Professional Documents
Culture Documents
209
11.
EXERCISES
71
Phils
Bills
Gills
Total
Units
1,000
1,500
2,500
5,000
Percent
0.200
0.300
0.500
Joint Cost
$72,000
72,000
72,000
72
Phils
Bills
Gills
Total
Units
1,000
1,500
2,500
5,000
Price at
Split-off
$18.75
75.00
67.50
Sales Value
at Split-off
$ 18,750
112,500
168,750
$300,000
Percent
0.0625
0.3750
0.5625
Joint
Cost
$72,000
72,000
72,000
Allocated
Joint Cost
$ 4,500
27,000
40,500
$ 72,000
73
Ups
Downs
Total
Units
39,000
21,000
Price
$2.00
2.18
Eventual
Market Value
$78,000
45,780
Joint cost
Percent of hypothetical market value
Allocated joint cost
209
Separable
Costs
$18,000
5,780
Hypothetical
Market Value
$ 60,000
40,000
$100,000
Ups
$ 42,000
0.60
$ 25,200
Percent
0.60
0.40
Downs
$ 42,000
0.40
$ 16,800
74
Ups
Downs
Total
Units
39,000
21,000
60,000
Percent
0.65
0.35
Joint Cost
$42,000
42,000
75
Value of ups at split-off (39,000 $1.80)
$ 70,200
$ 78,000
18,000
$ 60,000
Ups should NOT be processed further as there will $10,200 more profit if sold at
split-off.
76
1.
Grade A
Grade B
Grade C
Total
Units
3,000
4,500
7,500
15,000
2.
Grade A
Grade B
Grade C
Total
Units
3,000
4,500
7,500
15,000
Percent
0.200
0.300
0.500
Weighting
Factor
4.5
2.5
1.5
Joint Cost
$200,000
200,000
200,000
Weighted
Units
13,500
11,250
11,250
$ 36,000
210
Percent
0.3750
0.3125
0.3125
Allocated
Joint Cost
$ 75,000
62,500
62,500
$200,000
77
1.
2.
Separable
Costs
$4,000
8,340
$108,000
92,340
$ 15,660
100.0%
85.5%
14.5%
High
$ 48,000
6,960
$ 41,040
4,000
$ 37,040
Low
$ 60,000
8,700
$ 51,300
8,340
$ 42,960
Hypothetical
Market Value
$44,000
51,660
$95,660
High
$ 80,000
0.46
$ 36,800
Joint cost
Percent of hypothetical market value
Allocated joint cost
Percent
46%
54%
100%
Low
$ 80,000
0.54
$ 43,200
78
High
Low
Total
Percent
of Sales
0.40
0.60
Percent of
Production
0.25
0.75
211
Sales to
Production
1.60
0.80
2.40
Percent
0.6667
0.3333
Allocated
Joint Cost
$ 53,336
26,664
$ 80,000
79
Alpha
Beta
Gamma
Delta
Rho
Chi
Psi
Omega
Number
of Units
1,000
2,000
2,500
6,000
3,000
150
1,000
10
Price at
Split-Off
$ 2.00
4.50
3.75
8.00
0.50
0.20
0.04
10.00
Total Revenue
at Split-Off
$ 2,000
9,000
9,375
48,000
1,500
30
40
100
$ 70,045
Chi, Psi, and Omega are, at best, by-products. Arguably, Chi and Psi could be
considered scrap. The amount of revenue they produce is not worth a great deal
of effort in handling or in accounting. Note that Omega has the highest price per
unit of any of the eight. Still, it is a by-product for this company unless and until
they can figure out a way to produce more of it.
(Note: A similar situation exists in copper mining. Copper ore may contain gold.
While the gold refined from copper ore is very valuable per ounce compared to
copper, the gold is accounted for as a by-product since so little of it is produced.)
Beta, Gamma, and Delta are joint or main products due to their considerable
revenue.
Alpha and Rho are probably by-products. Together, they account for just under 5
percent of the total revenue. Still, the company may choose to consider them
main products based on future revenue estimates or their importance to the
overall product line.
710
1.
High-Density
Income Percent
Sales
$5,250 100.0%
Less: Joint cost 2,000a
38.1%
Gross margin
$3,250
61.9%
a
212
Low-Density
Income Percent
$9,000 100.0%
6,000b
66.7%
$3,000
33.3%
710
2.
