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Chapter 15

Joint Product &


By-Product Accounting
In the process of
of manufacturing one
one or more products,
products, a company may also
also produce other 
other 
 products which may either be joint products
products or by-products depending
depending upon their importance to
the firm.

The problems encountered


encountered in the CPA examinations
examinations relative to joint
joint products and by-products
accounting are the following:

1. Allocation
Allocation of joint
joint (common
(common)) costs
costs at the point
point of split-off.
split-off.
2. Accou
Accounti
nting
ng for by-pro
by-produc
ducts.
ts.

ALLOCATION OF JOINT (COMMON) COSTS

The allocation of the joint costs among the individual products produce is to be made at the
split-off point, which is the point where the joint products are separated from each other.

The following methods are usually used in allocating joint costs:


1. Relati
Relative
ve marke
markett (sales
(sales)) value method.. The application of this method will depend on
value method
whether the products are sold at the point of separation or whether additional costs are
incurred as a result of additional processing. The following procedures should be
remembered by the candidate:
a. Sale value at point of split-off. If the products are sold at the point of 
separation, cost is allocated to each product based on the relative market value
at that point (split-off point).
b. Sale value after further processing. Joint cost is to be allocated on the basis of 
each product’s net realizable value. Net realizable value is the difference
between the final sales value and the actual cost to complete and sell. (Further
processing cost).
2. Physical
Physical Measures
Measures (Units
(Units Produce
Produced) Method. This method allocates joint costs to
d) Method.
products based on a physical measure of units. If the allocation is based on physical
quantities, each unit of each product is assigned at the same value regardless of the
nature or value of the product.

ACCOUNTING FOR BY-PRODUCTS

By-products are those products of limited sales value produced simultaneously with products of 
greater sales value known as main or joint products.
The methods of accounting for by-products fall into the following categories:
1. By-pro
By-produc
ducts
ts are
are reco
recogni
gnized
zed when
when sold. Under this method no income is recorded from
them until they are sold. Net by-product income equals actual  sales revenue less any
actual  additional processing costs and marketing and administrative expenses. Net by-
product income may be shown in the income statement as:
a. Addition
Addition to
to income,
income, either
either as
as “other
“other sales”
sales” or
or “other
“other income
income”.
”.
b. A deductio
deductionn from cost of goods
goods sold
sold of the main
main produc
product.
t.
2. By-pro
By-produc
ducts
ts are
are reco
recogni
gnized
zed when
when  produced.
 produced. Under this category the cost of the by-
product is computed by using the following methods:
a. Net realizable value method. Under this, the expected  sales value of the by-
product  produced  is reduced by the expected  additional processing cost and
marketing and administrative expenses. The resulting net realizable value of the
by-product is deducted from the total production costs of the main product.
b. Reversal cost method. The expected value of the by-product produced is
reduced by the expected additional processing costs and  normal gross profit of 
the by product (or by the marketing and administrative expenses and net
income). This method is called the reversal cost method because you have to
work backward from the gross revenue to arrive at the estimated  joint  cost of 
the by-product at the point of split-off. The joint cost allocated to the production
production
of the by-product is deducted from the total production cost of the main
product, and charge to a by-product inventory account. Proceeds from the sale
of by-products are treated the same
same as sales of the main
main product.
PROBLEMS

1. Tomasa Inc. manufactures products X, Y and Z from a joint process. Joint product costs
were P60,000. Additional information is as follows:

Sales Value and Additional 


Costs if processed further 
Products Units Produced Final Sales Values Additional Costs
X 6,000 P49,000 P9,000
Y 4,000 42,000 7,000
Z 2,000 30,000 5,000

What is the total costs allocated to product X?


Physical Measure Relative Sales Values
a. P30,000 P28,000  
b. 29,000 27,000  
c. 30,000 21,000  
d. 39,000 33,000  

2. Camille Company manufactures products W, X, Y and Z from a joint process. Additional


information is as follows:

If processed further 
Products Units Produced Value at    Additional  Sales
Split-off  Costs Value
W 6,000 P80,000 P7,500 P90,000
X 5,000 60,000 6,000 70,000
Y 4,000 40,000 4,000 50,000
Z 3,000 20,000 2,500 30,000
18,000 P200,000 P20,000 P240,000

Assuming that total joint costs of P160,000 were allocated using the relative-sales value
at split-off approach, what were the joint costs allocated to each product?
W X Y Z  
a. P40,000 P40,000 P40,000 P40,000  
b. 53,333 44,444 35,556 26,667  
c. 60,000 46,667 33,333 20,000  
d. 64,000 48,000 32,000 16,000  

3. Solomon Inc. manufactures products F, G and H from a joint process. Additional


information is as follows:
Products
F G H Total  
Units produced 8,000 4,000 2,000 14,000
Joint cost ? ? 18,000 120,000
Sales value at split-off P120,000 ? ? 200,000
Additional costs if processed further 14,000 10,000 6,000 30,000
Sales value if processed further 140,000 60,000 50,000 250,000
Assuming that joint product costs are allocated using the relative sales-value at split-off 
approach, what were the joint costs allocated to product G?
a. P28,000 
b. 30,000 
c. 34,000 
d. 51,000 

4. A company produces two joint products, A and B. For the month of March, the joint
production costs were P120,000. Further processing costs beyond split-off point
required to make the products into marketable form and other related data follow:

