2 - The following questions are based on Costner ompany...

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Unformatted text preview: The following questions are based on Costner ompany, which manufactures products X, Y, and Z from a joint process. Joint-process costs were." $80,000 Additional information is provided: ' lf Processed Further Units Sales Value at Sales Additional Product Produced Split Off Values Costs ' 12,000 $80,000 $110,000 $18,000 . 10,000 70.000 90.000 14,000 8,000 50,000 60,000 12,000 Required a. Assuming that joint-product costs are allocated using the physical-measures (units produced) method, what were the total costs of product X (including $18,000 if processed further)? b. Assuming that joint-product costs are allocated using the net realizable value method, what were the total costs of product Y (including the $14,000 if processed further)? [CPA adapted] Refer to Exercise 9.35. Required . Allocate the joint costs using (1) the relative sa'ies value at split-off method and (2) the constant gross margin percentage method described in the chapter appendix. Exercise 9.35 Comparison of Methods (Lo 4) Exercise 9.36 Relative Sales Value at Split Off and Constant Gross Margin Percentage Methods (Appendix) (LO 6) Leather Products, Inc., processes cowhide to produce three outputs (leather, suede, dog chews). Leather and suede are considered main products, and dog chews are a by-product. During a recent month, the following events occurred: Produced and sold 200 units of leather and 100 units of suede. Produced 25 units of dog chews. Recorded $140,000 sales revenue from leather and suede. The cost of sales before accounting for the by—product was $72,000. 1 These costs are charged as they are incurred against any by-product sales. (None of the by- products were in inventory at the end of the period.) . ': Received $450 in revenue from the sale of the 25 units of dog chews. Required Prepare an analysis showing the sales revenue, other income, cost of goods sold, other relevant data, and gross margins that would be reported for each of the two methods of by-product accounting described in the text. Exercise 9.38 By-Products (LO 4) IMAC Company produces three products by ajoi‘nt—production process. Raw materials are'put into pro- duction in process A. and three products appear at the end of this process. Product X is immediately sold at the split—off point. with no further processing. Products Y and Z require further processing before they are sold. Product Y is processed in process B. and product Z is processed in process C. The company uses the (estimated) net realizable value method of allocating joint-production costs. Following is a summary of costs and pther data for the quarter-ended September 30. No inventories were on hand at the beg-inning of the quarter or on J uly 1. No raw materials were on hand at September 30. All units on hand at the end of the quarter were fully complete as to processing. 1‘ Products X Y 2 Pounds sold .................................................................. 40.000 118.000 140.000 Pounds on hand at September 30 ................................ 100.000 0 80.000 Sales revenues ............................................................. $ 30.000 $177,000 $274,400 Processes A B C Raw material cost ......................................................... $1 12.000 5 0 $ 0 Direct labor cost ........................................................... 48.000 . 80.900 191.750 Manufacturing overhead 20.000 21.100 73,250 Required a. Assume that the entire output of product X could be processed further at an additional cost of $3 per pound and then sold for $5 per pound. What is the effect on operating profits if all product X output for the quarter had been processed and sold rather than all being sold at the Split—off point? b. Write a memo to management indicating whether the company should process product X further and why. (2. Determine the following amounts for each product: (1) net realizable value used for allocating joint costs. (2) joint costs allocated to each of the three products. (3) cost of goods sold. and (4) finished goods inventory costs. September 30. Problem 9.46 Net RealizabieValue and Effects of Processing Further (Lo 2, 4) Problem $.48 Joint-Cost Allocations with By—Product (LO 4, 5) Exotic Aroma Company buys bulk flowers and processes them into perfumes in a two—stage process. Its highest-grade perfume, Seduction, and a residue that is processed into a medium-grade perfume, Romance, come from a certain mix of petals. In July, the company used 25,000 pounds of petals. The first stage is a joint process that reduces the petals to Seduction and the residue. This first stage had the following costs: . $100,000 direct materials $200,000 conversion The additional costs of producing Romance in the second (pressing) stage were as follows: 5"; $44,000 direct materials $180,000 conversion For July, total production yielded 2,000 ounces of Seduction and 8,400 ounces of Romance. There was no beginning inventory on July 1, nor were there uncompleted units. Packaging costs incurred for each product as completed were $120,000 for Seduction and $308,000 for Romance. The sales price per ounce is $180 for Seduction and $70 for Rornance. Required :1. Allocatejoint costs using the net realizable value method. (Packaging and additional processing costs must be subtracted from revenue to compute net realizable values.) b. Allocate the joint costs using the physical-measures method. c. Management is concerned about the large disparity irrallocation amounts using the physical- measures method versus the NRV method. Management has asked you to explain why this dis- crepancy occurred. Write a memo to management explaining it. d. Assume that Exotic Aroma can sell the squeezed petals from the reduction process to greenhouses for fertilizer. In July, it sold 12,000 pounds of squeezed petals that were left over for $1.50 per pound. The squeezed petals are a lay-product of reduction. Assume that the net realizable value of by-products reduces the joint costs of main products. Answer requirements (a) and (b) using this new information. ...
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