total joint costs

7.

(a)
Sales value of Product Z
Manufacturing costs:
Allocated joint cost: [P450,000 x (60/750)] P36,000
Additional processing costs
12,000
Gross profit

8.

48,000
P39,000

(c)
P12,000 / P20,000 x P10,000 =

9.

P87,000

P6,000

(c)
Joint costs allocated to Product S and T: (80/200) x P120,000 = P48,000
Joint costs allocated to Product T
18,000
Joint costs allocated to Product S
P30,000

10.

11.

(b)
Sales value at split off point:
Product L: (P10 x 5,000)
Product M: [ (P15 P7) x 12,500]
Total

P 50,000
100,000
P150,000

Manufacturing costs Product M:

Allocated joint costs (P96,000 x 100/150)
Additional processing costs
Total

P 64,000
87,500
P151,500

Cost of ending inventory: (2,000/12,500 x P151,500)

P 24,240

(b)
Sales value at split off point:
Product 1: (P60,000 P24,000)
Product 2: (P60,000 P36,000)
Total

P36,000
24,000
P60,000

Allocated to Product 1: (36/60 x P55,000)

P33,000

3
12.

(d)
Total production costs
Less net realizable of By-Product:
By-product sales
Additional processing costs
Cost of main product
Less ending inventory Main Product
Cost of sales Main Product

P120,000
P30,000
(25,000)

Cost of sales By-Product

13.

P
(
(
(
P

2,400
600)
240)
120)
1,440

(b)
Sales: (2,000 x P1.50)
Cost of by-product sales:
Allocated joint cost
Additional manufacturing costs
Gain on sale

16.

P18,000
( 4,800)
( 3,600)
( 1,800)
P 7,800

(a)
Estimated sales price: (2,000 x P1.20)
Estimated manufacturing cost after separation: (2,000 x P.30)
Estimated selling expenses: (P2,400 x 10%)
Estimated normal profit: (P2,400 x 5%)
Cost of by-product

15.

(a)
Estimated sales price: (6,000 x P3)
Estimated manufacturing cost after separation: (6,000 x P.80)
Estimated selling and administrative expenses: (18,000 x 20%)
Estimated normal net profit: (P18,000 x 10%)
Value of by-product

14.

5,000
115,000
15,000
P100,000

P 3,000
P1,440
600

2,040
P 960

(d)
Sales Main Product: (20,000 x P1.75)
Cost of sales:
Beginning inventory: (2,000 x P.70)
Production costs: (25,000 x P0.75)]
By-product sales
Net production cost
Less ending inventory: (7,000/27,000 x P19,300)
Gross profit
Selling expenses
Net income

P35,000
P 1,400
18,750
(850)
19,300
5,004

14,296
20,704
12,000
P 8,704

17.

(d)
Sales Main Product
Cost of sales:
Production costs
Less net revenue of by-product:
Sales: (3,500 x P1.50)
P5,250
Addtl processing costs
( 300)
Estimated expenses
( 900)
Net production costs
Ending inventory: (4,000/20,000 x P35,950)
Gross profit
Marketing and administrative expenses
Net income

18.

P48,000
P40,000

4,050
35,950
7,020

28,930
19,070
4,200
P14,870

(a)
Joint costs
Less by-product cost (reversal cost method):
Sales value: (1,000 x P5)
Marketing and administrative expenses
Operating income: (1,000 x P1)
Allocated to main product D and E

P172,000
P 5,000
(2,000)
(1,000)

Sales value at split off point:

Main product D: (P250,000 P50,000)
Main product E: (P160,000 - P20,000)
Total

2,000
P170,000
P200,000
140,000
P340,000

Sales Main Product D

P250,000
Manufacturing costs:
Allocated joint cost: (P200,000/P340,000 x P170,000) P100,000
Additional processing costs
50,000
150,000
Gross profit Main Product D
P100,000
19.

