Professional Documents
Culture Documents
Joint process
\joint-pr-ses\
Joint cost
\joint-kost\
Physical measure
proration using a common
characteristic of the joint products
physical
Monetary measure
Sales value at split-off
Net realizable value at split-off
Approximated net realizable value at split-off
Exercises
Exercise 13
Indianola Beef buys sides of beef to convert into
three products: steaks, roasts, and ground beef.
In April 2013, Indianola bought multiple sides of
beef for P20,000 that were converted into the
following products at a cost of P6,400:
Product
# of Pounds
Sales value at
split-off
Steaks
3,312
Roasts
Ground beef
6,210
4,278
Exercise 13
The remaining 1,200 pounds were lost as waste.
Required:
a) Allocate the joint cost to the three products
using the physical units method. What
problem do you find with this method?
b) Allocate the joint cost to the three products
using the sales value at split-off method. Does
this allocation eliminate the problem
identified in (a)?
Exercise 13
Required:
c) Assume that the ground beef could be processed
into sausage that could be sold for P2.10 per pound
to a distributor that wants a special label costing
P0.15 per pound attached to the sausage. If
Indianola Beef uses the sales value at split-off
method to allocate joint cost, what is the maximum
separate cost of processing that the company could
incur to still appear to earn P0.40 per pound upon
the sale? If this separate cost were incurred, would
you consider the P0.40 per pound a real profit
amount?
Exercise 13: a
Product
# of
Pounds
Proportion
Joint Cost
Allocated
Joint Cost
Steaks
3,312
24%
P26,400
P 6,336
Roasts
6,210
45%
P 26,400
11,880
Ground
beef
4,278
31%
P26,400
8,184
13,800
100%
Total
P26,400
Exercise 13: a
Product
# of
Pounds
Proportion
Joint Cost
Allocated
Joint Cost
Steaks
3,312
24%
P26,400
P 6,336
Roasts
6,210
45%
P 26,400
11,880
Ground
beef
4,278
31%
P26,400
8,184
13,800
100%
Total
P26,400
Exercise 13: b
Product
# of
Pounds
SV at
split-off
Total SV
Proportion
Allocated
Joint Cost
Steaks
3,312 P4.25/lb.
P14,076
34%
P 8,976
Roasts
6,210 P3.80/lb.
23,598
57%
15,048
Ground
beef
4,278 P0.90/lb.
3,850
9%
2,376
P41,524
100%
P26,400
Total
Exercise 13: c
Selling price
P2,376/4,278
P 2.10
(0.56)
(0.15)
Profit desired
(0.40)
P 0.99
Exercise 15
All A-Buzz makes three products from a joint
production process using honey. Joint cost for
the process in 2013 is P123,200.
Units of
output
Honey
butter
10,000
P4.00
P3.00
P 6.00
Honey jam
20,000
6.40
4.00
14.00
Honey
syrup
1,000
3.00
0.40
3.60
Product
Incremental
processing
cost
Final sales
price
Exercise 15
Each container of honey butter, jam, and syrup
respectively, contains 16 ounces, 8 ounces, and 3 ounces
of product.
Required:
a) Determine which products should be processed
beyond the split-off point.
b) Assume honey syrup should be treated as a byproduct. Allocate joint cost based on units produced,
weight, and sales value at split-off. Use the net
realizable value method in accounting for the byproduct.
Exercise 15: a
Product
Honey
butter
Honey jam
Honey
syrup
Sales
Value
SV at
split-off
Incremental
Revenue
Incremental
Cost
Incremental
Profit
P 6.00
P 4.00
P2.00
P3.00
P(1.00)
14.00
6.40
7.60
4.00
3.60
3.60
3.00
0.60
0.40
0.20
Honey jam and honey syrup are the only ones that need
to be further processed.
Exercise 15: b
Unit-based allocation
Product
Units
Proportion
Honey
butter
10,000
33%
Honey
jam
20,000
67%
Total
30,000
Joint Cost
Allocated
Joint Cost
P120,000 P 40,000
120,000
80,000
P120,000
Exercise 15: b
Weight-based allocation
Product
Honey
butter
Honey
jam
Total
Weight
Proportion
Joint Cost
160,000
50%
P120,000
P 60,000
160,000
50%
120,000
60,000
320,000
P120,000
Exercise 15: b
Sales value at split-off allocation
Product
SV at SplitProportion
off
Joint Cost
Allocated Joint
Cost
Honey
butter
P 40,000
24%
P120,000
P 28,800
Honey
jam
128,000
76%
120,000
91,200
P168,000
100%
Total
P120,000
Exercise 19
Bright Red Cannery makes three products from a
single joint process. For 2013, the cannery
processed all three products beyond split-off.
