AF 3112 Week 6 Assignment-Solution.pdf - AF 3112 MANAGEMENT ACCOUNTING 2 Week 6 exercises 16-2 What is a joint cost What is a separable cost A joint

AF 3112 Week 6 Assignment-Solution.pdf - AF 3112 MANAGEMENT...

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1 AF 3112 MANAGEMENT ACCOUNTING 2 Week 6 exercises 16-2 What is a joint cost? What is a separable cost? A joint cost is a cost of a production process that yields multiple products simultaneously. A s eparable cost is a cost incurred beyond the splitoff point that is assignable to each of the specific products identified at the splitoff point. 16-3 Distinguish between a joint product and a byproduct. The distinction between a joint product and a byproduct is based on relative sales value. A joint product is a product from a joint production process (a process that yields two or more products) that has a relatively high total sales value. A byproduct is a product that has a relatively low total sales value compared to the total sales value of the joint (or main) products. 16-5 Provide three reasons for allocating joint costs to individual products or services. The chapter lists the following six reasons for allocating joint costs: 1. Computation of inventoriable costs and cost of goods sold for financial accounting purposes and reports for income tax authorities. 2. Computation of inventoriable costs and cost of goods sold for internal reporting purposes. 3. Cost reimbursement under contracts when only a portion of a business's products or services is sold or delivered under cost-plus contracts. 4. Insurance settlement computations for damage claims made on the basis of cost information of joint products or byproducts. 5. Rate regulation when one or more of the jointly-produced products or services are subject to price regulation. Litigation in which costs of joint products are key inputs. 16-8 Distinguish between the sales value at splitoff method and the NRV method. Both methods use market selling-price data in allocating joint costs, but they differ in which sales-price data they use. The sales value at splitoff method allocates joint costs to joint products on the basis of the relative total sales value at the splitoff point of the total production of these products during the accounting period. The net realizable value method allocates joint costs to joint products on the basis of the relative net realizable value (the final sales value minus the separable costs of production and marketing) of the total production of the joint products during the accounting period. 16-17 Joint costs of \$8,000 are incurred to process X and Y. Upon splitoff, \$4,000 and \$6,000 in costs are incurred to produce 200 units of X and 150 units of Y, respectively. In order to justify processing further at the splitoff point, revenues for product: a. X must exceed \$12,000. b. Y must exceed \$14,000.

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2 c. X must be greater than \$60 per unit. d. Y must be greater than \$40 per unit. Solution: Choice "d" is correct. The decision at splitoff point to sell or process further will depend on the incremental revenues versus costs beyond the splitoff point. Joint costs incurred prior to the splitoff point are sunk, and therefore irrelevant in the analysis. After splitoff, each unit of X will cost \$20 to produce (\$4,000 in costs divided by 200 units) and each unit of Y will cost \$40 to produce (\$6,000 in costs divided by 150 units). As long as the per unit revenues for X
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