 A B
Additional processing costs P100,000 P140,000
Units after split-off 1,600 800
Unit selling price 200 400
The company uses the net realizable value method for allocating joint product costs. For
the month of March, the joint costs allocated to A amounted to
a. P66,000 
b. 72,000 
c. 60,000 
d. 80,000 
5. Kamagong Inc. produces two joint products, PEI and VEL. The joint production costs for
March 2013 were P15,000. During March 2013, further processing costs beyond the
split-off point, needed to convert the products into salable form were P8,000 and
P12,000 for 800 units of PL and 400 units VEL, respectively. PEL sells for P25 per unit and
VEL sells for P50 per unit. Assuming that Kamagong uses the net realizable value
method for allocating joint product costs, what were the joint costs all allocated to
product PEL for March 2013?
a. P5,000 
b. 6,000 
c. 9,000 
d. 10,000 
6. Dennis Mfg. Co. manufactures two joint products and it uses the net realizable value
method for allocating joint costs. Product A sells for P30 while Product B sells for P60.
Joint costs for June, 2013 were:
Materials P30,000
Direct labor 15,000
Factory overhead 10,000
Further processing costs after the split-off point in order to finish the products into their
final form amounted to P24,000 for Product A and P36,000 for Product B. the total units
produced during the month were 2,000 for Product A and 1,000 for Product B.

The amount of joint costs allocated to Product A was:


a. P33,000 
b. 27,500 
c. 22,000 
d. 32,000 
7. Adan Inc. purchases its major raw material from Eva Co. and processes them up to split-
off point, where two products (AA and CC) are obtained. The products are then sold to
an independent company that markets and distributes them to retail outlets. For the
month just ended the following data were made available:
Raw material purchased 25,000 Units
Production
AA 15,000 Units
CC 15,000 Units
Sales
AA 14,500 units@P2
CC 15,000 units@P5
The cost of purchasing 25,000 units raw materials and processing them up to the split-
off point to yield equal number of production of AA and CC of 15,000 units each
amounted to P37,500. There were no beginning inventories but there were 500 units of 
AA at the end of the month, using the sales value at split-off method the approximate
weighted cost proportions (may be rounded) of AA and CC were:
a. AA, 29% and CC, 71%
b. AA, 33% and CC, 67%
c. AA, 49% and CC, 51%
d. AA, 50% and CC, 50%
8. Kasoy Manufacturing Company manufactures two products, AA and BB. Initially, they
are processed from the same materials and then, after split-off, they are further
processed separately. Additional information is as follows:
 AA BB Total 
Final sales price P9,000 P6,000 P15,000
Joint costs prior to split-off ? ? 6,600
Costs beyond split-off point 3,000 3,000 6,000
Using the relative-sales-value approach, what are the assigned joint costs of AA and BB
respectively?
a. P3,000 and P3,300 
b. 3,960 and 2,640 
c. 4,400 and 2,200 
d. 4,560 and 2,040 
9. Vivien Company manufactures products N, P and R from a joint process. The following
information is available:
N P R Total  
Units produced 12,000 ? ? 24,000
Sales value at split-off point ? ? P50,000 P200,000
Joint costs P48,000 ? ? 120,000
Sales value if processed further 110,000 P90,000 60,000 260,000
Additional costs if processed further 18,000 14,000 10,000 42,000
Assuming that joint product costs are allocated using the relative-sales-value at split-off 
point approach, what was the sales at split-off for products N and P?
Product N Product P 
a. P66,000 P84,000  
b. 80,000 70,000  
c. 98,000 84,000  
d. 100,000 50,000  
10. Cebu Inc. manufactures product P, Q and R from a joint process. Additional information
is as follows:
Products
P Q R Total  
Units produced 4,000 2,000 1,000 7,000
Joint cost P36,000 ? ? P60,000
Sales value at split-off ? ? P15,000 100,000
Additional costs if processed further 7,000 P5,000 3,000 15,000
Sales value if processed further 70,000 30,000 20,000 120,000
Assuming that joint costs are allocated using the relative sales value at split-off 
approach, what was the sales value at split-off for Product P?
a. P58,333
b. 59,500 
c. 60,000 
d. 63,000 
11. Korina Company manufactures products S and T from a joint process. The sales value at
split-off was P50000 for 6,000 units of Product S and P25,000 for 2,000 units of Product
T. Assuming that the portion of the total joint costs properly allocated to Product S u sing
the relative-sales-value at split-off approach was P30,000, what were the total joint
costs?
a. P40,000 
b. 42,500 
c. 45,000 
d. 60,000 
12. Sisa Company manufactures Product J and Product K from a joint process. For Product J,
4,000 units were produced having a sales value at split-off of P15,000. If Product J were
processed further, the additional costs would be P3,000 and the sales value would be
P20,000. For product K, 2,000 units were produced having a sales value at split-off of 
P10,000. If Product K were processed further, the additional costs would be P1,000 and
the sales value would be P12,000. Using the relative sales value at split-off approach,
the portion of the total joint product costs allocated to Product J was P9,000. What
were the total joint product costs?
a. P14,400 
b. 15,000 
c. 18,400 
d. 19,000 
13. Stella Corporation manufactures products R and S from a joint process. Additional
information is as follows:
Products
R S Total  
Units produced 4,000 6,000 10,000
Joint cost P36,000 P54,000 P90,000
Sales value at split-off ? ? ?
Additional costs if processed further 3,000 26,000 29,000
Sales value if processed further 63,000 126,000 189,000
Additional margin if processed further 12,000 28,000 40,000
Assuming that joint costs are allocated on the basis of relative-sales-value at split-off,
what was the sales value at split-off for Product S?
a. P72,000 
b. 82,000 
c. 98,000 
d. 100,000 
14. Bacolod Company manufactures Products F, G and W from a joint process. Joint costs
are allocated on the basis of relative sales value at split-off. Additional information for
the June 2013 production activity is as follows:
Products
F G W Total  
Units produced 50,000 40,000 10,000 100,000
Joint cost ? ? ? 450,000
Sales value at split-off P420,000 P270,000 P60,000 P750,000
Additional costs if processed further 88,000 30,000 12,000 130,000
Sales value if processed further 538,000 320,000 78,000 936,000
Assuming that the 10,000 units of Product W were processed further and sold for
P78,000, what was Bacolod gross profit on this sale?
a. P21,000 
b. 28,500 
c. 30,000 
d. 66,000 
15. Luzon Company manufactures three products, R, S and T, in a joint process. For every
ten kilos of raw materials input, the output is five kilos of R, three kilos of S, and two
kilos of T.
During August, 50,000 kilos of raw materials costing P120,000 were processed and
completed, with joint conversion costs of P200,000. Conversion costs are to be allocated
to the products on the basis of market values.