The following data were generated for this year:
Product
Candied apples
Apple jelly
Apple jam
Incremental
Separate Cost
P26,000
32,000
15,000
Total Revenue
P690,000
775,000
271,000
Exercise 19
Analysis of 2013 market data reveals that
candied apples, apple jelly, and apple jam could
have been sold at split-off for P670,000,
P730,000, and P260,000, respectively.
a) Based on hindsight, evaluate managements
production decisions in 2013.
b) How much additional profit could the
company have generated in 2013 if it had
made optimal decisions at split-off?
Exercise 19: a
Exercise 19: b
Candied apples= P6,000
Apple jam= P4,000
Exercise 20
MediaForum has three operating groups: Games,
News, and Documentaries. In May, the company
incurred P24,000,000 of joint cost for facilities
and administration. May revenues and separate
production costs of each group are as follows:
Revenue
Separate costs
Games
P34,040,000
31,040,000
News
Documentaries
P30,720,000
P189,320,000
16,320,000
110,720,000
Exercise 20
Required:
a) What amount of joint cost is allocated to each operating group
using the net realizable value approach? Compute the profit for
each operating area after the allocation.
b) What amount of joint cost is allocated to each operating group if the
allocation is based on revenues? Compute the profit for each
operating group after the allocation.
c) Assume you are the head of the Games Group. Would the
difference in allocation bases create significant problems for you
when you report to the top management of the company? Develop a
short presentation for top management if the allocation base in (b)
is used to determine each operating groups relative profitability. Be
certain to discuss important differences in revenues and cost figures
for the Games and Documentaries groups.
Exercise 20: a
Revenue
Separate costs
NRV
Group
Games
News
Documentaries
P 34,040,000 P30,720,000
P 189,320,000
(31,040,000) (16,320,000)
(110,720,000)
P 3,000,000 P 14,400,000
P 78,600,000
NRV
Proportion
Joint cost
Allocated
Joint Cost
Games
P 3,000,000
3%
P 24,000,000
News
14,400,000
15%
24,000,000
3,600,000
Documentaries
78,600,000
82%
24,000,000
19,680,000
P 96,000,000
100%
Total
720,000
P 24,000,000
Exercise 20: a
Revenue
Separate costs
Allocated costs
Net profit
Games
News
Documentaries
P 34,040,000 P30,720,000 P 189,320,000
(31,040,000) (16,320,000) (110,720,000)
(720,000) (3,600,000)
(19,680,000)
P 2,280,000 P 10,800,000
P 58,920,000
Exercise 20: b
Revenue
Proportion
Joint
Cost
Allocated
Joint Cost
Games
News
Documentaries
P 34,040,000
30,720,000
189,320,000
13%
12%
75%
P 24M P 3,120,000
24M
2,880,000
24M 18,000,000
Total
P 254,080,000
100%
P 24,000,000
Exercise 20: b
Games
Revenue
Separate costs
Allocated costs
Net profit(loss)
News
P 34,040,000 P30,720,000
(31,040,000) (16,320,000)
(3,120,000)
(2,880,000)
P (120,000) P 11,520,000
Documentaries
P 189,320,000
(110,720,000)
(18,000,000)
P 60,600,000
Exercise 20: c
Using revenues as the allocation base would
create significant problems for the Games Group
since it resulted to a net loss. The revenue alone
is an arbitrary base for allocation .
Exercise 26
You Carve Me Up manufactures wood statues,
which yields sawdust as a by-product. Selling costs
associated with the sawdust are P250 per ton sold.
The company accounts for sawdust sales by
deducting the sawdusts net realizable value from
the major products cost of goods sold. Sawdust
sales in 2013 were 1,200 tons at P355 each. If You
Carve Me Up changes its method of accounting for
sawdust sales to show the net realizable value as
Other Revenue, how would its gross margin be
affected?
Exercise 26