Assignment Material

Questions

1. 17-1. Give two examples of industries in which joint costs are found. For each example, what are the individual products at the splitoff point?
2. 17-2. What is a joint cost? What is a separable cost?
3. 17-3. Distinguish between a joint product and a byproduct.
4. 17-4. Why might the number of products in a joint-cost situation differ from the number of outputs? Give an example.
5. 17-5. Provide three reasons for allocating joint costs to individual products or services.
6. 17-6. Why does the sales value at splitoff method use the sales value of the total production in the accounting period and not just the revenues from the products sold?
7. 17-7. Describe a situation in which the sales value at splitoff method cannot be used but the NRV method can be used for joint-cost allocation.
8. 17-8. Distinguish between the sales value at splitoff method and the NRV method.
9. 17-9. Give two limitations of the physical-measure method of joint-cost allocation.
10. 17-10. How might a company simplify its use of the NRV method when final selling prices can vary sizably in an accounting period and management frequently changes the point at which it sells individual products?
11. 17-11. Why is the constant gross-margin percentage NRV method sometimes called a “joint-cost-allocation and a profit-allocation” method?
12. 17-12. “Managers must decide whether a product should be sold at splitoff or processed further. The sales value at splitoff method of joint-cost allocation is the best method for generating the information managers need for this decision.” Do you agree? Explain.
13. 17-13. “Managers should consider only additional revenues and separable costs when making decisions about selling at splitoff or processing further.” Do you agree? Explain.
14. 17-14. Describe two major methods to account for byproducts.
15. 17-15. Why might managers seeking a monthly bonus based on attaining a target operating income prefer the sales method of accounting for byproducts rather than the production method?

Multiple-Choice Questions

1. 17-16. Select Manufacturing Co. produces three joint products and one organic waste byproduct. Assuming the byproduct can be sold to an outside party, what is the correct accounting treatment of the byproduct proceeds received by the firm?
   1. a. Apply sale proceeds on a prorated basis to the joint products’ sales.
   2. b. Use the sale proceeds to reduce the common costs in the joint production process.
   3. c. Apply the sale proceeds to the firm’s miscellaneous income account.
   4. d. Either “b” or “c” can be used.
2. 17-17. 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:
   1. a. X must exceed $12,000.
   2. b. Y must exceed $14,000.
   3. c. X must be greater than $60 per unit.
   4. d. Y must be greater than $40 per unit.
3. 17-18. Houston Corporation has two products, Astros and Texans, with the following volume information:

1. The joint cost to produce the two products is $120,000. What portion of the joint cost will each product be allocated if the allocation is performed by volume?
   1. 1. $100,000 and $0
   2. 2. $80,000 and $40,000
   3. 3. $40,000 and $80,000
   4. 4. $50,000 and $50,000
2. 17-19. Dallas Company produces joint products, TomL and JimmyJ, each of which incurs separable production costs after the splitoff point. Information concerning a batch produced at a $200,000 joint cost before splitoff follows:

1. What is the joint cost assigned to TomL if costs are assigned using relative net realizable value?
   1. 1. $60,000
   2. 2. $140,000
   3. 3. $48,000
   4. 4. $200,000
2. 17-20. Earl’s Hurricane Lamp Oil Company produces both A-1 Fancy and B Grade Oil. There are approximately $9,000 in joint costs that Earl may allocate using the relative sales value at splitoff or the net realizable value approach. At splitoff, A-1 sells for $20,000 while B grade sells for $40,000. After an additional investment of $10,000 after splitoff, $3,000 for B grade and $7,000 for A-1, both the products sell for $50,000. What is the difference in allocated costs for the A-1 product assuming applications of the net realizable value and the sales value at splitoff approach?
   1. 1. A-1 Fancy has $1,300 more joint costs allocated to it under the net realizable value approach than the sales value at splitoff approach.
   2. 2. A-1 Fancy has $1,300 less joint costs allocated to it under the net realizable value approach than the sales value at splitoff approach.
   3. 3. A-1 Fancy has $1,500 more joint costs allocated to it under the net realizable value approach than the sales value at splitoff approach.
   4. 4. A-1 Fancy has $1,500 less joint costs allocated to it under the net realizable value approach than the sales value at splitoff approach.
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Exercises

