ACCT 301 Saudi Electronic University Cost Accounting Questions: Accounting Answers 2021

ACCT 301 Saudi Electronic University Cost Accounting Questions: Accounting Answers 2021

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ACCT 301 Saudi Electronic University Cost Accounting Questions

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Cost Management
Measuring, Monitoring, and Motivating Performance
Chapter 9
JOINT PRODUCT AND BY-PRODUCT COSTING
? John Wiley & Sons, 2011
Chapter 9: Joint Product and By-Product Costing
Eldenburg & Wolcott?s Cost Management, 2e
Slide # 1
Chapter 9: Joint Product and By-Product Costing
Learning objectives
?
Q1: What is a joint process, and what is the difference between a
by-product and a main product?
?
Q2: How are joint costs allocated?
?
Q3: What factors are considered in choosing a joint cost
allocation method?
?
Q4: What information is relevant for deciding whether to process a
joint product beyond the split-off point?
?
Q5: What methods are used to account for the sale of byproducts?
?
Q6: How does a sales mix affect joint cost allocation?
?
Q7: How do joint cost allocations affect decisions and
managerial incentives?
? John Wiley & Sons, 2011
Chapter 9: Joint Product and By-Product Costing
Eldenburg & Wolcott?s Cost Management, 2e
Slide # 2
Q1: Joint Processes and Costs
? A process that yields one or more products is
called a joint process.
? The products are called joint products.
? The costs of the process are called joint costs.
? The split-off point is the stage in the joint process
where the separate products become
identifiable.
? Joints costs are incurred prior to the split-off point.
? Costs incurred past split-off are separable costs.
? Joint products that have minimal sales value
compared to the main product are called byproducts.
? John Wiley & Sons, 2011
Chapter 9: Joint Product and By-Product Costing
Eldenburg & Wolcott?s Cost Management, 2e
Slide # 3
Q1: Joint Processes and Costs
Sawdust
Sawdust
Bark
Bark
Joint costs
include DM,
DL &
Overhead.
? John Wiley & Sons, 2011
Planks
Planks
If sawdust sells for a
relatively minimal amount,
it is a byproduct.
The costs of
processing
planks further
are separable
costs.
Wall
Wall
paneling
paneling
Joint products
Chapter 9: Joint Product and By-Product Costing
Eldenburg & Wolcott?s Cost Management, 2e
Slide # 4
Q2: Methods of Allocating Joint Costs
? Physical output methods
? Can be used only when joint products are
measured the same way (e.g. pounds or feet).
? Market-based methods
? Sales value at split-off method
? Often used when all products sold at split-off.
? Net realizable value (NRV) method
? NRV = Final selling price ? Separable costs.
? Constant gross margin (GM) NRV method
? The two NRV methods can be used when
some products are processed past split-off.
? John Wiley & Sons, 2011
Chapter 9: Joint Product and By-Product Costing
Eldenburg & Wolcott?s Cost Management, 2e
Slide # 5
Q2: Physical Volume Method Example
Pleasing Peaches grows peaches and processes three different peach
products that are sold to a canning company. The pounds produced for
each product, and the selling price per pound, is given below. The joint
costs of processing the 280,000 pounds of products were $70,000.
Allocate the joint costs to each product using the physical volume method.
Selling Total Sales
Pounds
Price per
Value at
Product
Produced
Pound
Split-Off
Peach halves 160,000
$0.50
$80,000
Peach slices
80,000
$0.40
$32,000
Peach pur?e
40,000
$0.30
$12,000
280,000
$124,000
? John Wiley & Sons, 2011
Chapter 9: Joint Product and By-Product Costing
Eldenburg & Wolcott?s Cost Management, 2e
Relative
Allocated
Weight Joint Costs
57.1%
$40,000
28.6%
$20,000
14.3%
$10,000
100.0%
$70,000
Slide # 6
Q2: Sales Value at Split-Off Method Example
Allocate the joint costs of $70,000 to each of Pleasing Peaches products
using the sales value at split-off method.
Product
Peach halves
Peach slices
Peach pur?e
? John Wiley & Sons, 2011
Pounds
Produced
160,000
80,000
40,000
280,000
Selling
Price per
Pound
$0.50
$0.40
$0.30
Total Sales
Value at
Split-Off
$80,000
$32,000
$12,000
$124,000
Chapter 9: Joint Product and By-Product Costing
Eldenburg & Wolcott?s Cost Management, 2e
Relative
Sales
Allocated
Value Joint Costs
64.5%
25.8%
9.7%
100.0%
$45,161
$18,065
$6,774
$70,000
Slide # 7
Q2, 6: Compare the Physical Volume and
Sales Value at Split-Off Methods
Compute the gross margin for each product for each of the two allocation
methods. Discuss the differences between the two methods.