(a)
Cost of By-Product
Sales
Production cost after separation
Selling costs
Normal net profit
Cost of by-product
Sales Main Product
Production costs:
Before separation: (75,000 - )9,200)
After separation
Gross profit
Selling costs
Net income

A
B
P12,000
P 7,000
(2,200)
(1,800)
(1,500)
(1,100)
(1,800)
(1,400)
P 6,500P 2,700
P150,000
P65,800
23,000

88,800
P 61,200
12,000
P 49,200

20.

(d)
Sales
Manufacturing costs:
Before separation
After separation
Total
Gross profit

21.

By-Product A
P12,000

By-Product B
P 7,000

6,500
2,200
8,700
P 3,300

2,700
1,800
4,500
P 2,500

(d)
Sales Main Product: (10,000 P8)
Sales By-Product
Total revenue for sales
Cost of sales:
Manufacturing costs: (12,000 x P5)
Less ending inventory (1,000 x P5)
Gross profit
Selling costs
Net income

22.

P80,000
12,000
92,000
P60,000
5,000

(a)
Units produced: (30,000 + 15,000)
Unit sales price: (P45,000 / 30,000)
Sales value at split off point Product Red

23.

45,000
P 1.50
P67,500

(c)
Total costs Department One:
Cost of Material X
Direct labor
Manufacturing overhead
Total joint costs

24.

55,000
37,000
20,000
P17,000

P144,000
21,000
15,000
P180,000

(a)
Product
Red
White
Blue
Total

Sales Value
Before Allocation
P 67,500
144,000
283,500

Additional
Processing Costs
P
0
99,000
171,000

Adjusted Sales
Value at SOP
P 67,500
45,000
112,500
P225,000

Allocation of joint costs:

Red: (P67,500 / P225,000 x P180,000)
White: (P45,000 / P225,000 x P180,000)
Blue: (P112,500 x P225,000 x P180,000)
Total

P 54,000
36,000
90,000
P180,000

Cost of sales of Product White: (P36,000 + P99,000)

P135,000

25.

(a)
Cost of ending inventory Red: (15,000/45,000 x P54,000)

26.

P18,000

(a)
Sales Potato skins
Cost of goods sold:
Production costs: (P30,000 x 80%)
Net revenue Potato skins:
Sales
Disposal cost: (90,000 x P.10)
Gross profit
Operating expenses
Net income

P80,000
P24,000
P11,825
9,000

2,825

21,175
58,825
3,800
P55,025

Solutions to Problems
Problem 14-1
1 a:

Sales value at split-off point method

Copra
Sales value at split-off point:
Copra: (1,200 x P50)
Vinegar: (800 x P75)
Ratio:
Copra: (P60,000/P120,000)
Vinegar: (P6,000/P120,000)
Allocated joint costs:
Copra: (P100,000 x 50%)
Alcohol: (P100,000 x 50%)

b:

P60,000

P120,000

50%

100%

P50,000

P100,000

Alcohol
800

Total
2,000

P60,000
50%
P50,000

Copra
1,200
60%

40%
P60,000
P40,000

P100,000

NRV method
Copra
Final sales value:
Copra: (1,200 x P50)
Alcohol: (500 x P200)
Less separable costs
NRV at splitoff point
Ratio:
Copra: (P60,000/P140,000)
Alcohol:(P80,000/P140,000)
Allocated joint costs:
Copra: (P100,000 x 43%)
Alcohol:(P100,000 x 57%)

2.a

Total

Physical-measure method
Physical measure (tons)
Ratio:
Copra: (1,200/2,000)
Alcohol: (800/2,000)
Allocated joint costs:
Copra: (P100,000 x 60%)
Alcohol: (P100,000 x 40%)

c.

Alcohol

Alcohol

Total

P60,000
0
P60,000

P100,000
20,000
P 80,000

P160,000
20,000
P140,000

43%
57%
P43,000
57,000

P100,000

Physical
Measure
P60,000
60,000
P
0
0%

NRV
P60,000
43,000
P17,000
28.33%

Copra:

Sales
Less joint costs
Gross margin
Gross margin percentage

Sales Value
At Splitoff
Point
P60,000
50,000
P10,000
16.67%

Problem 14-1 (continued)

b.

