lOMoARcPSD|6147969 l

16-21
Pound Wholesale Sales Weighting: Joint Allocate
s of Selling Price Value Sales Costs d Costs
Product per Pound at Splitoff Value Allocated per
at Splitoff Pound
Breasts 100 $0.55 $55.00 0.675 $33.75 0.3375
Wings 20 0.20 4.00 0.049 2.45 0.1225
Thighs 40 0.35 14.00 0.172 8.60 0.2150
Bones 80 0.10 8.00 0.098 4.90 0.0613
Feathers 10 0.05 0.50 0.006 0.30 0.0300
250 $81.50 1.000 $50.00
1 (a) Sales value at splitoff method:

Costs of Destroyed Product

Breasts: $0.3375 per pound × 40 pounds = $13.50
Wings: $0.1225 per pound × 15 pounds = 1.84
$15.34
Pound Weighting: Joint Allocated
s Physical Costs Costs
of Measure Allocated per
Produc s Pound
t
Breasts 100 0.400 $20.00 $0.200
Wings 20 0.080 4.00 0.200
Thighs 40 0.160 8.00 0.200
Bones 80 0.320 16.00 0.200
Feather 10 0.040 2.00 0.200
s
250 1.000 $50.00

Costs of Destroyed Product

Breast: $0.20 per pound × 40 pounds = $8
Wings: $0.20 per pound × 15 pounds = 3
$11
(b) Physical measure method
 Sales Value at Physical
Splitoff Method Measures
Method
Sales Joint Gross Joint Gross
Product Value Costs Income Costs Income
Allocated Allocated
Breasts $55.00 $33.75 $21.25 $20.00 $35.00
Wings 4.00 2.45 1.55 4.00 0.00
Thighs 14.00 8.60 5.40 8.00 6.00
Bones 8.00 4.90 3.10 16.00 (8.00)
Feathers 0.50 0.30 0.20 2.00 (1.50)

2. The preferred approach is the sales value at splitoff method, which demonstrates the
benefits-received criterion of cost allocation. The costs of processing a chicken are distributed
among goods based on their ability to generate revenue. . Quality Chicken is processing
chicken mainly for breasts and thighs and not for wings, bones, and feathers, while the physical
measure method allocates a disproportionate amount of costs to wings, bones and feathers.
 16-22
1. Ending inventory:
Breasts 15 × $0.3375 = $5.06
Wings 4 × 0.1225 = 0.49
Thighs 6 × 0.2150 = 1.29
Bones 5 × 0.0613 = 0.31
Feathers 2 × 0.0300 = 0.06
$7.21
2.
Joint products Byproducts Net Realizable Values
of byproducts:
Breasts Wings Wings $ 4.00
Thighs Bones Bones 8.00
Feathers Feathers 0.50
$12.50

Joint costs to be allocated:

Joint costs – Net Realizable Values of byproducts = $50 – $12.50 = $37.50
Pound Wholesale Sale Weighting Join Allocate
s of Selling Price s : Sales t d Costs
Product per Pound Valu Value Cost Per
e at Splitoff s Pound
at Allocated
Splitoff
Breast 100 $0.55 $55 55 ÷ 69 $29.89 $0.2989
Thighs 40 0.35 14 14 ÷ 69 7.61 0.1903
$69 $37.50
Ending inventory:
Breasts 15 × $0.2989 $4.48
Thighs 6 × 0.1903 1.14
$5.62

3. Joint costs are allocated in a consistent manner to all products for the purpose of costing
and inventory valuation. In contrast, the approach in requirement 2 lowers the joint cost by the
amount of byproduct net realizable values and results in inventory values being shown for only
two of the five products.
16-23.

Corn Syrup Corn Starch Total

$663,000 $153,400 $816,400

406,340 97,060 503,400
$256,660 $ 56,340 $313,000
0.82 0.18 1
$269,780 $ 59,220 $329,000

16-24.

1. Methanol Turpentine Total

2,500 7,500 10,000
0.25 0.75
$ 30,000 $ 90,000 $120,000

2. Methanol Turpentine Total

$ 52,500 $105,000 $157,500

7,500 15,000 22,500

$ 45,000 $ 90,000 $135,000

1/3 2/3

$ 40,000 $ 80,000 $120,000

3. a. Physical-measure (gallons) method:

Methanol Turpentine Total
Revenues $52,500 $105,000 $157,500
Cost of goods sold:
Joint costs 30,000 90,000 120,000
Separable costs 7,500 15,000 22,500
Total cost of goods sold 37,500 105,000 142,500
Gross margin $15,000 $ 0 $ 15,000

b. Estimated net realizable value method:

Methanol Turpentine Total
Revenues $52,500 $105,000 $157,500
Cost of goods sold:
Joint costs 40,000 80,000 120,000
Separable costs 7,500 15,000 22,500
Total cost of goods sold 47,500 95,000 142,500
Gross margin $ 5,000 $ 10,000 $ 15,000

4.

