Joint And By-Products

Practice Test

I. Multiple Choice Question: Encircle the letter of the correct answer.

1. The point in a joint production process where each individual product becomes separately identifiable is
commonly called the:
a. separation point.
b. individual product point.
c. split-off point.
d. joint product point.

2. The joint-cost allocation method that recognizes the revenues at split-off but does not consider any
further processing costs is the:
a. relative-sales-value method.
b. net-realizable-value method.
c. physical-units method.
d. reciprocal-accounting method.

3. Which of the following methods should be selected if a company terminates all processing at the split-
off point and desires to use a cost-allocation approach that considers the "revenue-producing ability" of
each product?
a. Reciprocal-accounting method.
b. Relative-sales-value method.
c. Physical-units method.
d. Net-realizable-value method.

4. Which of the following choices correctly denotes the data needed to allocate joint costs under the
relative-sales-value method?

Sales Value@Split-Off Separable Cost Sales Value After Processing Beyond Split-Off
a. Yes Yes No
b. Yes Yes Yes
c. Yes No No
d. No Yes Yes

5. When allocating joint costs, Wolstein calculates the final sales value of the various products
manufactured and subtracts appropriate separable costs. The company is using the:
a. gross margin at split-off method.
b. reciprocal-accounting method.
c. relative-sales-value method.
d. net-realizable-value method.

6. Ithaca Corporation uses the physical-units method to allocate costs among its three joint products: X, Y,
and Z. The following data are available for the period just ended:
● Joint processing cost: P800,000
● Total production: 150,000 pounds
● Share of joint cost allocated to X: P160,000
● Share of joint cost allocated to Y: P400,000

Which of the following statements is true?

 a. The company would have relied on the sales value of each product when allocating joint costs
to X, Y, and Z.
b. Ithaca produced 45,000 pounds of Z during the period.
c. Ithaca produced 105,000 pounds of Z during the period.
d. Based on the data presented, it is not possible to determine Ithaca's production of Z during the
period.

7. Garvin Corporation manufactures joint products P and Q. During a recent period, joint costs amounted
to P80,000 in the production of 20,000 gallons of P and 60,000 gallons of Q. Garvin can sell P and Q
at split-off for P2.20 per gallon and P2.60 per gallon, respectively. Alternatively, both products can be
processed beyond the split-off point, as follows:
P Q
Separable processing costs P15,000 P35,000
Sales price (per gallon) if processed beyond split-off P3 P4

The joint cost allocated to Q under the relative-sales-value method would be:
a. P40,000.
b. P62,400.
c. P64,000.
d. P65,600.

8. Joint costs are most frequently allocated based upon relative

a. Profitability
b. Conversion costs
c. Sales value
d. Prime costs

9. Which of the following components of production are allocable as joint costs when a single
manufacturing process produces severable salable products?
a. Materials, labor, overhead
b. Materials and labor only
c. Labor and overhead only
d. Overhead and materials only

10. At the split-off point, products may be immediately salable or may require further processing. Which of
the following products have both of these characteristics?

By-products Joint products

a. No No
b. No Yes
c. Yes No
d. Yes Yes

11. Which of the following is often subject to further processing in order to be salable?

By-products Scrap
a. No No
b. No Yes
c. Yes Yes
d. Yes No
 12. For purposes of allocating joint costs to joint products, the relative sales value at spilt-off method could
be used in which of the following situations?
No Costs Beyond Split-off Costs beyond Split-off
a. Yes Yes
b. Yes No
c. No Yes
d. No No

13. Lily Co. produces main products K and W. The process also yields by-product Z. Net realizable value of
by-product Z is subtracted from joint production cost of K and W. The following information pertains to
production in July 2001 at a joint cost of P54,000:

Product Unit Produced Market value Additional cost after split-off

K 1,000 P40,000 P0
W 1,500 35,000 0
Z 500 7,000 3,000

If Lily uses the net realizable value method for allocating joint cost, how much of the joint cost should be
allocated to product K?
a. P18, 800
b. P26, 667
c. 20,000
d. 27,342

14. Joint costs are used for

a. Setting the selling price of a product
b. Determining whether to continue producing an item
c. Controlling costs
d. Determining inventory cost for accounting purposes

15. Cruz Company produces joint products A and B from a process that also yields a by-product, Y. The
by-product requires additional processing before it can be sold. The cost assigned to the by-product is
its market value less additional costs incurred after split-off (NRV method). Information concerning a
batch produced in January at a joint cost of P40,000 is as follows:

Product Units Produced Market Value Costs after Split-off

A 800 P44,000 P4,500
B 700 32,000 3,500
C 500 4,000 1,000

How much of the joint cost should be allocated to the joint products?
a. P35, 000
b. P37, 000
c. P36,000
d. P39,000

16. The following statement that best describes a by-product is:

a. a product that usually produces a small amount of revenue when compared to the main
product's revenue.
b. a product that does not bear any portion of the joint processing costs
 c. a product that is produced from material that would otherwise be scrap
d. a product that has a lower unit selling price than the main product

17. Consider the following statements about joint product cost allocation:
I. Joint product cost is allocated because it is necessary for inventory valuation.
II. Joint product cost is allocated because it is necessary for making economic decisions about
individual products (e.g., sell at split-off or process further).
III. Joint cost may be allocated to products by using several different methods.

Which of the above statements is (are) correct?

a. I, II and III.
b. III only.
c. I and II.
d. I and III.

18. The characteristic that is most often used to distinguish a product as either a joint product or a by-
product is the:
a. amount of labor used in processing the product
b. amount of separable product costs that are incurred in processing
c. amount (i.e., weight, inches, etc.) of the product produced in the manufacturing process
d. relative sales value of the products produced in the process.