Concluded
High-Density
Income Percent
Sales
$5,250 100.0%
Less: Joint cost 1,500a
28.6%
Gross margin
$3,750
71.4%
Low-Density
Income Percent
$9,000 100.0%
4,500b
50.0%
$4,500
50.0%
Defective
Income Percent
$
25 100.0%
2,000c
$(1,975)
(375/2,000) $8,000
(1,125/2,000) $8,000
c
(500/2,000) $8,000
a
Previously, defective chips were thrown out and never appeared on the
income statement. The entire joint cost was absorbed by the high-density and
low-density chips. These product lines maintained gross margins well above
the 25 percent limit.
Clearly, the gross margin for the defective chips is negative and doesnt come
close to meeting the Ultratech requirements. Yet, this result would imply that
LaTonya should throw away the chips instead of selling them for $25. This is
a counterintuitive result.
3.
Sales
Less: Allocated
joint cost
Gross profit
a
High-Density
Income Percent
$5,250 100.0%
Low-Density
Income Percent
$9,000 100.0%
1,994a
$3,256
5,981b
$3,019
38.0%
62.0%
66.5%
33.5%
213
711
1. Net realizable value of by-product = $2 60,000 = $120,000
Joint cost to be allocated = $2,520,000 $120,000 = $2,400,000
2.
First main product
Second main product
Total
Units
90,000
150,000
240,000
Percent
0.375
0.625
Joint Cost
$2,400,000
2,400,000
Allocated
Joint Cost
$ 900,000
1,500,000
$ 2,400,000
712
1.
Two Oil
Six Oil
Distillates
Total
Units
300,000
240,000
120,000
660,000
Percent
0.4546*
0.3636
0.1818
Joint Cost
$10,000,000
10,000,000
10,000,000
Allocated
Joint Cost
$ 4,546,000
3,636,000
1,818,000
$10,000,000
*Rounded up
2.
Two Oil
Six Oil
Distillates
Total
Units
300,000
240,000
120,000
660,000
Price at
Split-off
$20
30
15
Market Value
at Split-off Percent Joint Cost
$ 6,000,000 0.4000 $10,000,000
7,200,000 0.4800
10,000,000
1,800,000 0.1200
10,000,000
$15,000,000
214
Allocated
Joint Cost
$ 4,000,000
4,800,000
1,200,000
$10,000,000
PROBLEMS
713
1.
Revenue
Variable expenses
Contribution margin
Joint costs
Operating income
2.
Liquid Skin
$432,000
252,000
$180,000
Silken Skin
$468,000
108,000
$360,000
Total
$900,000
360,000
$540,000
420,000
$120,000
Revenue
Variable expenses
Contribution margin
Joint costs
Operating income (loss)
a
215
714
1.
@ 500 lbs.
Revenuesa
Bagsb
Shippingc
Grindingd
Bottlese
Process Further
$ 8,750
0
(250)
(1,575)
(500)
$ 6,425
Sell
$6,000
(65)
(300)
0
0
$5,635
Difference
$ 2,750
65
50
(1,575)
(500)
$
790
715
1.
Revenues
Joint costs
Gross margin
$141,500
131,000
$ 10,500
2.
Revenues
Further processing costs
Gross margin
Sell
$ 40,000
0
$ 40,000
Process Further
$ 70,000
11,500
$ 58,500
Difference
$ 30,000
11,500
$ 18,500
The company should process Inex further as gross margin would increase by
$18,500.
(Note: Joint costs are irrelevant to this decision, as the company will incur
them whether or not Inex is processed further.)
216
716
1.
$2.25
Gross margin
$1,125,000
50,000
$0.75
$ 37,500
1,750
(43,000)
$ (3,750)
217
717
Goodson could account for the by-product in the following ways:
1.
Show the $13,000 annual net revenue as Revenue from sale of by-product
on the income statement.
2.
3.
718
At first, the director would probably not view the use of the museum for weddings
as a joint costing problem. The first few rentals would add income to the museum
and would be accounted for as Other income or Miscellaneous revenue on
the income statement. Later, if the use of the museum for social affairs became
more popular, some of the cost of the grounds and restaurant would no doubt be
allocated to this use of the facilities. In effect, a by-product would turn into a main
product.
719
1.
2.
Units
150
350
500
Percent
0.30
0.70
Joint Cost
$5,000
5,000
Red
Drab
Total
Number
of Trees
150
350
Price at
Split-Off
$35
10
Sales Value
at Split-Off
$5,250
3,500
$8,750
218
Percent
60.00%
40.00%
100.00%
Joint
Cost
$5,000
5,000
Allocated
Joint Cost
$3,000
2,000
$5,000
719
3.
