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CPAPrepChapter16 - CHAPTER 16 COST ALLOCATION JOINT...

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CHAPTER 16 COST ALLOCATION: JOINT PRODUCTS AND BYPRODUCTS 16-14 Two methods to account for byproducts are: a. Production method—recognizes byproducts in the financial statements at the time production is completed. b. Sales method—delays recognition of byproducts until the time of sale. 16-25 (35-45 min.) Joint costs and byproducts. 1. Computing byproduct deduction to joint costs: Revenues from C, 20,000 × $3 $ 60,000 Deduct: Gross margin, 10% of revenues 6,000 Marketing costs, 25% of revenues 15,000 Peanut Butter Department separable costs 1 0,000 Net realizable value (less gross margin) of C $ 29 ,000 Joint costs $160,000 Deduct byproduct contribution 29 ,000 Net joint costs to be allocated $ 131 ,000 Deduct Net Unit Final Separable Realizable Allocation of Sales Sales Processing Value at $131,000 Quantity Price Value Cost Splitoff Weighting Joint Costs A 10,000 $10 $100,000 $20,000 $ 80,000 40% $ 52,400 B 60,000 2 12 0,000 –– 12 0,000 60% 78,6 00 Totals $ 22 0,000 $ 2 0,000 $ 2 00,000 $ 131 ,000 Add Separable Joint Costs Processing Allocation Costs Total Costs Units Unit Cost A $ 52,400 $20,000 $ 72,400 10,000 $7.24 B 78,6 00 –– 78,6 00 6 0,000 1.31 Totals $ 131 ,000 $ 2 0,000 $ 151 ,000 7 0,000 Unit cost for C: $1.45 ($29,000 ÷ 20,000) + $0.50 ($10,000 ÷ 20,000) = $1.95, or $3.00 – $0.30 (10% × $3) – $0.75 (25% × $3) = $1.95. 1
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2. If all three products are treated as joint products: Quantity Unit Sales Price Final Sales Value Deduct Separable Processing Cost Net Realizable Value at Splitoff Weighting Allocation of $160,000 Joint Costs A 10,000 $10 $100,000 $20,000 $ 80,000 80 ÷ 235 $ 54,468 B 60,000 2 120,000 120,000 120 ÷ 235 81,702 C 20,000 3 6 0,000 25,000 35,000 35 ÷ 235 23,830 Totals $ 28 0,000 $ 4 5,000 $235,000 $ 16 0,000 Add Separable Joint Costs Processing Allocation Costs Total Costs Units Unit Cost A $ 54,468 $20,000 $ 74,468 10,000 $7.45 B 81,702 –– 81,702 60,000 1.36 C 23,830 1 0,000 33,830 2 0,000 1.69 Totals $ 160, 000 $ 3 0,000 $ 190 ,000 9 0,000 Call the attention of students to the different unit “costs” resulting from the two assumptions about the relative importance of Product C. The point is that costs of individual products depend heavily on which assumptions are made and which accounting methods and techniques are used. 16-26 (25 min.) Accounting for a byproduct. 1. Byproduct recognized at time of production: Joint cost = $1,500 Joint cost to be charged to main product = Joint Cost - NRV of Byproduct = $1,500 - (50 lbs. × $1.20) = $1,440 Inventoriable cost of main product = = $3.60 per container Inventoriable cost of byproduct = NRV = $1.20 per pound Gross Margin Calculation under Production Method Revenues Main product: Water (600/2 containers × $8) $2,400 Byproduct: Sea Salt 0 2,400 Cost of goods sold Main product: Water (300 containers × $3.60) 1,080 Gross margin $1,320 Gross-margin percentage ($1,320 ÷ $2,400) 55.00% Inventoriable costs (end of period): 2
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Main product: Water (100 containers × $3.60) = $360 Byproduct: Sea Salt (10 pounds × $1.20) = $12 2. Byproduct recognized at time of sale: Joint cost to be charged to main product = Total joint cost = $1,500 Inventoriable cost of main product = = $3.75 per container Inventoriable cost of byproduct = $0 Gross Margin Calculation under Sales Method Revenues Main product: Water (600/2 containers × $8) $2,400 Byproduct: Sea Salt (40 pounds × $1.20) 48 2,448 Cost of goods sold Main product: Water (300 containers × $3.75) 1,125 Gross margin $1,323 Gross-margin percentage ($1,323 ÷ $2,448) 54.04% Inventoriable costs (end of period): Main product: Water (100 containers × $3.75) = $375 Byproduct: Sea Salt (10 pounds × $0) = $0 3. The production method recognizes the byproduct cost as inventory in the period it
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