Total
Sales
Value at
Product
Split-Off
Peach halves $80,000
Peach slices
$32,000
Peach pur?e
$12,000
$124,000
? John Wiley & Sons, 2011
Allocated Joint
Costs
Sales
Physical Value at
Volume Split-Off
Method
Method
$40,000 $45,161
$20,000 $18,065
$10,000 $6,774
$70,000 $70,000
Gross Margin
Sales
Physical Value at
Volume Split-Off
Method
Method
$40,000 $34,839
$12,000 $13,935
$2,000 $5,226
$54,000 $54,000
Chapter 9: Joint Product and By-Product Costing
Eldenburg & Wolcott?s Cost Management, 2e
Slide # 8
Q2, 6: Compare the Physical Volume and
Sales Value at Split-Off Methods
Compute the gross margin ratio (GM/Sales) for each product under both of
the methods and discuss.
Product
Peach halves
Peach slices
Peach pur?e
? John Wiley & Sons, 2011
Total
Sales
Value at
Split-Off
$80,000
$32,000
$12,000
$124,000
Gross Margin
Sales
Physical Value at
Volume
Split-Off
Method
Method
$40,000 $34,839
$12,000 $13,935
$2,000 $5,226
$54,000 $54,000
Chapter 9: Joint Product and By-Product Costing
Eldenburg & Wolcott?s Cost Management, 2e
Gross Margin Ratio
Sales
Physical Value at
Volume Split-Off
Method
Method
50.0%
43.5%
37.5%
43.5%
16.7%
43.5%
43.5%
43.5%
Slide # 9
Q2: Net Realizable Value (NRV) Method Example
Pleasing Peaches could process each of its three products beyond split off.
It could can the peach halves itself, make the peach slices into frozen
peach pie, and make juice out of the peach pur?e. The retail value of the
new products and the separable costs for the additional processing are
given below. Compute the joint costs allocated to each of the products
using the NRV method.
Final
Sales Separable
Relative
Product
Value
Costs
NRV NRV
Canned peaches $180,000 $60,000 $120,000
64.2%
Peach pie
$120,000 $70,000
$50,000
26.7%
Peach juice
$50,000 $33,000
$17,000
9.1%
$350,000 $163,000 $187,000 100.0%
? John Wiley & Sons, 2011
Chapter 9: Joint Product and By-Product Costing
Eldenburg & Wolcott?s Cost Management, 2e
Allocated
Joint
Costs
$44,920
$18,717
$6,364
$70,000
Slide # 10
Q2: Constant GM NRV Method
? Under the constant GM NRV method, all products
are allocated joint costs to achieve the same gross
margin ratio (GM%).
? First compute overall gross margin and GM%:
GM = Revenue ? Joint costs ? Separable costs
GM% = GM/Sales
? Then compute the GM for each product:
GM = Final sales value x GM%
? All products end up with the same gross margin ratio;
for each product solve for allocated joint costs:
Final sales value ? joint costs ? separable costs = GM
? John Wiley & Sons, 2011
Chapter 9: Joint Product and By-Product Costing
Eldenburg & Wolcott?s Cost Management, 2e
Slide # 11
Q2: Constant GM NRV Method Example
Compute the joint costs that Pleasing Peaches would allocate to each of
the products using the constant GM NRV method.
First compute the overall GM and GM ratio:
GM = $350,000 ? $163,000 ? $70,000 = $117,000
GM% = $117,000/$350,000 = 33.43%
Final
Sales
Product
Value
Canned peaches $180,000
Peach pie
$120,000
Peach juice
$50,000
$350,000
Separable
Costs
$60,000
$70,000
$33,000
$163,000
Allocated
Joint Gross
Costs Margin
$59,829 $60,171
$9,886 $40,114
$286 $16,714
$70,000 $117,000
Gross
Margin
Ratio
33.4%
33.4%
33.4%
Values are rounded as appropriate.
? John Wiley & Sons, 2011
Chapter 9: Joint Product and By-Product Costing
Eldenburg & Wolcott?s Cost Management, 2e
Slide # 12
Q2, 6: Compare the NRV and
Constant GM NRV Methods
Compute the gross margin (GM) and the gross margin ratio (GM%) for
each product under NRV method. Compare this to the results of the
constant GM NRV method and discuss.
Product
Peach halves
Peach slices
Peach pur?e
Final
Sales
Value
$180,000
$120,000
$50,000
$350,000
Gross Margin
Gross Margin Ratio
Constant
Constant
NRV
GM NRV
NRV
GM NRV
Method
Method Method
Method
$75,080
$60,171
41.7%
33.4%
$31,283
$40,114
26.1%
33.4%
$10,636
$16,714
21.3%
33.4%
33.4%
$117,000 $117,000
33.4%
Values are rounded as appropriate.