Concluded
$12,250
$2,500
275
5,000
7,775
$ 4,475
If Vicki undertakes the genetic testing, she will make $4,475 versus the $3,750
($8,750 $5,000) she would make selling both red and drab trees. She should
have the trees tested.
720
1.
a.
Product
Slices
Sauce
Juice
Feed
Input
270,000
270,000
270,000
270,000
Proportion
0.33
0.30
0.27
0.10
Total
Pounds
89,100
81,000
72,900
27,000
Pounds
Lost
5,400
Net
Pounds
89,100
81,000
67,500*
27,000
264,600
219
720
Concluded
c. The net realizable value of the by-product is deducted from the production
costs prior to allocation to the main products as follows:
NRV of by-product = By-product revenue Separable costs
= $0.10(270,000 0.10) $700
= $2,000
Costs to be allocated = Joint cost NRV of by-product
= $60,000 $2,000
= $58,000
d. Gross margin for November:
Product
Slices
Sauce
Juice
Total
Net Realizable
Value
$ 60,000
36,000
24,000
$120,000
Percent
50%
30%
20%
100%
Joint
Costs
$ 29,000
17,400
11,600
$ 58,000
Gross
Margin
$ 31,000
18,600
12,400
$ 62,000
721
1.
2.
3.
a
a
c
722
1.
Because Product N was allocated $24,000 of the joint costs, it must account
for 40 percent of the relative sales value at split-off ($24,000/$60,000 = 0.40).
Therefore, Product N has a $40,000 sales value at split-off ($100,000 0.40 =
$40,000).
2.
If the units produced approach is used, Product N will receive $30,000 in joint
costs since it accounts for half of the total units produced.
220
723
1.
Allocated
Joint
Costs
$ 461,500
230,800
307,700
$1,000,000
Studs
Decorative pieces
Posts
Total
Units
75,000
5,000
20,000
100,000
Percent
0.750
0.050
0.200
Joint Cost
$1,000,000
1,000,000
1,000,000
Allocated
= Joint Costs
$ 750,000
50,000
200,000
$1,000,000
Monthly
Unit
Output
Studs
75,000
Decorative pieces 4,500*
Posts
20,000
Total
Fully
Processed Estimated
Sales
Net
Allocated
Price
Realizable Percent
Joint
per Unit
Value
of Value
Costs
$ 8
$ 600,000
44.44% $ 444,400
100
350,000** 25.93%
259,300
20
400,000
29.63%
296,300
$1,350,000
100.00% $1,000,000
*5,000 monthly units of output 10% Normal spoilage = 4,500 good units
**4,500 good units $100 = $450,000 Further processing cost of
$100,000 = $350,000
221
723
Concluded
2.
Units
Dollars
Monthly unit output...............................................................
Less: Normal further processing shrinkage......................
Units available for sale...................................................
Final sales value (4,500 units @ $100 per unit).................
Less: Sales value at split-off...............................................
Differential revenue.........................................................
Less: Further processing costs..........................................
Additional contribution from further processing.........
3.
5,000
500
4,500
$450,000
300,000
$150,000
100,000
$ 50,000
Assuming Sonimad Sawmill, Inc., announces that in six months it will sell the
rough-cut product at split-off due to increasing competitive pressure, at least
three types of likely behavior will be demonstrated by the skilled labor in the
planing and sizing process, including the following:
a. Poorer quality
b. Reduced motivation and morale
c. Job insecurity, leading to nonproductive employee time looking for jobs
elsewhere
Management actions that could improve this behavior include the following:
a. Improve communication by giving the workers a more comprehensive
explanation as to the reason for the change in order to help them better
understand the situation and bring about a plan for future operation of the
rest of the plant.
b. Offer incentive bonuses to maintain quality and production and align
rewards with goals.
c. Provide job relocation and internal job transfers.
222
2.
Percent
20%
80
Joint Cost
$6,000
6,000
Coming
Going
Total
Eventual
Price
$12
14
Separable
Hypothetical
Number
Hypothetical
Costs
=
Price
of Units =
Revenue
$3
$9
1,000
$ 9,000
2
12
4,000
48,000
$ 57,000
Hypothetical
Revenue
$ 9,000
48,000
Percent
15.789%
84.211
Joint Cost
$6,000
6,000
Allocated
= Joint Costs
$ 947
5,053
$ 6,000
Coming
Going
Total
3.
Units
1,000
4,000
$ 68,000
17,000
$ 51,000
Percent
100%
25
75%
Going
$56,000
42,000
$14,000
8,000
$ 6,000
223
224