To make the products salable, further processing which does not require additional raw
materials was done at the following costs:

Product R P30,000
Product S 20,000
Product T 30,000
The unit selling prices are:

Product R P10
Product S 12
Product T 15
What are the unit cost of Product R, S and T?
R S T 
a. P7.12 P8 10.20  
b. 8 7.12 10.20  
c. 10 8 10  
d. 25.32 7.12 10  

16. It costs Visaya Corp. P1,400,000 to process a main material to produce three chemicals:
#111, #777 and #999. This joint cost is allocated to the product lines based on the
relative market values of the products produced. Additional data are summarized
below:
Units of   Additional  Unit Sales Price at 
Production Processing Cost  Split-off 
#111 60,000 960,000 P20
#777 20,000 168,000 40
#999 20,000 520,000 100
The product costing line that will have the least per unit contribution margin (after
accounting for share in joint and additional processing costs) is:
a. #111 at P(3)
b. #777 at 17.60 
c. #111 at 13
d. #111 at (10.48)
17. Mindanao producers manufactures three joint products, JKA, JKB and JKC and a by-
product JJD, all in a single process. Results for July were as follows:

Materials used 10,000 kgs. P24,000


Coversion cost P28,000
Output:
No. of Kilos Product Sales Value per Kilo
4,000 JKA P11
3,000 JKB 10
1,000 JKC 26
2,000 JJD 1
The revenue from the by-product is credited to the sales account. Process costs are
apportioned on a relative sales value approach. What was the cost per kilogram of JKA
for the month?
a. P5.72
b. 5.50 
c. 5.61
d. 5.20 
18. Payaso Inc. produces chemicals Koo and Lam. The processing also yields a by-product,
Wiz, another chemical. The joint costs of processing is reduced by the net realizable
value of Wiz. For the month of March, the joint costs were registered at P3,840,000.
Below are additional data:
In Thousands
Product Production Market Value
Koo 2,000 P3,000
Lam 3,000 2,000
Wiz* 1,000 420
*An additional P180,000 were spent to complete the processing of Wiz.

Assuming that the company uses the net realizable value method for allocating joint
costs, the allocated costs to Koo would amount to:
a. P2,160,000 
b. 1,800,000 
c. 2,208,000 
d. 2,700,000 
19. Abel Corp. manufactures a product that yields the by-product, “Yum”. The only cost
associated with Yum are selling costs of P.10 for each unit sold. Abel accounts for sales
of Yum by deducting Yum’s separable costs from Yum’s sales, and then deducting this
net amount from the major product’s cost of goods sold. Yum’s sales were 100,000 units
at P1 each. If Abel changes its method of accounting for Yum’s sales by showing the net
amount as additional sales revenue, then Abel’s gross margin would:
a. Increase by P90,000 
b. Increase by 100,000 
c. Increase by 110,000 
d. Be unaffected 
20. Panday Company, which began operations in 2013, produces gasoline and a gasoline by-
product. The following information is available pertaining to 2013 sales and production:
Total production costs to split-off point P120,000
Gasoline sales 270,000
By-product sales 30,000
Gasoline/Inventory 15,000
Additional by-product costs:
Marketing 10,000
Production 15,000
Panday accounts for the by-product at the time of production. What are Panday’s 2013
costs of sales for gasoline and the by-product?

Gasoline By-product  
a. P105,000 P25,000  
b. 115,000 0  
c. 108,000 37,000  
d. 100,000 0  

21. Bataan Co. produces main products JJ and MM. the process also yields by-product BB.
Net realizable value of by-product BB is subtracted from joint production cost of JJ and
MM. the following information pertains to production in July 2013 at a joint cost of 
P54,000.
Product Units produced Production Market Value
JJ 1,000 P40,000 P0
MM 1,500 35,000 0
BB 500 7,000 3,000
If Bataan uses the net realizable value method for allocating joint cost, how much of the
 joint cost should be allocated to product JJ?
a. P18,800 
b. 20,000 
c. 26,667 
d. 27,342
22. Aguilar Sweets Factory manufactures a coconut candy, Coco, which is sold for P5 a box.
The manufacturing process also results in a by-product, Soloc. Without further
processing, Soloc sells for P1 per pack; with further processing, it sells for P3 per pack.

During the month of April, the total joint manufacturing costs up to the point of 
separation consisted of the following charges to work in process:

Raw materials P225,000


Direct labor 100,000
Factory overhead 45,000
During the month, the production for the two products was as follows; Coco, 591,000
boxes, Soloc, 45,000 packs.

