Cost Accounting QuizJoint Product and By Product quiz 23/06/2026 1 min read 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 objectsexceptto : Reduce total costs identified with products Provide information for economic decision making Measure income and assets for external reporting purposes Justify costs for reimbursement 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 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 Constant gross margin percentage method Net realizable value 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 3 / 10 The distinction between joint products and by-products is largely dependent on : Prime costs Salvage value Historical costs Market value 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 4 / 10 The principal disadvantage of using the physical quantity method of allocating joint costs is that Joint costs, by definition, should not be separated on a unit basis Costs assigned to inventories may have no relationship to value Physical quantities may be difficult to measure Additional processing costs affect the allocation base 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 5 / 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 A reduction in the common cost to be allocated to the three main products 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 Revenue in the period it is sold 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 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 ? Sales value at split-off method Physical measures method using sales volume Physical measures method using weight 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 Joint costs are useful for Determining whether to continue producing an item Determining inventory cost for accounting purposes Evaluating management by means of a responsibility reporting system Setting the selling price of a product 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 8 / 10 The primary purpose for allocating common costs to joint products is to determine : The selling price of a by-product The inventory cost of joint products for financial reporting The variance between budgeted and actual common costs 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 9 / 10 All of the following are methods of allocating joint costs to joint productsexcept Gross market value method Separable production cost method Physical quantities method Net realizable value 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 10 / 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 ease of selling the products Relative total sales value of the products Relative total volume of 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 Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback 🚀 Join Telegram Group 📢 Telegram Channel 📘 Facebook Group 👍 Facebook Page 📌 Pinterest