1. 17-21. JOINT-COST ALLOCATION, INSURANCE SETTLEMENT. Quality Chicken grows and processes chickens. Each chicken is disassembled into five main parts. Information pertaining to production in July 2020 follows:

1. Joint cost of production in July 2020 was $50.
2. A special shipment of 40 pounds of breasts and 15 pounds of wings has been destroyed in a fire. Quality Chicken’s insurance policy provides reimbursement for the cost of the items destroyed. The insurance company permits Quality Chicken to use a joint-cost-allocation method. The splitoff point is assumed to be at the end of the production process.
3. Required
   1. 1. Compute the cost of the special shipment destroyed using the following:
      1. a. Sales value at splitoff method
      2. b. Physical-measure method (pounds of finished product)
   2. 2. What joint-cost-allocation method would you recommend Quality Chicken use? Explain.
4. 17-22. JOINT PRODUCTS AND BYPRODUCTS (CONTINUATION OF 17-21). Quality Chicken is computing the ending inventory values for its July 31, 2020, balance sheet. Ending inventory amounts on July 31 are 15 pounds of breasts, 4 pounds of wings, 6 pounds of thighs, 5 pounds of bones, and 2 pounds of feathers.
5. Quality Chicken’s management wants to use the sales value at splitoff method. However, management wants you to explore the effect on ending inventory values of classifying one or more products as a byproduct rather than a joint product.
6. Required
   1. 1. Assume Quality Chicken classifies all five products as joint products. What are the ending inventory values of each product on July 31, 2020?
   2. 2. Assume Quality Chicken uses the production method of accounting for byproducts. What are the ending inventory values for each joint product on July 31, 2020, assuming breasts and thighs are the joint products and wings, bones, and feathers are byproducts?
   3. 3. Comment on differences in the results in requirements 1 and 2.
7. 17-23. NET REALIZABLE VALUE METHOD. Sweeney Company is one of the world’s leading corn refiners. It produces two joint products—corn syrup and corn starch—using a common production process. In July 2020, Sweeney reported the following production and selling-price information:

1. Required

1. Allocate the $321,000 joint costs using the NRV method.
2. 17-24. ALTERNATIVE JOINT-COST-ALLOCATION METHODS, FURTHER-PROCESS DECISION. The Tempura Spirits Company produces two products—methanol (wood alcohol) and turpentine—by a joint process. Joint costs amount to $124,000 per batch of output. Each batch totals 9,500 gallons: 25% methanol and 75% turpentine. Both products are processed further without gain or loss in volume. Separable processing costs are methanol, $4 per gallon, and turpentine, $2 per gallon. Methanol sells for $22 per gallon. Turpentine sells for $16 per gallon.
3. Required
   1. 1. How much of the joint costs per batch will be allocated to methanol and to turpentine, assuming that joint costs are allocated based on the number of gallons at splitoff point?
   2. 2. If joint costs are allocated on an NRV basis, how much of the joint costs per batch will be allocated to methanol and to turpentine?
   3. 3. Prepare product-line income statements per batch for requirements 1 and 2. Assume no beginning or ending inventories.
   4. 4. The company has discovered an additional process by which the methanol (wood alcohol) can be made into a pleasant-tasting alcoholic beverage. The selling price of this beverage would be $55 a gallon. Additional processing would increase separable costs $12 per gallon (in addition to the $4 per gallon separable cost required to yield methanol). The company would have to pay excise taxes of 20% on the selling price of the beverage. Assuming no other changes in cost, what is the joint cost applicable to the wood alcohol (using the NRV method)? Should the company produce the alcoholic beverage? Show your computations.
4. 17-25. ALTERNATIVE METHODS OF JOINT-COST ALLOCATION, ENDING INVENTORIES. The Cook Company operates a simple chemical process to convert a single material into three separate items, referred to here as X, Y, and Z. All three end products are separated simultaneously at a single splitoff point.
5. Products X and Y are ready for sale immediately upon splitoff without further processing or any other additional costs. Product Z, however, is processed further before being sold. There is no available market price for Z at the splitoff point.
6. During 2020, the selling prices of the items and the total amounts sold were as follows:
7.    • X—68 tons sold for $1,200 per ton
8.    • Y—480 tons sold for $900 per ton
9.    • Z—672 tons sold for $600 per ton
10. The total joint manufacturing costs for the year were $580,000. Cook spent an additional $200,000 to finish product Z.
11. There were no beginning inventories of X, Y, or Z. At the end of the year, the following inventories of completed units were on hand: X, 132 tons; Y, 120 tons; Z, 28 tons. There was no beginning or ending work in process.
12. Required
    1. 1. Compute the cost of inventories of X, Y, and Z for balance sheet purposes and the cost of goods sold for income statement purposes as of December 31, 2020, using the following joint-cost-allocation methods:
       1. a. NRV method
       2. b. Constant gross-margin percentage NRV method
    2. 2. Compare the gross-margin percentages for X, Y, and Z using the two methods given in requirement 1.
13. 17-26. JOINT-COST ALLOCATION, PROCESS FURTHER. Sinclair Oil & Gas, a large energy conglomerate, jointly processes purchased hydrocarbons to generate three nonsalable intermediate products: ICR8, ING4, and XGE3. These intermediate products are further processed separately to produce crude oil, natural gas liquids, and natural gas (measured in liquid equivalents). An overview of the process and results for August 2020 are shown here. (Note: The numbers are small to keep the focus on key concepts.)

