Quiz 12 - Joint Products and Byproducts

Sonimad Sawmill manufactures two lumber products from a joint milling process. The two products developed are mine support braces (MSB) and unseasoned commercial building lumber (CBL). A standard production run incurs joint costs of $300,000 and results in 60,000 units of MSB and 90,000 units of CBL. Each MSB sells for $2 per unit, and each CBL sells for $4 per unit.

Continuing with the previous data, assume the commercial building lumber is not marketable at split-off but must be further planed and sized at a cost of $200,000 per production run. During this process, 10,000 units are unavoidably lost; these spoiled units have no discernable value. The remaining units of commercial building lumber are saleable at $10 per unit. The mine support braces, although saleable immediately at the split-off point, are coated with a tar-like preservative that costs $100,000 per production run. The braces are then sold for $5 each.

C. $5.3125

Tucariz Company processes Duo into two joint products, Big and Mini. Duo is purchased in 1,000 gallon drums for $2,000. Processing costs are $3,000 to process the 1,000 gallons of Duo into 800 gallons of Big and 200 gallons of Mini. The selling price is $9 per gallon for Big and $4 per gallon for Mini. If the sales value at split-off method is used to allocate joint costs to the final products, the per-gallon cost (rounded to the nearest cent) of producing Big is:

A. $5.63 per gallon.

A company makes two joint products from recycled plastic: artificial joists for construction and plastic designer chairs. The total joint costs are $140,000, and the process produces 3,000 joists and 2,000 chairs. Joists sell for $20 and chairs for $50. The average cost per unit is determined to be $28, resulting in a gross margin of −$24,000 for joists and $44,000 for chairs. Which of the following joint cost allocation methods was used for these calculations?

A. Physical measure method

A lumber products company incurs $140,000 in costs to produce 100,000 board‐feet of finished lumber that sells for $1/board‐foot and 50,000 board‐feet of plywood that sells for $0.50/board‐foot (sales value at split‐off). Using the sales value at split‐off method, what is the cost per board‐foot for each joint product?

$1.12/board‐foot finished lumber; $0.56/board‐foot plywood

Products A, B, and C are produced from the same process at a cost of $8,000. Four thousand pounds of raw material yields 1,500 lbs. of A, 1,000 lbs. of B, and 1,500 lbs. of C. The sales price per pound of each product is as follows: $5.50 for A, $5.00 for B, and $4.50 for C. How much of joint costs would be allocated to product C assuming the net realizable value method is used?

B. $2,700

Lankip Company produces two main products and a byproduct out of a joint process. The ratio of output quantities to input quantities of direct material used in the joint process remains consistent from month to month. Lankip has employed the physical-volume method to allocate joint production costs to the two main products. The net realizable value of the byproduct is used to reduce the joint production costs before the joint costs are allocated to the main products. Data regarding Lankip's operations for the current month are presented in the chart below. During the month, Lankip incurred joint production costs of $2,520,000. The main products are not marketable at the split-off point and, thus, have to be processed further.

			First Main ProductSecond Main ProductByproduct
Monthly output in pounds	90,000	150,000	60,000
Selling price per pound	$30	$14	$2
Process costs	$540,000	$660,000

The amount of joint production cost that Lankip would allocate to the Second Main Product by using the physical-volume method to allocate joint production costs would be:

$1,500,000

Ally Inc. manufactures three products—A1, B2, and C3—in a joint production process using a common raw material. The joint production cost for the month of April of Year 1 is $575,000. The three products differ significantly in terms of cost per unit and gross profit margins. A1 and B2 can be sold at the split-off point but C3 cannot be sold at the split-off point. The production process resulted in an output of 120 units of A1, 240 units of B2, and 150 units of C3. Which of the following methods should Ally Inc. use to allocate joint costs among A1, B2, and C3?

C. Net realizable value

When a company produces two or more final products from the same raw material, the company must:

A. Allocate costs incurred in the production process to each final product.

Sonimad Sawmill manufactures two lumber products from a joint milling process. The two products developed are mine support braces (MSB) and unseasoned commercial building lumber (CBL). A standard production run incurs joint costs of $300,000 and results in 60,000 units of MSB and 90,000 units of CBL. Each MSB sells for $2 per unit, and each CBL sells for $4 per unit.

If there are no further processing costs incurred after the split-off point, the amount of joint cost allocated to the mine support braces (MSB) on a relative sales value basis would be:

B. $75,000.

Sonimad Sawmill manufactures two lumber products from a joint milling process. The two products developed are mine support braces (MSB) and unseasoned commercial building lumber (CBL). A standard production run incurs joint costs of $300,000 and results in 60,000 units of MSB and 90,000 units of CBL. Each MSB sells for $2 per unit, and each CBL sells for $4 per unit.

Assuming no further processing work is done after the split-off point, the amount of joint cost allocated to commercial building lumber (CBL) on a physical quantity allocation basis would be:

B.$180,000.