The following additional costs are necessary for further processing to complete Soloc, in
order to obtain a selling price of P3 per pack, during the month of April:
Raw materials P30,000
Direct labor 22,500
Factory overhead 7,500
Assuming that the by-product, Soloc, is further processed and then transferred to the
stockroom at net realizable value with a corresponding reduction of Coco’s
manufacturing costs, the journal entry would be:
a. By-product inventory – Soloc 45,000  
Work in process – Coco 45,000  
b. By-product – Soloc 135,000  
Raw materials 30,000  
Direct labor 22,500  
Factory overhead 7,500  
Work in process – Coco 75,000  
c. By-product inventory – Soloc 6,750  
Work in process – Coco 6,750  
d. Work in process – Soloc 60,000  
Raw materials 30,000  
Direct labor 22,500  
Factory overhead 7,500  
23. A chemical company manufactures joint products PP and VV, and a by-product ZZ. Costs
are assigned to the joint products by the market value method, which considers further
processing costs in subsequent operations. For allocating cost to the by-product, the
market value, or reversal cost, method is used.

Total manufacturing costs for 10,000 units were P172,000 during the quarter.
Productions and costs data follow:
PP VV ZZ  
Units produced 5,000 4,000 1,000
Sales price per unit P50 P40 P5
Further process cost per unit 10 5 -
Selling & admin. expense per unit 2
Operating profit per unit 1
What is the gross profit from the sales of PP?
a. P70,000 
b. 80,000 
c. 100,000 
d. 98,000 
24. AMG Paper Mfg. Co., which started operations in 2013, manufactures paper from wood
pulp. The company grades its products and classified them into Products A, B and C. in
processing the chipped woods, a fatty soap is produced, extracted, and refined into a
by-product identified as Product X. The following information related to AMG’s
operations for 2013 are obtained from the company’s records:
Units (in Tons) Sales Price
Products Produced Sold On hand Per Ton
A 152.5 66 86.5 P100
B 68.5 41.5 27 100
C 11 5 6 100
X 85 30 55 33
Sales, including Product X, totaled P12,240 while production costs amounted to
P24,884.50. Selling expenses, on the other hand, were P612.

The cost accountant, in order to find which accounting method best approximates
actual costs, computed the December 31, 2013 inventory (at the lower of cost or
market) based on the following alternative methods:

Method A – joint cost method of accounting, with costs apportioned on a unit


cost per ton basis.
Method B – recognize income in the period in which the by-product is produced,
with no selling expense assigned to the by-product.

The ending inventory on December 31, 2013 would be:

Method A Method B
a. P13,698 P13,765
b. 13,115 13,698  
c. 11,105 13,698  
d. 11,105 13,115

25. Cooper Company manufactures products MM, RR, SS and CC with product CC classified
as a by-product and sold at a lower price. Sales, including that for product CC, totaled
P49,200 while production costs amounted to P99,538. Selling expenses amounted to
P2,460. The following information concerning the company’s operations for 2013 are
obtained from the company’s records:
Sales Price Units in Kilos
Products Per Kilo Produced Sold On Hand  
MM P100 610 264 346
RR 100 274 166 108
SS 100 44 20 24
CC 35 340 120 220
Compute the ending inventory (at lower of cost or market) at December 31, 2008 based
on the following methods:
Cost apportioned  Income recognition in the period 
a unit cost per kilo basis of by-product production
a. P44,838 P53,275.15
b. 44,838 52,842.32
c. 54,793 56,159
d. 56,159 55,159.08  
26. Makiling Sawmill, Inc., purchases logs from independent timber contractors and
processes the logs into two joint products, two-by-fours of Narra A and four-by-eight of 
Yakal B. In processing the two products, sawdust emerges and classified as by-product.
The packaged sawdust can be sold for P10 per kilo. Packaging cost for the sawdust is
P0.50 per kilo and sales commission is 105 of sales price. The by-product net revenue
serves to reduce joint processing costs for joint products. Joint products are assigned
 joint cost based on board feet. Data follows:
Joint processing costs P100,000
Narra A 400,000
Yakal B 200,000
Sawdust produced (kilos) 2,000
What is the cost assigned to Narra A?
a. P61,000 
b. 62,000 
c. 63,000 
d. 62,130 

Use the following information in answering Numbers 26 to 30:

Manuel Tuason is the owner and operator of MT Bottling, a bulk soft-drink producer. A
single production process yields two bulk soft drinks: Rain Dew (the main product) and
Resi-Dew (the by-product). Both products are fully processed at the split off point, and
there are no separable costs.

For July 2013, the cost of the soft-drink operations is P120,000. Production and sales
data are as follows:
Production Sales Selling Price
(In Liters) (In Liters) Per Liter 
Main product: Rain Dew 10,000 8,000 P20
By-product: Resi – Dew 2,000 1,400 2
There were no beginning inventories on July 1, 2013.

 Assuming by-product is recognized when produced:


27. What is the gross margin for MT Bottling?
a. P67,200 
b. 71,200 
c. 71,200 
d. 70,000 
28. What are the inventory costs reported in the balance sheet on July 31, 2013, for Rain
Dew and Resi – Dew?
Rain Dew Resi-Dew  
a. P23,200 P1,200  
b. 23,200 4,000  
c. 22,300 1,200  
d. 25,200 4,000  

 Assuming the by-product is recognized at sale? 