1. A federal law that has recently been passed taxes crude oil at 30% of operating income. No new tax is to be paid on natural gas liquids or natural gas. Starting August 2020, Sinclair Oil & Gas must report a separate product-line income statement for crude oil. One challenge facing Sinclair Oil & Gas is how to allocate the joint cost of producing the three separate saleable outputs. Assume no beginning or ending inventory.
2. Required
   1. 1. Allocate the August 2020 joint cost among the three products using the following:
      1. a. Physical-measure method
      2. b. NRV method
   2. 2. Show the operating income for each product using the methods in requirement 1.
   3. 3. Discuss the pros and cons of the two methods to Sinclair Oil & Gas for making decisions about product emphasis (pricing, sell-or-process-further decisions, and so on).
   4. 4. Draft a letter to the taxation authorities on behalf of Sinclair Oil & Gas that justifies the joint-cost-allocation method you recommend Sinclair use.
3. 17-27. JOINT-COST ALLOCATION, SALES VALUE, PHYSICAL MEASURE, NRV METHODS. Tasty Foods produces two types of microwavable products: beef-flavored ramen and shrimp-flavored ramen. The two products share common inputs such as noodle and spices. The production of ramen results in a waste product referred to as stock, which Tasty dumps at negligible costs in a local drainage area. In June 2020, the following data were reported for the production and sales of beef-flavored and shrimp-flavored ramen:

1. Due to the popularity of its microwavable products, Tasty decides to add a new line of products that targets dieters. These new products are produced by adding a special ingredient to dilute the original ramen and are to be sold under the names Special B and Special S, respectively. Following are the monthly data for all the products:

1. Required
   1. 1. Calculate Tasty’s gross-margin percentage for Special B and Special S when joint costs are allocated using the following:
      1. a. Sales value at splitoff method
      2. b. Physical-measure method
      3. c. Net realizable value method
   2. 2. Recently, Tasty discovered that the stock it is dumping can be sold to cattle ranchers at $5 per ton. In a typical month with the production levels shown, 3,000 tons of stock are produced and can be sold by incurring marketing costs of $11,100. Sabrina Donahue, a management accountant, points out that treating the stock as a joint product and using the sales value at splitoff method, the stock product would lose about $6,754 each month, so it should not be sold. How did Donahue arrive at that final number, and what do you think of her analysis? Should Tasty sell the stock?

1. 17-28. JOINT-COST ALLOCATION: SELL IMMEDIATELY OR PROCESS FURTHER. Nervana Soy Products (NSP) buys soybeans and processes them into other soy products. Each ton of soybeans that NSP purchases for $350 can be converted for an additional $210 into 650 pounds of soy meal and 100 gallons of soy oil. A pound of soy meal can be sold at splitoff for $1.32 and soy oil can be sold in bulk for $4.50 per gallon.
2. NSP can process the 650 pounds of soy meal into 750 pounds of soy cookies at an additional cost of $300. Each pound of soy cookies can be sold for $2.32 per pound. The 100 gallons of soy oil can be packaged at a cost of $230 and made into 400 quarts of Soyola. Each quart of Soyola can be sold for $1.15.
3. Required
   1. 1. Allocate the joint cost to the soy cookies and the Soyola using the following:
      1. a. Sales value at splitoff method
      2. b. NRV method
   2. 2. Should NSP have processed each of the products further? What effect does the allocation method have on this decision?

