SURIGAO EDUCATION CENTER MIDTERM QUIZ 2 – ANSWER KEY

Accountancy Program Instructor: Jean Pearl I. Millones, CPA

Theory Questions
1/10. e. All of the above methods are acceptable approaches to accounting for by-products.
2/11. c. The primary reason for allocating joint costs is for inventory valuation for financial reporting.
3/12. a. materials, labor, and overhead
4/13. d. constant gross margin percentage method.
5/14 . a. net realizable value method.
6/15 . a. a by-product.
7/16 . e. All of the methods are acceptable under GAAP.
8/17. D. split-off point.
9/18. A. relative-sales-value method.
10/19. B. Relative-sales-value method.
Ratcliff Company produces two products from a joint process: X and Z. Joint processing costs for this production cycle
are $8,000.
Disposal
Sales price cost per Further Final sale
per yard at yard at processing price per
Yards split-off split-off per yard yard
X 1,500 $6.00 $3.50 $1.00 $ 7.50
Z 2,200 9.00 5.00 3.00 11.25
If X and Z are processed further, no disposal costs will be incurred or such costs will be borne by the buyer.

11. Refer to Ratcliff Company. Using a physical measure, what amount of joint processing cost is allocated to X (round
to the nearest dollar)?
ANS: D
1,500/3,700 * $8,000 = $3,243
12. Refer to Ratcliff Company. Using a physical measure, what amount of joint processing cost is allocated to Z (round
to the nearest dollar)?
2,200/3,700 * $8,000 = $4,757
ANS: D
13. Refer to Ratcliff Company. Using sales value at split-off, what amount of joint processing cost is allocated to X
(round to the nearest dollar)?
ANS: B
Sales price
Yards at Split-off Total
X 1,500 $6.00 $ 9,000
Y 2,200 $9.00 $19,800
$28,800
$(9,000/28,800) * $8,000 = $2,500

14. Refer to Ratcliff Company. Using sales value at split-off, what amount of joint processing cost is allocated to Z
(round to the nearest dollar)?
ANS: A
Sales price
Yards at Split-off Total

X 1,500 $6.00 $ 9,000

Y 2,200 $9.00 $19,800
$28,800
$(19,800/28,800) * $8,000 = $5,500
15. Refer to Ratcliff Company. Using net realizable value at split-off, what amount of joint processing cost is allocated
to X (round to the nearest dollar)?
ANS: C
Sales Disposal NRV/
Yards price Cost/Yard Splitoff Total NRV
at Split-
off
X 1,500 $6.00 $3.50 $2.50 $ 3,750
Y 2,200 $9.00 $5.00 $4.00 $ 8,800
$12,550
$(3,750/12,550) * $8,000 = $2,390
16. Refer to Ratcliff Company. Using net realizable value at split-off, what amount of joint processing cost is allocated
to Z (round to the nearest dollar)?
ANS: D
Sales Disposal NRV/
Yards price Cost/Yard Splitoff Total NRV
at Split-
off
X 1,500 $6.00 $3.50 $2.50 $ 3,750
Y 2,200 $9.00 $5.00 $4.00 $ 8,800
$12,550
$(8,800/12,550) * $8,000 = $5,610
 17. Refer to Ratcliff Company. Using approximated net realizable value at split-off, what amount of joint processing
cost is allocated to X (round to the nearest dollar)?
ANS: A
Separate
Final Cost per Net Approximated
Yards Sales Yard Sales NRV
Price Price
X 1,500 $ 7.50 $4.50 $3.00 $ 4,500
Y 2,200 $11.25 $8.50 $3.25 $ 7,150
$11,650
$(4,500/11,650) * $8,000 = $3,090
18. Refer to Ratcliff Company. Using approximated net realizable value at split-off, what amount of joint processing
cost is allocated to Z (round to the nearest dollar)?
ANS: B
Separate
Final Cost per Net Approximated
Yards Sales Yard Sales NRV
Price Price
X 1,500 $ 7.50 $4.50 $3.00 $ 4,500
Y 2,200 $11.25 $8.50 $3.25 $ 7,150
$11,650
$(7,150/11,650) * $8,000 = $4,910
19. Refer to Ratcliff Company. Which products would be processed further?
ANS: A only A

Incremental Incremental Net

Yards Revenues Costs Difference
X 1,500 $ 1.50 $1.00 $ 0.50
Y 2,200 $ 2.25 $3.00 $(0.75)

Butler Manufacturing Company makes three products: A and B are considered main products and C a by-product.

Production and sales for the year were: 220,000 lbs. of Product A, salable at $6.00
180,000 lbs. of Product B, salable at $3.00
50,000 lbs. of Product C, salable at $.90
Production costs for the year:
Joint costs $276,600
Costs after separation:
Product A 320,000
Product B 190,000
Product C 6,900

Required: Using the by-product revenue as a cost reduction and net realizable value method of assigning joint costs,
COMPUTE UNIT COSTS
(a) if C is a by-product of the process (6 points)
ANS:

a. JOINT COST $276,600

- NRV C (38,100) (50,000 - $.90) - $ 6,900
TO ALLOCATE $238,500

SALES VALUE - COST AFTER SEPARATION = NRV

220,000  $6 = $1,320,000 - $320,000 = $1,000,000
180,000  $3 = $ 540,000 - $190,000 = 350,000
$1,350,000

ALLOCATION
$1,000,000/$1,350,000  $238,500 = $176,667
$ 350,000/$1,350,000  $238,500 = 61,833
$238,500

UNIT COST:
A ($176,667 + $320,000)/220,000 = $2.26
B ($61,833 + $190,000)/180,000 = $1.40

Notes:
In computing the Net Realizable Value at Split-Off, no further processing costs will be incurred since it will be sold as is.
Therefore, the SEPARABLE COST related to this method is only the disposal cost.
*Sales Value at Split-Off – Separable Cost
NRV at Split-Off = Sales Value at Split-off – Disposal Cost

In Computing the Approximated Net Realizable Value, further processing costs and disposal costs will be incurred and
shall both form part of the separable costs.
*Sales Value at Split-Off – Separable Cost
Approximated NRV = Ultimate Selling Price - Further Processing Costs - Disposal Cost