29. What is the gross margin for MT Bottling?


a. P66,800 
b. 64,000 
c. 60,000 
d. 65,000 
30. What are the inventory costs reported on July 31, 2013, for Rain Dew and Resi-Dew?
Rain Dew Resi-Dew  
a. P24,000 P0  
b. 23,200 1,200  
c. 24,000 1,200  
d. 23,200 0  

Use the following data for Numbers 31-34:


JMG Company buys Article X for P.80 per unit. At the end of processing in Department 1
Article X split into Products D, E, and F. Product D is sold at split-off point with no further
processing. E and F require further processing before they can be sold. E is processed in
Department 2; and F is processed in Department 3. The following is a summary of costs
and other data for the fiscal year ended July 31, 2013:

Department 1 Department 2 Department 3


Cost of Article X:
Direct materials P144,000 - -
Direct labor 21,000 P67,500 P97,500
Factory overhead 15,000 31,500 73,500

Product D Product E Product F  


Units sold 30,000 45,000 67,500
Units on hand, July 31, 2012 15,000 - 22,500
Sales P45,000 P144,000 P212,625
JMG uses the estimated net realizable method of allocating joint costs.
31. What is the sales value of Product D at split-off point?
a. P45,000 
b. 30,000 
c. 67,500 
d. 22,500 
32. What is the cost of Product E sold for the year ended July 31, 2013?
a. P147,000 
b. 99,000 
c. 144,000 
d. 135,000 
33. What is the cost of the inventory of Product D on July 31, 2013?
a. P27,000 
b. 18,000 
c. 22,500 
d. 54,000 
34. What is the cost of the inventory of Product F on July 31, 2013?
a. P33,500 
b. 65,250 
c. 42,750 
d. 90,000 

Question 35 and 36 are based on the following data:


JGG Company produces three products: Product A, B and C from the same materials.
Joint costs for this production run are P32,500. Data for the three products are:
Sales price per  Disposal cost 
kilo at split-off   per kilo at 
Product Kilos  point  split-off point 
A 800 P6.50 P3.00
B 1,100 8.25 4.20
C 1,500 8.00 4.00

35. Using the sales value at split-off, what is the amount of joint cost allocated to Product
A?
a. P11,225
b. 10,525
c. 8,225
d. 9,525
36. Using the net realizable value at split -off, what is the allocated joint cost to Product C?
a. P15,605
b. 14,711
c. 15,750 
d. 14,500 

Use the following information in answering numbers 37 – 40:

The J&J Chemical Company produces a product knows as “VITAMIX” from which a by-
products results. This by-product can be sold at P4.14 per unit. The manufacturing costs
of the main product and by-product up to the point of separation for the three months
ended March 31, 2013 follows:
Materials P50,000
Labor 40,000
Overhead 30,000
The units produced were 15,000 units for the main product and 900 units for the by-
product. During the period 12,000 units of the “VITAMIX” were sold at P16 per unit,
while the company was able to sell 600 units of the by-product. Selling and
administrative expenses related to the main product amounted to P18,000. Disposal
cost per unit of the by-product is P1.75.

37. If the by-product is recorded at net realizable value, what is the unit of cost “VITAMIX”,
if the net realizable value of the by-product is deducted from the manufacturing costs of 
“VITAMIX”?
a. P7 
b. 7.85
c. 8.75
d. 8.50 
38. If the by-product is recognized when sold, what is the cost of the inventory of 
“VITAMIX”?
a. P24,000 
b. 25,000 
c. 24,500 
d. 25,500 
39. If the net realizable value of the by-product is deducted from the cost of goods sold of 
“VITAMIX”, what is the gross profit?
a. P90,500 
b. 95,700 
c. 97,500 
d. 87,500 
40. If the net realizable value of the by-product is treated as other income, what is the net
profit?
a. P79,500 
b. 75,900 
c. 89,600 
d. 85,700 
ANSWERS

1. D 6. A 11. C 16. C 21. C 26. B 31. C 36. B


2. D 7. A 12. B 17. A 22. B 27. A 32. D 37. B
3. B 8. C 13. A 18. B 23. C 28. A 33. B 38. A
4. A 9. B 14. C 19. D 24. D 29. A 34. B 39. C
5. C 10. C 15. A 20. D 25. B 30. A 35. A 40. A

SOLUTIONS AND EXPLANATIONS

1. Physical measures (units produced):

Allocated joint cost (6,000/12,000 x P60,000) P30,000


Add: Additional processing cost 9,000
Total costs allocated to Product X P39,000  

Relative sales value at split-off:


Allocated joint cost (P40,000/P100,000) x P60,000 P24,000
Add: Additional processing cost 9,000
Total costs allocated to Product X P33,000  

Note: Sales value at split-off is equal to final sales value less additional processing costs.
The ratio is shown below:
Product X (P49,000 – P9,000) P40,000 - 40/100
Product Y (42,000 – 7,000) 35,000 - 35/100
Product Z (30,000 – 5,000) 25,000 - 25/100
P100,000
2. Since the sales values at split-off are already known, you should not have attempted to
compute the relative sales value by subtracting the additional processing costs from the
final sales values. This approach is only used when sales values at the split-off point are
not available.

Although the question required the correct allocated joint cost for products W, X, Y and
Z, you only needed to compute the correct allocated cost for onr product to select the
proper choice.