1. 17-29. ACCOUNTING FOR A MAIN PRODUCT AND A BYPRODUCT. (Cheatham and Green, adapted) Crispy, Inc., is a producer of potato chips. A single production process at Crispy, Inc., yields potato chips as the main product as well as a byproduct that can be sold as a snack. Both products are fully processed by the splitoff point, and there are no separable costs.
2. For September 2020, the cost of operations is $520,000. Production and sales data are as follows:

1. There were no beginning inventories on September 1, 2020.
2. Required
   1. 1. What is the gross margin for Crispy, Inc., under the production method and the sales method of byproduct accounting?
   2. 2. What are the inventory costs reported in the balance sheet on September 30, 2020, for the main product and byproduct under the two methods of byproduct accounting in requirement 1?
   3. 3. Prepare the journal entries to record the byproduct activities under (a) the production method and (b) the sales method. Briefly discuss the effects on the financial statements.
3. 17-30. JOINT COSTS AND DECISION MAKING. Jack Bibby is a prospector in the Texas Panhandle. He has also been running a side business for the past couple of years. Based on the popularity of shows such as “Rattlesnake Nation,” there has been a surge of interest from professionals and amateurs to visit the northern counties of Texas to capture snakes in the wild. Jack has set himself up as a purchaser of these captured snakes.
4. Jack purchases rattlesnakes in good condition from “snake hunters” for an average of $11 per snake. Jack produces canned snake meat, cured skins, and souvenir rattles, although he views snake meat as his primary product. At the end of the recent season, Jack Bibby evaluated his financial results:

1. The cost of snakes is assigned to each product line using the relative sales value of meat, skins, and rattles (i.e., the percentage of total sales generated by each product). Processing expenses are directly traced to each product line. Overhead costs are allocated to each product line on the basis of processing expenses.
2. Jack has a philosophy of every product line paying for itself and is determined to cut his losses on rattles.
3. Required
   1. 1. Should Jack Bibby drop rattles from his product offerings? Support your answer with computations.
   2. 2. An old miner has offered to buy every rattle “as is” for $0.60 per rattle (note: “as is” refers to the situation where Jack only removes the rattle from the snake and no processing costs are incurred). Assume that Jack expects to process the same number of snakes each season. Should he sell rattles to the miner? Support your answer with computations.
4. 17-31. JOINT COSTS AND BYPRODUCTS. (W. Crum adapted) Royston, Inc., is a large food-processing company. It processes 150,000 pounds of peanuts in the peanuts department at a cost of $180,000 to yield 12,000 pounds of product A, 65,000 pounds of product B, and 16,000 pounds of product C.
   1. • Product A is processed further in the salting department at a cost of $27,000. It yields 12,000 pounds of salted peanuts, which are sold for $12 per pound.
   2. • Product B (raw peanuts) is sold without further processing at $3 per pound.
   3. • Product C is considered a byproduct and is processed further in the paste department at a cost of $12,000. It yields 16,000 pounds of peanut butter, which are sold for $6 per pound.
5. The company wants to make a gross margin of 10% of revenues on product C and needs to allow 20% of revenues for marketing costs on product C. An overview of operations follows:

1. Required
   1. 1. Compute unit costs per pound for products A, B, and C, treating C as a byproduct. Use the NRV method for allocating joint costs. Deduct the NRV of the byproduct produced from the joint cost of products A and B.
   2. 2. Compute unit costs per pound for products A, B, and C, treating all three as joint products and allocating joint costs by the NRV method.

