Joint Product and By Product quiz Cost Accounting Quiz On May 3, 2024 Share /10 12345678910 Joint Product and By Product 10 questions in 10 minutes Answers at the end of the exam Pass Score 70% enter full-screen mode by pressing the icon located in the top- right comer of the exam 1 / 10 A company manufactures several products that originate in a joint process and are separated at a split-off point. Which one of the following methods of joint-cost allocation would allocate the same unit cost to each separable product ? Sales value at split-off method Net realizable value method Constant gross margin percentage method Physical quantity method The physical quantity (unit) method is the simplest; it allocates joint production costs to each product based on their relative proportions of the measure selected. Using this method results in a an identical unit cost for each separable product 2 / 10 Indirect and common costs often make up a significant portion of the cost of a product. All of the following are reasons for indirect cost allocation to cost objects except to : Measure income and assets for external reporting purposes Reduce total costs identified with products Justify costs for reimbursement purposes Provide information for economic decision making The total costs identified with products are unaffected by the treatment of indirect and common costs. The ability to identify a cost with a product is determined by traceability 3 / 10 Joint costs are useful for Determining whether to continue producing an item Setting the selling price of a product Evaluating management by means of a responsibility reporting system Determining inventory cost for accounting purposes Joint costs are useful for inventory costing when two or more identifiable products emerge from a common production process. The joint costs of production must be allocated on some basis, such as relative sales value 4 / 10 In joint-product costing and analysis, which one of the following costs is relevant when deciding the point at which a product should be sold to maximize profits ? Sales salaries for the period when the units were produced Purchase costs of the materials required for the joint products Separable costs after the split-off point Joint costs to the split-off point Joint products are created from processing a common input. Joint costs are incurred prior to the split-off point and cannot be identified with a particular joint product. As a result, joint costs are irrelevant to the timing of sale. However, separable costs incurred after the split-off point are relevant because, if incremental revenues exceed the separable costs, products should be processed further, not sold at the split-off point 5 / 10 All of the following are methods of allocating joint costs to joint products except Gross market value method Separable production cost method Net realizable value method Physical quantities method No “separable production cost method” is recognized for allocating joint costs. The nature of the problem is such that all costs are joint and cannot be separated 6 / 10 In a production process where joint products are produced, the primary factor that will distinguish a joint product from a by-product is the Relative total volume of the products Accounting method used to allocate joint costs Relative total sales value of the products Relative ease of selling the products In a production process where joint products are produced, the primary factor that will distinguish a joint product from a by-product is the relative total sales value of the products 7 / 10 The distinction between joint products and by-products is largely dependent on : Salvage value Historical costs Market value Prime costs A by-product is one of relatively small total value. The first question that must be answered in regard to by-products is: Do the benefits of further processing and bringing them to market exceed the costs; that is, is the incremental revenue worth the effort? Market price determines this. The same can essentially be said for the main products of the production process 8 / 10 If all of the joint products are sold at the split-off point and an overall profit is made on all of the products, which one of the following joint costing methods will result in the same gross margin percentage on each joint product ? Physical measures method using weight Physical measures method using sales volume Sales value at split-off method Physical measures method using production volume The sales value at split-off method is based on the relative sales values of the separate costs at split-off. Gross margin percentage is calculated as the difference between sales price and cost divided by sales price. Since each joint product receives the amount of separate cost proportional to its sales value, the gross margin percentage calculation will be the same. For instance, if there are two products whose sales prices are $40 and $60, respectively, the joint product costs allocated will also be in a 2:3 ratio, e.g., $10 and $15. The first product will have a gross margin percentage of the following: ($40 – $10) ÷ $40 = 75% The second product will also have a gross margin percentage of the following: ($60 – $15) ÷ $60 = 75% 9 / 10 The primary purpose for allocating common costs to joint products is to determine : Whether one of the joint products should be discontinued The selling price of a by-product The inventory cost of joint products for financial reporting The variance between budgeted and actual common costs Joint products must be valued for external financial reporting purposes based on the full (absorption) cost of the product. Any common costs attributable to the joint production process must therefore be allocated on a systematic and rational basis 10 / 10 The principal disadvantage of using the physical quantity method of allocating joint costs is that Costs assigned to inventories may have no relationship to value Additional processing costs affect the allocation base Joint costs, by definition, should not be separated on a unit basis Physical quantities may be difficult to measure Joint costs are most often assigned on the basis of relative sales values or net realizable values. Basing allocations on physical quantities, such as pounds, gallons, etc., is usually not desirable because the costs assigned may have no relationship to value. When large items have low selling prices and small items have high selling prices, the large items might always sell at a loss when physical quantities are used to allocate joint costs Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback a joint product isby productby product definition