Alcohol Bev. Turpentine Total

$150,000 $105,000 $255,000

60,000 15,000 75,000

$ 90,000 $ 90,000 $180,000
 0.50 0.50
Joint costs allocated, 0.5; 0.5 × $120,000 $ 60,000 $ 60,000 $120,000

An incremental approach demonstrates that the company should use the new
process: Incremental revenue,

16-25

Total production for the year was:

Ending Total
Sold Inventories Production
X 68 132 200
Y 480 120 600
Z 672 28 700

1. a. Net realizable value (NRV) method:

X Y Z Total

200 × $1,200; 600 × $900; 700 × $600 $240,000 $540,000 $420,000 $1,200,000
–– –– 200,000 200,000

Net realizable value at splitoff point $240,000 $540,000 $220,000 $1,000,000

Weighting, $240; $540; $220/ $1,000 0.24 0.54 0.22

Joint costs allocated,

0.24, 0.54, 0.22 × $580,000 $139,200 $313,200 $ 127,600 $ 580,000

Ending Inventory Percentages:

X Y Z
Ending inventory 132 120 28
Total production 200 600 700
Ending inventory percentage 66% 20% 4%

Income Statement

X Y Z Total
Revenues,
68 × $1,200; 480 × $900; 672 × $600 $81,600 $432,000 $403,200 $916,800
Cost of goods sold:
Joint costs allocated 139,200 313,200 127,600 580,000
Separable costs –– –– 200,000 200,000
Production costs 139,200 313,200 327,600 780,000
Deduct ending inventory,
66%; 20%; 4% of production costs 91,872 62,640 13,104 167,616
Cost of goods sold 47,328 250,560 314,496 612,384
Gross margin $ 34,272 $181,440 $ 88,704 $304,416

Gross-margin percentage 42% 42% 22%

b. Constant gross-margin percentage NRV method:

$1,200,000
780,000
$ 420,000
35%

X Y Z Total

$240,000 $540,000 $420,000 $1,200,000

84,000 189,000 147,000 420,000

156,000 351,000 273,000 780,000

— —
200,000
Joint costs allocated $156,000 $351,000 $ 73,000 $ 580,000
Income Statement
X Y Z Total
Revenues, 68 × $1,200;
480 × $900; 672 × $600 $81,600 $432,000 $403,200 $916,800

Cost of goods sold:

Joint costs 156,000 351,000 73,000 580,000
allocated
Separable costs - - 200,000 200,000
Production costs 156,000 351,000 273,000 780,000
ending inventory,
66%; 20%; 4% of production costs 102,960 70,200 10,920 184,080
Cost of goods sold 53,040 280,800 262,080 595,920
Gross margin $ 28,560 $151,200 $141,200 $320,880
Gross-margin percentage 35% 35% 35% 35%
16-26

1a. Physical Measure Method

Crude Oil NGL Gas Total

1. Physical measure of total prodn. 150 50 800 1,000
2. Weighting (150; 50; 800 ÷ 1,000) 0.15 0.05 0.80 1.00
3. Joint costs allocated (Weights × $1,800) $270 $90 $1,440 $1,800

1b. NRV Method

Crude Oil NGL Gas Total

1. Final sales value of total production $2,700 $750 $1,040 $4,490
2. Deduct separable costs 175 105 210 490
3. NRV at splitoff $2,525 $645 $ 830 $4,000
4. Weighting (2,525; 645; 830 ÷ 4,000) 0.63125 0.16125 0.20750
5. Joint costs allocated (Weights × $1,800) $1,136.25 $290.25 $373.50 $1,800
2. The operating-income amounts for each product:

(a) Physical Measure Method

Crude Oil NGL Gas Total

Revenues $2,700 $750 $1,040 $4,490
Cost of goods sold
Joint costs 270 90 1,440 1,800
Separable costs 175 105 210 490
Total cost of goods sold 445 195 1,650 2,290
Gross margin $2,255 $555 $ (610) $2,200

(b) NRV Method

Crude Oil NGL Gas Total

Revenues $2,700.00$750.00 $1,040.00 $4,490.00
 Cost of goods
sold Joint 1,136.25 290.25 373.50 1,800.00
costs
Separable costs 175.00 105.00 210.00 490.00
Total cost of goods sold 1,311.25 395.25 583.50 2,290.00
Gross margin $1,388.75$354.75 $ 456.50 $2,200.00

3. Neither approach should be used to determine product priority. Since joint-cost-allocated

data is by definition joint, it is unreasonable to use it to make decisions about lowering or
moving individual goods. Decisions on product emphasis should be focused on relevant
revenues and costs.

4. Since crude oil is the only commodity subject to taxation, using the NRV approach is
obviously in Sinclair's best interest, as it results in a lower price for crude oil and, as a
result, a lower tax burden. A letter to the taxing authorities could highlight the NRV
method's logical supremacy.

16-28

1.
a. Sales value at splitoff method:
Cookies Soyola Total
/ / Soy
Soymea Oil
l
Sales value of total production at splitoff,
575 lbs × $1.24; 160 gallons × $4.25 $713 $680 $1,393
Weighting, $713; $680  $1,393 0.512 0.488
Joint costs allocated,
0.512; 0.488 × $530 $271 $259 $530

b. Net realizable value method:

Cookies Soyola Total
Final sales value of total production,
725 lbs × $2.24; 640 qts × $1.35 $1,624 $864 $2,488
Deduct separable costs 380 240 620
Net realizable value $ 1,244 $624 $1,868
Weighting, $1,244; $624 $1,868 0.666 0.334
Joint costs allocated,
0.666; 0.334 × $530 $ 353 $177 $530

2.

Cookies/Soy Meal Soyola/Soy Oil

Revenue if sold at splitoff $713 $ 680
Process further NRV 1,244 624
Profit (Loss) from processing further $531 $(56)

ISP could transform the soy meal into cookies to raise income by $531 ($1,244 – $713). ISP, on the other hand,
should sell the soy oil as is, rather than converting it into Soyola, since the profit would be $56 ($680 – $624)
higher. The overall joint cost is the same in both allocation strategies, so it isn't a factor in determining whether
to sell at splitoff or process furtively.
 16-30

1.
Sales Revenues, $2,200 – Processing Expenses, $660 = $1,540.

2.
$1,540/2,400 = $0.64 per rattle