Alcohol:

Sales
Less: Joint costs
Separable costs
Total production costs
Gross margin
Gross margin percentage
3.

Sales Value
At Splitoff
Point
P100,000
50,000
20,000
70,000
P 30,000
30%

Physical
Measure
P100,000
40,000
20,000
60,000
P 40,000
40%

NRV
P100,000
57,000
20,000
77,000
P 23,000
23%

Incremental revenues from further processing of vinegar into alcohol:

(500 tons x P200) (800 tons x P75)
Incremental costs of further processing vinegar into alcohol
Incremental operating income from further processing

P40,000
20,000
P20,000

The operating income would be reduced by P20,000 if Bulacan sold 800 tons of
vinegar to Laguna chemicals instead of further processing the vinegar into alcohol.

Problem 14-2
1.

2.

3.

Work in process First Department

95,372.99
Materials
Payroll payable
Applied overhead
To record costs incurred in the First Department.
By-product inventory
Work in process First Department
To record by-product at estimated sales value
and removed from the main product.
200 x 5% = 10 x P130 = P1,300.
Cash
Loss on sale of by-product
By-product inventory
To record sale of by-product.

76,292.27
11,232.32
7,847.40

1,300.00
1,300.00

618.00
32.00
650.00

Problem 14-3
1.

2.

Sales Price : (400 units x P26.50)

Less: Labor: (400 units x P4)
Overhead: (400 units x P2)
Selling costs: (400 units x P3)
Normal profit: (10% x P10,600)
Costs assigned to By-Product

P1,600
800
1,200
1,060

P10,600

Selling Price: (400 units x P26.50)

Less: Common cost assigned to By-Product
Additional processing costs
Selling costs
Profit on sale

P5,940
2,400
1,200

4,660
P 5,940
P10,600
9,540
P 1,060

3.

Materials
Labor
Overhead
Total production costs
Less: cost of By-product
Cost of main product
Divided by
Unit cost of main product

4.

Yes the company was wise to process the by-product per computation below:
Sales price of By-product after further processing
Additional processing and selling costs after separation:
Labor costs
P1,600
Overhead costs
800
Selling costs
1,200
Net proceeds from further processing
Proceeds from sale of product if sold at time of separation:
(400 units x P14)
Additional contribution from further processing

P 600,000
160,000
200,000
P 960,000
5,940
P 954,060

7,600
P 125.53

P10,600

3,600
P 7,000
5,600
P 1,400

10

Problem 14-4
1.

a. Recognized
at Production

b. Recognized
at Sale

Revenues:
Main Product
P1,600,000 (a)
By-product
0
Total revenues
1,600,000
Cost of goods sold:
Manufacturing costs
1,200,000
Less by-product revenue
40,000 (b)
Net manufacturing costs
1,160,000
Less main product inventory
232,000 (c)
Cost of goods sold
928,000
Gross profit
P 672,000
(a)
(b)
(c)
(d)
(e)

P1,600,000
28,000 (d)
1,628,000
1,200,000
0
1,200,000
240,000 (e)
960,000
P 668,000

16,000 x P200
4,000 x P20
2,000/10,000 x P1,160,000 = P232,000
1,400 x P20
2,000/10,000 x P1,200,000 = P240,000

2.
Coke
Pepse

Recognized
at production
P232,000
12,000 (a)

Recognized
at Sale
P240,000
0

(a) Ending inventory shown at unrealized selling price.

BI + Production - Sales -= EI
0 + 2,000 - 1,400 = 600 gallons
Ending inventory = 600 x P20 = P12,000/

Problem 14-5
1.

Allocation of Joint Costs of P300,000.

a.