Problems

1. 17-32. METHODS OF JOINT-COST ALLOCATION, ENDING INVENTORY. Garden Labs produces a drug used for the treatment of arthritis. The drug is produced in batches. Chemicals costing $50,000 are mixed and heated, then a unique separation process extracts the drug from the mixture. A batch yields a total of 3,000 gallons of the drug. The first 2,500 gallons are sold for human use while the last 500 gallons, which contain impurities, are sold to veterinarians. 
2. The costs of mixing, heating, and extracting the drug amount to $155,000 per batch. The output sold for human use is pasteurized at a total cost of $130,000 and is sold for $600 per gallon. The product sold to veterinarians is irradiated at a cost of $20 per gallon and is sold for $450 per gallon.
3. In March, Garden, which had no opening inventory, processed one batch of chemicals. It sold 2,000 gallons of product for human use and 300 gallons of the veterinarian product. Garden uses the net realizable value method for allocating joint production costs.
4. Required
   1. 1. How much in joint costs does Garden allocate to each product?
   2. 2. Compute the cost of ending inventory for each of Garden’s products.
   3. 3. If Garden were to use the constant gross-margin percentage NRV method instead, how would it allocate its joint costs?
   4. 4. Calculate the gross margin on the sale of the product for human use in March under the constant gross-margin percentage NRV method.
   5. 5. Suppose that the separation process also yields 300 pints of a toxic byproduct. Garden currently pays a hauling company $6,000 to dispose of this byproduct. Garden is contacted by a firm interested in purchasing a modified form of this byproduct for a total price of $7,000. Garden estimates that it will cost about $35 per pint to make the required modification. Should Garden accept the offer?
5. 17-33. ALTERNATIVE METHODS OF JOINT-COST ALLOCATION, PRODUCT-MIX DECISIONS. The Chicago Oil Company buys crude vegetable oil. Refining this oil results in four products at the splitoff point: A, B, C, and D. Product C is fully processed by the splitoff point. Products A, B, and D can individually be further refined into Super A, Super B, and Super D. In the most recent month (November), the output at the splitoff point was as follows:
6.    • Product A, 550,000 gallons
7.    • Product B, 200,000 gallons
8.    • Product C, 150,000 gallons
9.    • Product D, 100,000 gallons
10. The joint costs of purchasing and processing the crude vegetable oil were $210,000. Chicago had no beginning or ending inventories. Sales of product C in November were $90,000. Products A, B, and D were further refined and then sold. Data related to November follow:

1. Chicago had the option of selling products A, B, and D at the splitoff point. This alternative would have yielded the following revenues for the November production:
2.    • Product A, $150,000
3.    • Product B, $125,000
4.    • Product D, $135,000
5. Required
   1. 1. Compute the gross-margin percentage for each product sold in November, using the following methods for allocating the $210,000 joint costs:
      1. a. Sales value at splitoff
      2. b. Physical measure
      3. c. NRV
   2. 2. Could Chicago Oil have increased its November operating income by making different decisions about the further processing of products A, B, or D? Show the effect on operating income of any changes you recommend.
6. 17-34. COMPARISON OF ALTERNATIVE JOINT-COST-ALLOCATION METHODS, FURTHER-PROCESSING DECISION, CHOCOLATE PRODUCTS. The Rich and Creamy Edibles Factory manufactures and distributes chocolate products. It purchases cocoa beans and processes them into two intermediate products: chocolate-powder liquor base and milk-chocolate liquor base. These two intermediate products become separately identifiable at a single splitoff point. Every 600 pounds of cocoa beans yields 20 gallons of chocolate-powder liquor base and 60 gallons of milk-chocolate liquor base.
7. The chocolate-powder liquor base is further processed into chocolate powder. Every 20 gallons of chocolate-powder liquor base yield 680 pounds of chocolate powder. The milk-chocolate liquor base is further processed into milk chocolate. Every 60 gallons of milk-chocolate liquor base yield 1,100 pounds of milk chocolate.
8. Production and sales data for August 2020 are as follows (assume no beginning inventory):
9.     • Cocoa beans processed, 27,600 pounds
10.     • Costs of processing cocoa beans to splitoff point (including purchase of beans), $70,000

