Name:
Muhammad Usman Yousaf
Roll Number:
AF18LHB0114
Class:
ADP (Accounting and
Finance)
Submitted To:
Irfan Gondal
RIPHAH
INTERNATIONAL
COLLEGE
Jehangir Road, Fateh Garh, Main
Canal Road, Near MCB Bank,
Lahore.
+92 (42) 36526889-90
Question 1:
Briefly discuss the four decisions that management must make concerning joint
processes?
Ans:
The four decisions that managers must make regarding joint processes are as follows.
1. They must try to determine what joint costs, selling costs, and separate processing costs
are expected to occur when certain products are manufactured.
2. management must decide on the best use of resources that are available. Managers must
next classify, as joint products and/or by-products/scrap, the output of production.
3. The last decision that must be made is whether some or all of the products will be
processed further or sold at split-off.
4. This decision is made based on the incremental costs that would be incurred to process
further and the incremental revenue if processed further. Joint production costs are
irrelevant to this decision.
Question 2:
Briefly discuss the six steps in the allocation process ?
Ans:
The six steps are as follows:
1. Choose the basis on which to allocate joint cost.
2. List all values that comprise the basis.
3. Add up all the values in the list (#2).
4. Determine the percentage of the total each item in (#2).
5. Muktiply the percentage by the cost being allocated.
6. For caluation purposes, divide the proroated cost by equivalent units of production.
Question 3:
Discuss briefly the three monetary measurement techniques of joint cost allocation ?
Ans:
The sales value at split-off method assigns costs based only on the weighted proportions of
the total sales values of the joint products without consideration of disposal costs at the split-off
point.
To use this method, all products must be salable at the split-off point. The net realizable value
method assigns costs based on the product's proportional net realizable value at the split-off
point. Net realizable value is equal to product sales revenue at split-off minus any costs
necessary to prepare and dispose of the product.
Approximated net realizable value at split-off method requires that a simulated net realizable
value at split-off be calculated. This is equal to final sales price minus incremental separate
costs. Incremental separate costs refer to all costs that are incurred between split-off and the
point of sale.
Question 4:
Butler Manufacturing Company makes three products: A and B are considered main
products and C a by-product.
Production and sales for the year were:
220,000 lbs. of Product A, salable at $6.00
180,000 lbs. of Product B, salable at $3.00
50,000 lbs. of Product C, salable at $.90
Production costs for the year:
Joint costs $276,000
Cost after speration:
Product A 320,000
Product B 190,000
Product C 6,900
Required: Using the by-product revenue as a cost reduction and net realizable value method of
assigning joint costs, compute unit costs
(a) if C is a by-product of the process
(b) if C is a by-product of B.
Ans:
JOINT COST $276,600
- NRV C (38,100) (50,000 - $.90) - $ 6,900
TO
$238,500
ALLOCATE
SALES VALUE - COST AFTER SEPARATION = NRV
220,000 ´ $6 = $1,320,000 - $320,000 = $1,000,000
180,000 ´ $3 = $ 540,000 - $190,000 = 350,000
$1,350,000
ALLOCATION
$1,000,000/$1,350,000 ´ $238,500 = $176,667
$ 350,000/$1,350,000 ´ $238,500 = 61,833
$238,500
UNIT COST:
A ($176,667 + $320,000)/220,000 = $2.26
B ($61,833 + $190,000)/180,000 = $1.40
NRV
A $1,000,000 = $1,000,000/$1,388,100 ´ $276,600 = $199,265
B $350,000 + $38,100 = 388,100/$1,388,100 ´ $276,600 = $ 77,335
$1,388,100
UNIT COST
A ($199,265 + $320,000)/220,000 = $2.36
B ($77,335 + $151,900)/180,000 = $1.27
