chapter 16

Question 1

What are saleable products?

Answer 1

Products that can be sold for profit or processed more to be sold.

Question 2

What is scrap?

Answer 2

Low-value byproducts, often sold cheaply or thrown away.

Question 3

What is toxic waste?

Answer 3

Harmful products that need special disposal, not saleable.

Question 4

How do you allocate joint costs using the Physical Measure Method?

Answer 4

Based on physical attributes (e.g., weight or volume).

Question 5

Why is the Physical Measure Method less useful?

Answer 5

It doesn’t relate to how much money the products will actually make.

Question 6

How do you allocate joint costs using the Sales Value at Splitoff Method?

Answer 6

Based on how much each product can be sold for when split off.

Question 7

Why is the Sales Value at Splitoff Method better?

Answer 7

It reflects each product’s revenue-making potential.

Question 8

What is the Net Realizable Value (NRV) Method used for?

Answer 8

When there’s no sales value at splitoff, allocate costs based on expected final sales minus separable costs.

Question 9

How does the Constant Gross Margin Percentage Method work?

Answer 9

Allocates joint costs to keep the same profit margin across products.

Question 10

What is a sell or process further decision?

Answer 10

choice to either sell a product now or process it more and sell later.

Question 11

Why are joint costs irrelevant in the sell or process further decision?

Answer 11

Joint costs are sunk costs and can’t be recovered, so they don’t affect the decision

Question 12

What should you focus on when making a sell or process further decision?

Answer 12

Incremental costs (extra costs to process further) and potential revenue.

Question 13

How do joint costs affect profitability reports?

Answer 13

Allocating joint costs affects how profitable each product looks, influencing decisions.

Question 14

Why is the market-based method often more accurate?

Answer 14

It allocates costs based on real sales values, showing true revenue potential.

Question 15

What’s a downside of the market-based method?

Answer 15

It can be hard to use if market prices are unstable or unavailable.

Question 16

When would the physical measure method be used?

Answer 16

For simplicity or when no market price data is available, but it may not reflect real value.

Question 17

What is the main goal of joint cost allocation?

Answer 17

To fairly assign costs to products that share production costs.

Question 18

What is the Production Byproduct Method?

Answer 18

Recognizes byproducts as they’re made and records their value at production.

Question 19

When is revenue recognized in the Production Byproduct Method?

Answer 19

Revenue is recorded when the byproduct is sold.

Question 20

What is the Sale Byproduct Method?

Answer 20

Byproducts are recognized only when they are sold, not at production.

Question 21

How does the Sale Byproduct Method treat costs?

Answer 21

How does the Sale Byproduct Method treat costs?

Question 22

What is the key difference between scrap and saleable products?

Answer 22

Scrap has little to no value, while saleable products can be sold for profit

Question 23

What are joint costs?

Answer 23

Shared costs incurred in the production of multiple products at the same time.

Question 24

What is the key consideration when choosing a joint cost allocation method?

Answer 24

It should match the company’s needs for simplicity, accuracy, and relevance.

Question 25

What is the benefits-received criterion in cost allocation?

Answer 25

Allocating costs based on how much each product contributes to revenue.

Question 26

How does allocating joint costs affect pricing strategies?

Answer 26

It helps determine how much to charge for each product, based on its share of costs.

Question 27

: What happens if joint costs are not allocated?

Answer 27

Some companies skip allocation if it doesn’t significantly affect decisions or performance.

Question 28

Why are separable costs important in the sell or process further decision?

Answer 28

They are the extra costs incurred if the product is processed further, which should be evaluated individually.

Question 29

What is the goal of cost allocation in general?

Answer 29

To fairly divide costs among different products based on their revenue-generating potential.

Question 30

What’s the best method to allocate joint costs if selling prices are available?

Answer 30

The Sales Value at Splitoff Method is usually the best because it uses actual market values.

Question 31

Joint Costs

Answer 31

Costs of a single production process that yields multiple products simultaneously

Question 32

Splitoff Point

Answer 32

The place, in a joint production process, where two or more products become separately identifiable

Question 33

Separable Costs

Answer 33

The full product costs of processing incurred by each identifiable product beyond the splitoff point.

Question 34

Product

Answer 34

Any output that can be sold at full product cost plus profit, or enables the company to avoid purchasing direct materials
Sales value can be high or low

Question 35

Joint Products

Answer 35

Outputs of a joint production process that yields two or more products with a high sales value compared to the sales values of any other outputs
But are not separately identifiable as individual products until after the split-off point

Question 36

Main Product

Answer 36

Output of a joint production process that yields one product with a high sales value compared to the values of the other outputs

Question 37

Byproduct

Answer 37

Outputs of a joint production process that have a low sales value compared to the sales values of other outputs (i.e., the main or joint products)

Question 38

Reasons for Allocating Joint Costs

Answer 38

Cost reimbursement
Customer profitability analysis
Insurance settlements
Rate regulations
Litigation
External financial, tax reporting, intrnal financial reporting

Question 39

Joint Cost Allocation Methods (Market based)

Answer 39

1. Sales value at split off
2. NRV
3. Constant gross-margin percentage NRV
   Uses market-derived data

Not market based:
Physical

Question 40

Two methods for accounting for byproducts

Answer 40

1. Production byproduct Method
2. Sale byproduct method