Sales value at splitoff point method

Narra A
Sales value at splitoff:
(30,000 x P8)
(50,000 x P4)
(20,000 x P3)
Ratio: (240/500); (200/500); (60/500)
Allocated joint costs, (48%;40%;12%)
Total costs:
Joint costs
Separable processing costs
Total costs
Divided by total production
Cost per board foot

Narra B

P240,000

Narra C

Total

48%
P144,000

40%
P120,000

)
)
P60,000 ) P500,000
12%
P36,000
P300,000

P144,000
60,000
P204,000
25,000
P 8.16

P120,000
90,000
P210,000
40,000
P 5.25

P36,000
15,000
P51,000
15,000
P 3.40

P200,000

P300,000
165,000
P465,000

11

Problem 14-5 (continued)

b.

Physical-measures method
Production (board feet)
Ratio: (30/100; 50/100; 20/100)
Allocated joint costs:
(30%, 50%, 20% x P300,000)
Total costs computation:
Joint costs
Separable processing costs
Total costs
Total board feet
Cost per board foot

c.

Narra A
30,000
30%

Narra B
50,000
50%

Narra C
20,000
20%

Total
100,000

P 90,000

P150,000

P60,000

P300,000

P 90,000
60,000
P150,000
25,000
P 6.00

P150,000
90,000
P240,000
40,000
P 6.00

P60,000
15,000
P75,000
15,000
P 5.00

P300,000
165,000
P465,000

Narra A

Narra B

Narra C

Total

60,000
P340,000

90,000
P270,000

)
)
P105,000)
15,000
P 90,000

P865,000
165,000
P700,000

0.4857

0.3857

Net realizable value method

Final sales value:
(25,000 x P16)
(40,000 x P 9)
(15,000 x P 7)
Less separable costs
NRV at splitoff
Ratio:340/700;270/700;90/700)
Allocated joint costs:
0.4857 x P300,000
0.3857 x P300,000
0.1286 x P300,000
Total costs computation:
Joint costs
Separable costs
Total costs
Total units
Unit cost

2.
Sales value at splitoff:
P8.16 x 1,000
P5.25 x 2,000
P3.40 x 500
Physical measures:
P6.00 x 1,000
P6.00 x 2,000
P5.00 x 500
Estimated NRV:
P8.23 x 1,000
P5.14 x 2,000
P3.57 x 500

P400,000
P360,000

P145,000
P115,710

P145,000
60,000
P205,710
25,000
P 9.23

P115,710
90,000
P205,710
40,000
P 5.14

Narra A

Narra B

P 8,160
P10,500
6,000
12,000
8,230
10,280

0.1286
)
)
P 38,580)
P 38,580
15,000
P 53,580
15,000
P 3.57
Narra C

P300,000
P300,000
165,000
P465,000

Total

)
)
P1,700 )

P20,360

)
)
2,500 )

20,500

)
)
1,785 )

20,295

12

Problem 14-6
1a.

Sales value at split0ff method:

Dark-Chocolate Milk-Chocolate
Powder
Powder
Sales value at splitoff:
200* x P21
300** x P26
Ratio:
P4,200/P12,000
P7,800/P12,000
Allocated joint costs:
35% x P10,000
65% x P10,000

Total

P4,200
P7,800

P12,000

35%
65%
3,500
6,500

P10,000

* (2,000/200) x 20
**(3,400/340) x 30

1b.

Physical-measure method:
Dark-Chocolate Milk-Chocolate
Powder
Powder
Gallons:
10 x 20
gallons
10 x 30
gallons
Ratio:
200/500
300/500
Allocated joint costs:
.40 x P10,000
.60 x P10,000

1c.

200 gallons

)
300 gallons )

Total
500 gallons

40%
60%
P4,000

)
P 6,000 )

P10,000

Net realizable value method:

Dark-Chocolate
Powder
Final sales value:
2,000 x P4
3,400 x P5
Less separable costs
NRV at splitoff point
Ratio:
P3,750/P12,000
P8,250/P12,000
Allocated joint costs:
31.25% x P10,000
68.75% x P10,000

P8,000
4,250
P3,750

Milk-Chocolate
Powder
)
P17,000 )
8,750
P 8,250

Total
P25,000
13,000
P12,000

31.25%
68.75%
P3,125
P 6,875

P10,000

13

Problem 14-6 (continued)

2.
a.

b.

c.