The easiest approach would have been as follows:

Allocation to Product Z:
20,000
x 160,000 = P16,000
200,000
3. The problem indicates that relative sales value at split-off is used to allocate joint costs.
Product H has been allocated 15% (P18,000 ÷ P120,000) of the total joint costs.
Therefore, Product H has 15% of the total sales value at split-off of P30,000 (15% x
P200,000). Since Product F has sales value at split-off of P120,000, Product G’s sales
value at split-off is P50,000 (P200,000 – P30,000 – P120,000). The Product G sales value
 just computed represents 25% (50,000 ÷ 200,000) of the sales value at split-off. The
 joint costs allocated to product G is 120,000 x 25% = P30,000.
4. First compute the sales value at split-off ratio as follows:
Final   Add’l  Sales Value
Sales Value Processing Cost   At split-off Ratio
Product A (1,600 x P200) P320,000 P100,000 P220,000 220/400
Product B (800 x P400) 320,000 140,000 180,000 180/400
P400,000

The allocated joint cost to A can now be computed as shown below:


220
x P120,000 = P66,000 
400
5. The net realizable values for products PEL and VEL are:
PEL VEL
Sales value –
(800 x P25) P20,000
(400 x P50) P20,000
Costs to convert into a salable form 8,000 12,000
Net realizable value P12,000 P8,000
Product PEL represents 60% (P12,000 ÷ P20,000) of the total net realizable value and
thus should be assigned 60% of the joint costs. Thus, the joint costs allocated to product
PEL would be (P12,000 ÷ P20,000) x 15,000 = P9,000.
6.
Final  Further  Sales Value
Sales Process at Point of 
Value Costs Split-off 
A 2,000 x P30 = P60,000 - P24,000 = P36,000
B 1,000 x 60 = 60,000 - 36,000 = 24,000
Total P60,000

 Joint costs allocated to Product A:


36/60 x P55,000 = P33,000
7. Product AA (15,000 costs x P2) P30,000
Product BB (15,000 units x P5) 75,000
Total P105,000

The ratio therefore are:


 AA = 30/105 or 29%
BB = 75/105 or 71%
8. The computation is:
Product   Additional  Sales
Sales Processing Value % of   Joint 
Value Cost  at Split-off  total  Cost 
AA P9,000 P3,000 P6,000 66 2/3 P4,400 
BB 6,000 3,000 3,000 33 1/3 2,200 
P15,000 P6,000 P9,000 100% P6,600 

9. Apply the following formula:


Joint Sales value at spilt-off 
costs = Total sales value X total joint costs
allocated

Sales value at (N)


P48,000 = X P120,000
P200,000

Sales P200,000 x P48,000


Value = P120,000
(N)
= P80,000 

Since the answer (b) is the only one which assigns P80,000 sales value to product N, we
can stop here. Obtaining the sales value of product P is a simple operation:
Sales Value (P) = Total sales value – sales value (N) – sales value (R)
= P200,000 – P80,000 – P50,000
= P70,000 
10. Plug given amounts into the basic relative sales value method Joint Cost allocation
formula applicable to product P:
Joint Sales value at spilt-off 
costs = Total sales value X total joint costs
Allocated

P36,000 x P100,000
P36,000 =
P60,000
= P60,000 

11. Since Product S represents 66 2/3% (50,000/75,000) of the total, the total joint cost can
be determined as follows:
P30,000
Or P30,000 x 3/2 = P45,000 
66 2/3%

12. The portion of the total joint product costs allocated to Product J was P9,000. Using the
relative sales value at split-off approach, this means that 60% of the total joint costs
have been allocated to Product J (15,000/25,000 = .60). Therefore, total joint product
costs are calculated as follows:
P90,000
= P15,000 
60

13. Sales value if processed further (Product S) P126,000


Less: Additional costs if processed further P26,000
Additional margin if processed further 28,000 54,000
Sales value at split-off P72,000  
14. The gross profit on this sale is the ultimate sales price less the cost of goods sold. In a
 joint processing situation, the cost of the goods sold includes both the allocation of joint
costs up to the split-off point and all further processing costs. The allocation of joint
costs incurred prior to split-off is based on relative sales value at the split-off point. For
Product W, relative sales value is its sales value at split-off divided by total sales value at
split-off or P60,000/P750,000 = 8%. The allocation of joint costs is then 8% of total joint
costs, or (8%) (P450,000) = P36,000. The gross profit is computed as follows:

Ultimate sales price P78,000


Allocation of joint costs P36,000
Further processing costs 12,000 (48,000)
Gross profit P30,000  
15. First compute the total production cost as shown below:
R S T 
Units produced:
5/10 x 50,000
3/10 x 50,000 = 25,000 15,000 10,000
2/10 x 50,000
Materials:
P120,000 x 5/10
120,000 x 3/10 = P60,000 P36,000 P24,000
120,000 x 2/10
Joint conversion:
P200,000 x 22/50
200,000 x 16/50 = 88,000 64,000 48,000
200,000 x 12/50
Further processing = 30,000 20,000 30,000
Total cost of production P178,000 P120,000 P102,000

NOTE: The materials cost is allocated to the three joint products on the basis of relative
production units; the total joint conversion cost is allocated on the basis of relative sales
values at split-off point, as follows:
R S T 
Final sales values:
25,000 x P10
15,000 x 12 P250,000 P180,000 P150,000
10,000 x 15
Less: Further processing costs 30,000 20,000 30,000
Sales values at split-off point P220,000 P160,000 P120,000
Fractional share of conversion costs 22/50 16/50 12/50

The unit cost can now be computed as follows:

Product R (P178,000 ÷ 25,000) P7.12


Product S (120,000 ÷ 15,000) P8.00  
Product T (102,000 ÷ 10,000) P10.20  
16. First allocate the joint cost among the three products:
Products Sales Value Ratio Allocated Joint Cost  
#111 P1,200,000 1,200/4,000 P420,000
#777 800,000 800/4,000 280,000
#999 2,000,000 2,000/4,000 700,000
P4,000,000 P1,400,000