? John Wiley & Sons, 2011
Chapter 9: Joint Product and By-Product Costing
Eldenburg & Wolcott?s Cost Management, 2e
Slide # 13
Q3: Choosing a Joint Cost Allocation Method
? Allocated joint costs should not be used in
decision making.
? Still, avoid a method that shows one product
to be unprofitable.
? Under the physical volume method, the
product with the greatest relative physical
volume is allocated the most joint costs,
regardless of product?s sales value.
? Both of the NRV methods allocate joint
costs based on the products? ?ability to
bear the cost?.
? John Wiley & Sons, 2011
Chapter 9: Joint Product and By-Product Costing
Eldenburg & Wolcott?s Cost Management, 2e
Slide # 14
Q4: Sell or Process Further Decisions
? Companies often can choose to sell a product
at the split-off point or to process it further.
? Compare the incremental revenue of
processing further to the product?s separable
costs.
? Incremental revenue of processing further
= Final sales value ? Sales value at split-off
? Process further only when the incremental
revenue exceeds the separable costs.
? John Wiley & Sons, 2011
Chapter 9: Joint Product and By-Product Costing
Eldenburg & Wolcott?s Cost Management, 2e
Slide # 15
Q4: Sell or Process Further Example
Peg?s Plastic Products makes the molded plastic parts for three model car
kits, A, B & C from a joint production process. The joint costs of this
process are $150,000. In each case, Peg could decide to make the entire
kit rather than just the plastic parts. Information about the sales values and
separable costs for each kit is given below. Determine which kits Peg
should sell at the split-off point and which she should process further.
Kit
A
B
C
Final
Sales
SepIncreSales
Value at arable
mental
Value
Split-Off Costs Revenue
$200,000 $180,000 $25,000 $20,000
$120,000 $60,000 $40,000 $60,000
$80,000 $40,000 $10,000 $40,000
? John Wiley & Sons, 2011
Chapter 9: Joint Product and By-Product Costing
Eldenburg & Wolcott?s Cost Management, 2e
Incremental
Profit if
Process
Further
($5,000)
$20,000
$30,000
Sell at
Split-Off
or
Process
Further?
Sell
Process
Process
Slide # 16
Q5: Accounting for By-Products
? When by-products have no sales value, there
is no reason to account for them.
? Otherwise, there are two accounting methods
available:
? Recognize by-product value at time of
production
? Recognize by-product value at time of
by-product sale
? John Wiley & Sons, 2011
Chapter 9: Joint Product and By-Product Costing
Eldenburg & Wolcott?s Cost Management, 2e
Slide # 17
Q5: Recognize By-Product Value
at Time of Production
? This method is also known as the offset approach or
the NRV approach.
? Joint cost of the main products is reduced by the
NRV of the by-products, even if by-products are not
yet sold.
? NRV of the by-products is kept in ending
inventory until sold.
? At sale of by-product, ending inventory is
reduced; there is no gain/loss on sale.
? This method allows managers to control by-products.
? John Wiley & Sons, 2011
Chapter 9: Joint Product and By-Product Costing
Eldenburg & Wolcott?s Cost Management, 2e
Slide # 18
Q5: By-Product Value Recognized
at Time of Production Example
SJ Enterprises produces a main product and one by-product in a joint
process. The joint costs totaled $480,000. The main product sells for
$10/unit and the by-product sells for $1/unit. Information about the
production and sales of the 2 products is given below. Use the NRV
method to compute the production cost per unit for the main product.
Information in Units of Each Product
Beginning ProdEnding
Inventory uction Sales Inventory
Main product
0 100,000 95,000
5,000
By-product
0 10,000 3,000
7,000
Production costs
$480,000
Less: NRV of by-product
10,000
Net joint product cost
$470,000
Net product cost per unit
? John Wiley & Sons, 2011
Chapter 9: Joint Product and By-Product Costing
Eldenburg & Wolcott?s Cost Management, 2e
$4.70
Slide # 19
Q5: By-Product Value Recognized
at Time of Production Example
Prepare an income statement for SJ Enterprises and compute the costs
attached to ending inventory using the NRV method, assuming that nonmanufacturing costs totaled $250,000.
Revenue: 95,000 units at $10/unit
$950,000
Cost of goods sold: 95,000 units at $4.70/unit 446,500
Gross margin
503,500
Less: nonmanufacturing expenses
250,000
Operating income
$253,500
Ending inventory:
Main product: 5,000 units at $4.70
By-product: 7,000 units at $1
Value of ending inventory for balance sheet
? John Wiley & Sons, 2011
Chapter 9: Joint Product and By-Product Costing
Eldenburg & Wolcott?s Cost Management, 2e
$23,500
7,000
$30,500
Slide # 20
Q5: Recognize By-Product Value
at Time of Sale
? This method is also known as the Realized Value
Approach or the RV Approach.