Revenues
Joint costs
Separable costs
Total costs
Gross margin

Dark-Chocolate
Powder
P8,000
3,500
4,250
7,250
P 250

Milk-Chocolate
Powder
Total
P17,000
P25,000
6,500
10,000
8,750
13,000
15,250
23,000
P 1,750P 2,000

Gross-margin %

3.125%

10.294%

Revenues
Joint costs
Separable costs
Total costs
Gross margin (loss)

P8,000
4,000
4,250
8,250
P(250)

P17,000
P25,000
6,000
10,000
8,750
13,000
14,750
P23,000
P 2,250P 2,000
13.235%

8%

Gross-margin %

(3.125%)

8%

Revenues
Joint costs
Separable costs
Total costs
Gross margin

P8,000
3,125
4,250
7,375
P 625

P17,000
P25,000
6,875
10,000
8,750
13,000
15,625
23,000
P 1,375P 2,000

Gross-margin %

7.812%

8.088%

8%

Problem 14-7
1.

Day 1
Selling price
Allocated joint costs
Operating income (loss)

Pork Chops
P120
45
P 75 P 75

Day 2
Selling price
Allocated joint costs
Operating income

P120.00
112.50
P 7.50

Day 3
Selling price
Allocated joint costs
Operating income

P 120.00
300.00
P(180.00)

Day 4 The butcher loses P300.

Ham
Bacon
P150
P144
75
180
P(38)
P114

Total
P414
300

P150.00
187.50
P(37.50)

P270.00
300.00
P(30.00)

P 120.00
300.00
P(180.00)

14

Problem 14-7 (continued)

2.

Sales Value
at Splitoff
P120
150
144
P414

Product
Pork chops
Ham
Bacon

Allocated
Joint Costs
P 86.97
108.69
104.34
P300.00

Ratio
28.99%
36.23%
34.78%
100.00%

3.
No. The decision to sell or not sell individual products should consider relevant
revenues and relevant costs. In the butchers context, the relevant costs would be the
additional time and other incidentals to take each pig part and make it a salable product. The
relevant revenues would be the differences between the selling price at the consumer level for
the pig parts and what the butcher may receive for the whole pig.

Problem 14-8
1.

For the month of May 2010, Prince Corporations output was:

Apple slices
Applesauce
Apple juice
Animal feed

89,100
81,000
67,500
27,000

These were computed as follows:

Product
Slices
Sauce
Juice
Feed

Input
270,000 kilos
270,000
270,000
270,000

Proportion
0.33
0.30
0.27
0.10
1.00

*Net kilos:
1.08 net kilos
Net kilos

=
=
=

Product
Slices
Sauce
Juice

Final Sales
Value
P 71,280
44,550
27,000
P142,830

Total

Kilos

Net

Kilos
89,100
81,000
72,900
27,000
270,000

Lost
5,400
5,400

Kilos
89,100
81,000
67,500*
27,000
264,600

72,900 (0.08 x net kilos)

72,900
67,500

2.

Net
Separable
Realizable
Costs
Value
P11,280 P 60,000
8,550
36,000
3,000
24,000
P22,830
P120,000

15

Problem 14-8 (continued)

3.