19. Brad, Inc., makes two products, Wet and Dry, form a joint process. For the month of May, 2008, the
total joint costs of processing was P120,00 and the costs of further processing after the point of split-
off, as well as other relevant data are shown below:
Wet Dry
Units after split-off………………………………….. 1,600 800
Sales price per unit………………………………….. P 200 P 400
Further processing costs……………………………….. P100,000 P140,000

The company uses the net realizable value method for allocating the joint costs of processing. For the month of
May, 2008, the joint cost allocated to product Wet was:
a. P60,000
b. P72,000
c. 66,000
d. 80,000

For items 20-22. Use the following information:

Rocky Mountain Company produces two products (X and Y) from a joint process. Each product may be sold at
the split-off point or processed further. Additional processing requires no special facilities, and production
costs of further processing are entirely variable and traceable to the products involved. Joint manufacturing
costs for the year were P60,000. Sales values and costs were as follows:

If Processed Further
Units Sales Value Sales Separable
Product Made at Split-off Value Costs
X 9,000 P40,000 P78,000 P10,500
Y 6,000 80,000 90,000 7,500

20. If the joint production costs are allocated based on the physical-units method, the amount of joint cost
assigned to product X would be:
 a. P20,000.
b. P24,000.
c. P30,000.
d. P36,000.

21. If the joint production costs are allocated based on the relative-sales-value method, the amount of joint
cost assigned to product X would be:
a. P20,000.
b. P27,000.
c. P33,000.
d. P40,000.

22. If the joint production costs are allocated based on the net-realizable-value method, the amount of joint
cost assigned to product Y would be:
a. 20,000.
b. 27,000.
c. 33,000.
d. 40,000.

23. A company produces three main joint products and one by-product. The by-product's relative market
value is quite low compared to that of the main products. The preferable accounting for the by-product's
net realizable value is as:
A. an addition to the revenues of the other products allocated on their respective net realizable
values
B. revenue in the period in which it is sold
C. a reduction in the joint cost to be allocated to the three main products.
D. a separate net realizable value upon which to allocate some of the joint costs

24. Reporting revenue from by-product sales on the income statement as additional sales revenue:
A. allocates costs to by-products on the basis of quantities produced
B. reduces the main product cost by the estimated market value of the by-product
C. credits main product costs only when the by-product is used in further production
D. overstated ending inventory costs of the main product.

25. By-products are

A. allocated a portion of joint production cost
B. not sufficient alone, in terms of sales value, for management to justify undertaking the joint
process.
C. also known as scrap
D. the primary reason management undertook the production process.

26. Which of the following statements about joint-cost allocation is false?

a. Joint-cost allocation is useful in deciding whether to further process a product after split-off.
b. Joint-cost allocation is useful in making a profit determination about individual joint products.
c. Joint-cost allocation is helpful in inventory valuation.
d. Joint-cost allocation can be based on the number of units produced.

27. Eastside Hospital has two service departments (Patient Records and Accounting) and two "production"
departments (Internal Medicine and Surgery). Which of the following allocations would likely take place
under the reciprocal-services method of cost allocation?
a. Allocation of Accounting cost to Patient Records.
 b. Allocation of Patient Records cost to Internal Medicine. .
c. Allocations "A" and "B" above.
d. None of the following.

28. Westside Hospital has two service departments (Patient Records and Accounting) and two "production"
departments (Internal Medicine and Surgery). Which of the following allocations would not take place
under the reciprocal-services method of cost allocation?
a. Allocation of Accounting cost to Patient Records.
b. Allocation of Patient Records cost to Internal Medicine.
c. Allocation of Internal Medicine cost to Surgery.
d. Allocations "A" and "B" above.

29. Consider the following statements about dual-cost allocation:

I. Dual-cost allocation prevents a change in the short-run activity of one department from affecting
the cost allocated to another department.
II. Dual-cost allocations create an incentive for user department managers to understate their
expected long-run service needs.
III. Dual-cost allocations are generally preferred over lump-sum allocations, or those that combine
variable and fixed costs together.

Which of the above statements is (are) true?

a. I only.
b. III only.
c. I, II, and III.
d. All statements are false.

30. Under dual-cost/rate allocation, fixed costs are allocated on the basis of a user department's:
a. long-run usage of a service department's output.
b. short-run usage of a service department's output.
c. long-run usage and short-run usage of a service department's output.
d. neither long-run usage nor short-run usage of a service department's output.

II. True or False: Write the word “True” if the statement is correct and “False” if the statement is incorrect.

1. Joint-cost allocation is useful in deciding whether to further process a product after split-off.
2. In the Physical Method, the weight factors and their relative weights are usually combined in a
single value.
3. The Split-Off Point is the point at which the joint products become separate and identifiable.
4. In step-up methods of joint cost allocation, once a service department’s costs have been
allocated, no subsequent costs are allocated back to the other service department.
5. Joint-cost allocation is useful in making a profit determination about individual joint products.
6. Actual cost is the allocation bases to be used in determining charging rates.
7. Fixed support department costs are allocated on the basis of maximum capacity
8. Sequential method of allocation ignores the fact that service departments may also provide
services to other service departments.
9. Net Realizable Value = Final Sales Value - Actual Cost to Complete and Sale
10. Joint-cost allocation can be based on the number of units produced.

– NOTHING FOLLOWS –
KEY TO CORRECTIONS

Answers to Multiple Choice Section:

1. c
2. a
3. b
4. c
5. d
6. b
7. b
8. c
9. a
10. d
11. c
12. b
13. b
14. d
15. b

16. a
17. d
18. d
19. c
20. d
21. a
22. c
23. c
24. d
25. d
26. a
27. c
28. c
29. c
30. a

Answers to True or False Section:

1. False
2. False
3. True
4. True
5. True
6. False
7. False
8. False
9. True
10. True