Chapter 16: Cost Allocation: Joint Products and Byproducts

Question 1

Joint costs

Answer 1

Costs of a single production process that produces multiple products at the same time

Question 2

Split-off point

Answer 2

The point two or more products become separately identifiable

Question 3

Separable costs

Answer 3

All costs incurred beyond the split-off point that are assigned to each individual product

Question 4

Main product

Answer 4

The product in a joint production process that has a high total sales value compared with total sales values of other products of the process

Question 5

Joint product

Answer 5

Two or more products in a joint production process that have a high total sales value compared with the total sales values of other products of the process

Question 6

Byproducts

Answer 6

Products of a joint production process that have low total sales values compared with the total sales value of the main product or joint product

Question 7

What are the two approaches used to allocate joint costs?

Answer 7

1. Market-based data, such as revenues
   
   • Sales value at splitoff method
   • Net realizable value method
   • Constant gross-margin percentage NRV method
2. Physical measures, such as weight

Question 8

Sales Value at Split-off Method

Answer 8

Allocates joint costs to joint products on the basis of the relative total sales value at the splitoff point.

Question 9

Net Realizable Value Method

Answer 9

Allocates joint costs to joint products produced on the basis of their relative NRV or final sales value minus separable costs

Question 10

Physical-measure Method

Answer 10

Allocates joint costs to joint products on the basis of a comparable physical measure, such as the relative weight at the split-off point.

Question 11

What are the reasons for choosing a particular method of allocating joint cost?

Answer 11

• Sales price at split-off method - use when selling price is available
• Net realizable value method - use when selling price is not available
• Physical-measure method - use for simplicity

Question 12

What is a sell-or-process-further decision?

What is the decision rule?

What costs are irrelevant?

Answer 12

Decision to either sell joint product(s) at split-off point or process further.

If there is positive incremental operating income then process further. If not, sell at split-off point.

Joint costs are irrelevant to the decision.

Separable costs have to be evaluated individually.