#111 #777 #999


Final sales value P2,160,000 P968,000 P2,520,000
Less: Allocated Joint Cost 420,000 280,000 700,000
Addt’l. Processing Cost 960,000 168,000 520,000
Total 1,380,000 448,000 1,220,000
Contribution margin P780,000 P500,000 P1,300,000
Units produced 60,000 20,000 20,000
Contribution margin/unit  P 13 P 26 P 65
Sales value at split-off + additional processing cost.
17.
Sales  Allocated  No. of  Unit 
Product  Value Ratio  Joint Cost ÷ Kilos = Cost 
JKA P44,000 44% P22,880 4,000 P5.72
JKB 30,000 30% 15,600 3,000 5.20
JKC 26,000 26% 13,520 1,000 13.52
P100,000 P52,000

18. Joint Cost P3,840,000


Less: Cost of By Product – Wiz
Sales Value (1,000 x P420) 420,000
Less: Addt’l. processing cost 180,000 240,000
Joint cost to be allocated to Koo and Lam P3,600,000

The allocation is as follows:


Market Value Ratio Allocated JC  
Koo – P6,000,000 50% P1,800,000 
Lam – 6,000,000 50% 1,800,000
P12,000,000 P3,600,000
19. The requirement is to determine the effect on gross margin by reporting the sale of a
by-product as additional sales revenue instead of a deduction from the major product’s
cost of goods sold. The solutions approach is to determine what is currently being done,
then calculate the effect of the accounting change. To facilitate understanding, assume
that peso amounts for sales and cost of goods sold (CGS) are P300,000 and P200,000,
respectively.
Present Method Proposed Method  
Sales P300,000 P300,000 + P90,000*
CGS P200,000 – P90,000 P200,000
Gross Margin P190,000 P190,000
*100,000 units x (P1 selling price – P0.10 selling cost)
Note that the change in accounting treatment has no effect on gross margin.
20. The requirement is to find the cost of sales for both gasoline and the gasoline by-
product. The value of the by-products may be recognized at two points in time: (1) at
the time of production, or (2) at the time of sale. Under the production method (as
given in the problem), the net realizable value of the by-products produced is deducted
from the cost of the major products produced. The net realizable value of the by-
product is as follows:

Sales value of by-product P30,000


Less: Separable costs 25,000 (10,000 + 15,0000)
Net realizable value 5,000

Therefore, cost of sales for gasoline is calculated as follows:

Total production (joint) costs P120,000


Less: Net realizable value of by-product 5,000
Net Production Cost 115,000
Less: Costs in 12/31/13 inventory 15,000
Cost of Sales P100,000  

Therefore, total cost of gasoline sales is P100,000, and no cost of sales is reported for 
the by-product.
21. The requirement is to determine how to allocate joint cost using the net realizable va lue
(NRV) method when a by-product is involved. NRV is the predicted selling price in the
ordinary course of business less reasonably predictable costs of completion and
disposal. The joint cost of P54,000 is reduced by the NRV of the by-product (P4,000) to
get the allocable joint cost (P50,000). The computation is:
Products Sales Value at Split-off Weighting Joint Costs Allocated  
JJ P40,000 40,000/75,000 x 50,000 P26,667
MM 35,000 35,000/75,000 x 50,000 23,333
P75,000 P50,000
Therefore, P26,667 of the joint cost should be allocated to product JJ.
22. The entry in answer choice “b” is the result of the following procedures related to the
by-product sales:

a) Reduce the manufacturing costs of Coco by the estimated realizable value of by-
product sales:

Work in process – Saloc P75,000


Work in process – Coco P75,000
Computation:
Sales price of Saloc (45,000 x P3) P135,000
Less: Further processing cost 60,000
Net realizable value of Saloc P 75,000
b) Record further processing costs of Saloc:
Work in process – Saloc P60,000
Raw materials 30,000
Direct labor 22,500
Factory overhead 7,500
c) Record cost of By-Product transferred to stockroom:
By-product – Saloc 135,000
Work in process – Saloc 135,000
23. First compute the allocable joint cost to PP and VV.

Joint cost P172,000


Less: Cost of by-product ZZ:
Sales price (1,000 x P5) P5,000
Less: Operating expense (1,000 x P2) 2,000
Operating profit (1000 x P1) 1,000 3,000 2,000
Allocable Joint Cost P170,000

Allocated as follows:
Sales Value at Split-off Ratio Allocated Joint Costs
PP: 5,000 x (P50-P10) P200,000 200/340 P100,000
VV: 4,000 x (40-5) 140,000 140/340 70,000
Total P340,000 P170,000

The gross profit from sales of PP can now be computed:


Sales (5,000 x P50) P250,000
Less: Allocated joint cost 100,000
Further processing cost (5,000 x P10) 50,000 150,000
Gross profit P100,000  
24.
Method A Prod. A Prod. B Prod. C Prod. X  
Unit cost (total production cost
divided by total units produced):
P24,884.50/317 P78.50 P78.50 P78.50 P78.50
Unit “market”:
Unit selling price P100 P100 P100 P100
Unit selling expense:
P612/P12,240 = 5% 5 5 5 1.65
Unit realizable value P 95 P 95 P 95 P 31.35
Prod. A, B & C = 119.5 x P78.50 P9,380.75
By-product X = 55 x 31.35 1,724.25
Dec. 31, 2013 inventory at lower of cost or market P11,105

