Joint Product and By Product quiz Cost Accounting Quiz Share Joint Product and By Product 10 questions in 10 minutes Pass Score 70% 1 / 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 Physical quantities may be difficult to measure 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 2 / 10 All of the following are methods of allocating joint costs to joint productsexcept Separable production cost method Gross market value 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 3 / 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 Accounting method used to allocate joint costs Relative total sales value of the products Relative total volume 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 4 / 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 : Provide information for economic decision making Justify costs for reimbursement purposes Reduce total costs identified with products 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 5 / 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 production volume Physical measures method using sales 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% 6 / 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 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 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 7 / 10 Joint costs are useful for Determining inventory cost for accounting purposes Setting the selling price of a product Evaluating management by means of a responsibility reporting system Determining whether to continue producing an item 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 variance between budgeted and actual common costs The inventory cost of joint products for financial reporting Whether one of the joint products should be discontinued The selling price of a by-product 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 The distinction between joint products and by-products is largely dependent on : Historical costs Market value Salvage 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 10 / 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 ? Joint costs to the split-off point Separable costs after the split-off point Purchase costs of the materials required for the joint products Sales salaries for the period when the units were produced 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 Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback a joint product isby productby product definition
