Joint Product and By Product quiz Cost Accounting Quiz On Mar 24, 2026 Share Joint Product and By Product 10 questions in 10 minutes Pass Score 70% 1 / 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 : Provide information for economic decision making Reduce total costs identified with products Justify costs for reimbursement purposes Measure income and assets for external reporting purposes 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 2 / 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 sales value of the products Relative total volume of the products Relative ease of selling the products Accounting method used to allocate joint costs 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 3 / 10 The principal disadvantage of using the physical quantity method of allocating joint costs is that Additional processing costs affect the allocation base Physical quantities may be difficult to measure Costs assigned to inventories may have no relationship to value Joint costs, by definition, should not be separated on a unit basis 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 4 / 10 The primary purpose for allocating common costs to joint products is to determine : The variance between budgeted and actual common costs The inventory cost of joint products for financial reporting The selling price of a by-product Whether one of the joint products should be discontinued 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 5 / 10 All of the following are methods of allocating joint costs to joint products except Net realizable value method Gross market value method Separable production cost 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 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 Sales value at split-off method Physical measures method using sales volume 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% 7 / 10 A company produces three main joint products and one by-product. The by-product‟s relative sales value is quite low compared with that of the main products. The preferable accounting for the by product‟s net realizable value is as Revenue in the period it is sold An addition to the revenues of the other products allocated on the basis of their respective net realizable values A separate net realizable value upon which to allocate some of the common costs A reduction in the common cost to be allocated to the three main products Because of the relatively small sales value, a cost-effective allocation method is used for by-products. The net realizable value of by-products is usually deducted from the cost of the main products 8 / 10 The distinction between joint products and by-products is largely dependent on : Market value Prime costs Salvage value Historical 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 9 / 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 ? Separable costs after the split-off point Joint costs to the split-off point Sales salaries for the period when the units were produced Purchase costs of the materials required for the joint products 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 10 / 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 ? Net realizable value method Sales value at split-off 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 Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback a joint product isby productby product definition