The net realizable value of the byproduct is deducted from the production costs prior
to allocation to the joint products, as presented below:
Allocation of Cutting Department costs to joint products and byproducts:
NRV of byproduct

=
=
=

Byproduct sales value separable costs

P0.10 (27,000 kilos) P700
P2,000

Costs to be allocated

=
=
=

Joint costs NRV of by product

P60,000 - P20,000
P58,000

4.
Product
Slices
Sauce
Juice

Sales
Value
P 71,280
44,550
27,000
P142,830

Separable
Joint
Gross
Costs
Costs*
Margin
P11,280P29,000
P31,000
8,550
17,400
18,600
3,000
11,600
12,400
P22,830
P58,000
P62,000

*Allocated using NRV of the three joint products from requirement 2:

Slices: (P60,000/P120,000) x P58,000 =
P29,000
Sauce: (P36,000/P120,000) x P58,000 =
17,400
Juice: (P24,000/P120,000) x P58,000 =
11,600

Problem 14-9
Rizal Corporation
Income Statement
Date
Sales:
Main product
By-product
Cost of goods sold:
Production costs:
Main product (schedule 1)
P478,750
By-product (schedule 2)
21,250
Less ending inventory of main product:
(P478,750/312,500) x 17,000
Gross profit
Operating expenses:
Selling expenses:
Main product
By-product
Net income

P916,050
25,000

P941,050

500,000
26,044

P73,426
5,374

473,956
467,094

78,800
P388,294

16

Problem 14-9 (continued)

Schedule 1: Production cost of main product
Total production costs: [P500,000 (2.5% x P500,000)]
Less cost of by-product (reversal cost method):
Sales value
P 25,000
Further processing cost (2.5% x P500,00) (12,500)
Expected gross profit (15% x P25,000)
( 3,750)
Production cost of main product

P487,500

8,750
P478,750

Schedule 2: Production cost of by-product

Joint cost applicable to by-product
Further processing costs
Production cost of by-product

P 8,750
12,500
P 21,250

Problem 14-10
a.

b.

56,000 gallons of output in Dept. 1:

Transferred to Dept. 2 (30%)
Transferred to Dept. 3 (70%)

16,800 gallons
39,200 gallons

39,200 gallons of input to Dept. 3:

Pulp (20%)
Jelly (80%)

7,840 gallons
31,360 gallons

c.

Sales value (7,840 x P0.40)

Distribution expenses
NRV

d.

Joint
Product
Juice
Jelly

Gallons
16,800
31,360

P3,136
550
P2,586
Sales
Price
P26.25
17.25

Total
Sales
P441,000
540,960

Separate
Costs
P48,100
29.664*

*P32,250 - P2,586
e.

Joint
Product
Juice
Jelly

NRV
P393,400
511,296
P904,696

Ratio
43%
57
100%

Joint
Cost*
P167,485
222,015
P389,500

* Total joint cost: P221,000 + 168,500 = P389,500

f.

Juice: (P167,485 + P48,100) x 15%

Jelly: (P222,015 + P29,664) x 15%

=
=

P32,338
37.752

NRV
P393.400
511,296

17

Problem 14-11
1.

Computation of Cost of By-Product

Estimated sales price (600 units x P140)
Estimated selling and administrative expenses (P10 x 600)
Estimated normal net profit (8% of sales)
Total estimated manufacturing cost
Estimated further processing costs:
Materials (300 units x P50)
P15,000
Labor (600 units x P10)
6,000
Overhead (600 units x P15)
9,000
Estimated manufacturing cost before separation

2.

P84,000
( 6,000)
( 6,720)
P71,280

(30,000)
P41,280

Macho Manufacturing Company Finishing Department

Cost of Production Report
Month of June 2010
Quantity Schedule
Transferred In from prior department

Units
4,000

Transferred Out to finished goods

By-Product recovered
Total accounted for

3,700
300
4,000

Cost Schedule
Cost transferred in from prior dept.
Cost added in this department:
Labor
Overhead
Total costs to account for

Total Cost
P 954,600
55,500
66,600
P1,076,700

Cost accounted for:

Production completed in current month P1,076,700
Less value of by-product recovered
41,280
Adjusted cost of main product
Transferred out to finished goods
1,035,420
Cost of by-product
41,280
Total costs accounted for
P1,076,700

EUP
3,700 =

Unit Cost
P258.00

3,700 =
3,700 =

15.00
18.00
P291.00

3,700 =
3,700 =

P291.00
11.16

3,700 =

279.84