Method B Prod. A Prod. B Prod. C  


Unit cost (total production cost
less sales value of X produced,
divided by total units of 
A, B & C produced):
P22,079.50/232 P95.16 P95.16 P95.16
Unit “market”:
Unit selling price P100 P100 P100
Unit selling expense:
P612/P11,250 = 5.44% 5.44 5.44 5.44
Unit realizable value P 94.56 P 94.56 P 94.56
Prod. A, B & C = 119.5 x P94.56 P11,300
By-product X = 55 x 33 1,815
Dec. 31, 2013 inventory at lower of cost or market P13,115

25. Unit cost, if joint production costs is apportioned on a


“unit cost per kilo” basis: P99,538/1,268 kilos P78.50
Percent of selling expense to selling price: P2,460/49,200 5%

December 31, 2011 inventory at “lower of cost or market”:


MM: 346 kilos @ P78.50
RR: 108 kilos @ 78.50
SS: 24 kilos @ 78.50
Total 478 kilos @ 78.50 P37,523
CC 220 kilos @ 33.25 (net of 5% selling expense) 7,315
Total: 698 kilos P44,838  

Unit cost, if the company recognizes income in the period in which the by-product is
produced with no selling expense assigned to the by-product:

Total production costs P99,538


Less: By-product sales value: 340 kilos @P35 11,900
Joint costs of MM, RR & SS P87,638
P87,638/928 kilos P94.44

December 31, 2013 inventory at “lower cost or market”:

MM, RR & SS: 478 kilos @ P94.44 P45,142.32


By-product 220 kilos @ 35.00 7,700.00
Total 638 kilos P52,842.32
26. Sales revenue of by-product – Sawdust (P10 x 2,000 kilos) P20,000
Selling expenses
Packaging costs (P.50 x 2,000) P1,000
Sales commission (10% x 20,000) 2,000 3,000
Net revenue P17,000
Joint processing costs P100,000
Less net revenue from sale of by-product 17,000
Joint costs to be allocated to Main products P93,000

 Allocation to Narra A (P93,000 x 400/600) P62,000 


27. Sales revenue:
Main product (8,000 x P20) P160,000
Cost of goods sold:
Total manufacturing costs P120,000
Less by product revenue (2,000 x 2) 4,000
Net manufacturing costs P116,000
Less Main product inventory:
(2,000/10,000 x P116,000) 23,200 92,800
Gross margin P67,200  
28. Rain Dew (per no. 27) P23,200
Resi – Dew (2,000 – 1,400) x P2 P 1,200
29. Sales revenue:
Main product (8,000 x P20) P160,000
By product (1,400 x P2) 2,800
Total revenues P162,800
Cost of goods sold:
Total manufacturing costs P120,000
Less Main product inventory:
(2,000/10,000 x P120,000) 24,000 96,000
Gross margin P66,800  
30. Rain Dew (per no. 29) P24,000
Resi – Dew P 0
31. The answer is (c). the computation is as follows:

Units produced (30,000 + 15,000) 45,000


Selling price per unit (45,000 ÷ 15,000) P 1.50
Sales value at split-off P67,500  
Before answering numbers 32-34, prepare a schedule of allocating joint cost of 
P180,000 (total cost in Department 1) among the joint products as follows:
Product Final    Additional  Estimated  % Allocated  
Sales value Processing cost  Net realizable  Joint cost 
D P67,500 - P67,500 30% P54,000
E 144,000 P99,000 45,000 20% 36,000
F 283,500 171,000 112,500 50% 90,000
P225,000

32. The answer is (d) computed as follows:


Allocated joint cost P36,000
Additional processing cost 99,000
Total costs of product E P135,000  
33. The correct choice is P18,000 (P54,000 x 15/45)
34. The answer is P65,250, computed as follows:
Allocated joint cost P90,000
Additional processing costs 171,000
Total cost P261,000
Cost of ending inventory (P261,000 x 22,500/90,000) P62,250 
35. The answer is (a), computed as follows:
Product Units Unit  Sales value at 
 produced  Sale price split-off 
A 800 P6.50 P5,200
B 1,100 8.25 9,075
C 1,500 8.00 12,000
Total P26,275
 Allocated joint cost of product A (P9,075/P26,275 x P32,500) P11,225
36. The answer is (b). The computation is:
Product Units Unit  Sales value at 
 produced  Sale price split-off 
A 800 P3.50 P2,800
B 1,100 4.05 4,455
C 1,500 4.00 6,000
Total P13,255
 Allocated joint cost of product C (P6,000/P13,255 x P32,500) P14,711
37. The correct choice is (b).
Sales value of by-product (900 x P4.25) P3,825
Disposal cost (900 x P1.75) (1,575)
Net realizable value P2,250
Manufacturing costs P120,000
Net realizable value of by-product ( 2,250)
Cost of “VITAMIX” P117,750
Unit cost (P117,750/15,000 units) P 7.85
38. The answer is P24,000 (P120,000 x 3,000/15,000).
39. The correct answer is (c). the computation is as follows:
Sales (12,000 units x P16) P192,000
Cost of goods sold:
Main product (P12,000 x 12,000/15,000) P96,000
By-product (600 x P2.50) ( 1,500) 94,500
Gross profit P97,500  
40. The answer is (a) as computed below:
Sales P192,000
Cost of goods sold ( 96,000)
Gross profit 96,000
Expenses ( 18,000)
Operating income 78,000
Other income (by-product) 1,500
Net income P79,500