? Joint cost of the main products is not reduced by
the NRV of the by-products, regardless if byproducts are sold.
? NRV of the by-products is not kept in ending
inventory.
? At sale of by-product, either Other Income is
recorded or Cost of Goods Sold is reduced.
? John Wiley & Sons, 2011
Chapter 9: Joint Product and By-Product Costing
Eldenburg & Wolcott?s Cost Management, 2e
Slide # 21
Q5: By-Product Value Recognized
at Time of Sale Example
SJ Enterprises produces a main product and one by-product in a joint
process. The joint costs totaled $480,000. The main product sells for
$10/unit and the by-product sells for $1/unit. Information about the
production and sales of the 2 products is given below. Use the RV method
to compute the production cost per unit for the main product.
Information in Units of Each Product
Beginning ProdEnding
Inventory uction Sales Inventory
Main product
0 100,000 95,000
5,000
By-product
0 10,000 3,000
7,000
Production costs
Net product cost per unit
? John Wiley & Sons, 2011
Chapter 9: Joint Product and By-Product Costing
Eldenburg & Wolcott?s Cost Management, 2e
$480,000
$4.80
Slide # 22
Q5: By-Product Value Recognized
at Time of Sale Example
Prepare an income statement for SJ Enterprises and compute the costs
attached to ending inventory using the RV method, assuming that nonmanufacturing costs totaled $250,000. By-product sales is recorded as
other income.
Revenue: 95,000 units at $10/unit
$950,000
By-product sales: 3,000 units at $1/unit
3,000
Total revenue
953,000
Cost of goods sold: 95,000 units at $4.80/unit 456,000
Gross margin
497,000
Less: nonmanufacturing expenses
250,000
Operating income
$247,000
Ending inventory:
Main product: 5,000 units at $4.80
? John Wiley & Sons, 2011
Chapter 9: Joint Product and By-Product Costing
Eldenburg & Wolcott?s Cost Management, 2e
$24,000
Slide # 23
Q7: Decision Making & Joint Cost
? Joint cost information is required for
financial statement & tax return preparation
when production does not equal sales
(inventory and cost of goods sold).
? Allocated joint costs are irrelevant for most
decisions, especially regarding individual
products
? Joint cost information should not be
used to make product mix decisions.
? John Wiley & Sons, 2011
Chapter 9: Joint Product and By-Product Costing
Eldenburg & Wolcott?s Cost Management, 2e
Slide # 24
College of Administrative and Financial Sciences
Assignment 3
Deadline: 19.07.2021@ 23:59
Course Name: Cost accounting
Student?s Name:
Course Code: ACCT 301
Student?s ID Number:
Semester: summer term
CRN:
Academic Year:1442 H
For Instructor?s Use only
Instructor?s Name: Wadha Alrashidi
Students? Grade: Marks Obtained/Out of
Level of Marks: High/Middle/Low
Instructions ? PLEASE
READ THEM CAREFULLY
? The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.
?
Assignments submitted through email will not be accepted.
?
Students are advised to make their work clear and well presented, marks may be reduced for
poor presentation. This includes filling your information on the cover page.
?
Students must mention question number clearly in their answer.
?
Late submission will NOT be accepted.
?
Avoid plagiarism, the work should be in your own words, copying from students or other
resources without proper referencing will result in ZERO marks. No exceptions.
?
All answered must be typed using Times New Roman (size 12, double-spaced) font. No
pictures containing text will be accepted and will be considered plagiarism).
?
Submissions without this cover page will NOT be accepted.
Page 1 of 2
1. Provide numerical examples of a Direct Material Budget for the second quarter (April to June)
by considering a manufacturing company operating in Saudi Arabia as a sample study.
(2marks)
2. XYZ Industries Co. decided to allocate Human Resource department costs based on the number
of employees in each department and Information Technology costs based on the number of
machine hours in each department. (2marks)
Required:
a)
Give a numerical example for the four departments, given the table below, (the
numerical information should be appropriate as per the table given as a reference.
Support Departments
Human
Operating Departments
Information Hot
Resource Technology
Rolled cold Rolled Hollow
Hollow Steel
TOTAL
Steel
Total department cost
Number of employees
Number of machine hours
b- Then based on your given information, use The Direct method to allocate support department
costs.
Allocate cost:
Human Resource
Information Technology
TOTAL
1. For what types of products is the physical output method appropriate? Give suitable and real
example that should support your answer. ch9 (1mark)
Page 2 of 2

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