1. Rich and Creamy Edibles Factory fully processes both of its intermediate products into chocolate powder or milk chocolate. There is an active market for these intermediate products. In August 2020, Rich and Creamy Edibles Factory could have sold the chocolate-powder liquor base for $21 a gallon and the milk-chocolate liquor base for $28 a gallon.
2. Required
   1. 1. Calculate how the joint costs of $70,000 would be allocated between chocolate powder and milk chocolate under the following methods:
      1. a. Sales value at splitoff
      2. b. Physical measure (gallons)
      3. c. NRV
      4. d. Constant gross-margin percentage NRV
   2. 2. What are the gross-margin percentages of chocolate powder and milk chocolate under each of the methods in requirement 1?
   3. 3. Could Rich and Creamy Edibles Factory have increased its operating income by a change in its decision to fully process both of its intermediate products? Show your computations.
3. 17-35. JOINT-COST ALLOCATION, PROCESS FURTHER OR SELL. (CMA, adapted) Liverpool Sawmill, Inc. (LSI) purchases logs from independent timber contractors and processes the logs into three types of lumber products:
   1. • Studs for residential buildings (walls, ceilings)
   2. • Decorative pieces (fireplace mantels, beams for cathedral ceilings)
   3. • Posts used as support braces (mine support braces, braces for exterior fences on ranch properties)
4. These products are the result of a joint sawmill process that involves removal of bark from the logs, cutting the logs into a workable size (ranging from 8 to 16 feet in length), and then cutting the individual products from the logs.
5. The joint process results in the following costs of products for a typical month:

1. 17-36. JOINT-COST ALLOCATION. SW Flour Company buys whole wheat flour and mills it into Bread Flour and All-Purpose White Flour (APWF). In 2020, SW bought 300,000 pounds of whole wheat flour for $70,000. SW spent an additional $50,000 to process the whole wheat flour into Bread Flour and All-Purpose White Flour, so total joint costs equal $120,000.
2. SW Flour Company reported the following production and sales information for 2020:

1. Product yields and average sales values on a per-unit basis from the joint process are as follows:

1. The studs are sold as rough-cut lumber after emerging from the sawmill operation without further processing by Liverpool Sawmill. Also, the posts require no further processing beyond the splitoff point. The decorative pieces must be planed and further sized after emerging from the sawmill. This additional processing costs $90,000 per month and normally results in a loss of 10% of the units entering the process. Without this planing and sizing process, there is still an active intermediate market for the unfinished decorative pieces in which the selling price averages $55 per unit.
2. Required
   1. 1. Based on the information given for Liverpool Sawmill, allocate the joint processing costs of $1,010,000 to the three products using:
      1. a. Sales value at splitoff method
      2. b. Physical-measure method (volume in units)
      3. c. NRV method
   2. 2. Prepare an analysis for Liverpool Sawmill that compares processing the decorative pieces further, as it currently does, with selling them as a rough-cut product immediately at splitoff.
   3. 3. Assume Liverpool Sawmill announced that in 6 months it will sell the unfinished decorative pieces at splitoff due to increasing competitive pressure. Identify at least three types of likely behavior that will be demonstrated by the skilled labor in the planing-and-sizing process as a result of this announcement. Include in your discussion how this behavior could be influenced by management.

1. SW can also put the All-Purpose White Flour through a second process and convert it into Cake Flour. This process costs an additional $50,000 but 20,000 pounds of flour are lost and thus yields only 220,000 pounds of Cake Flour. The Cake Flour sells for $1 per pound.
2. Required
   1. 1. Allocate the $120,000 joint cost to the All-Purpose White Flour and the Bread Flour using the following:
      1. a. Physical-measure method (using pounds)
      2. b. Sales value at splitoff method
      3. c. NRV method
      4. d. Constant gross-margin percentage NRV method
   2. 2. Each of these measures has advantages and disadvantages; what are they?
   3. 3. Some managers claim that the sales value at splitoff method is the best method to use. Discuss the logic behind this claim.
3. 17-37. FURTHER PROCESSING DECISION (CONTINUATION OF 17-36). SW Flour Company has decided that their bread flour may sell better if it was marketed for gourmet baking and sold with infused spices. This would involve additional cost for the spices of $1.70 per pound. Each pound could be sold for $2.50.
4. Required
   1. 1. If SW uses the sales value at splitoff method, what combination of products should SW sell to maximize profits?
   2. 2. If SW uses the physical-measure method, what combination of products should SW sell to maximize profits?
   3. 3. Explain the effect that the different cost-allocation methods have on the decision to sell the products at splitoff or to process them further.
5. 17-38. ACCOUNTING FOR A MAIN PRODUCT AND A BYPRODUCT. (Cheatham and Green, adapted) Holy Cow is a producer of milk and by products. A single production process at Holy Cow yields milk as the main product, as well as ghee, a byproduct of milk production, that can be sold. Both products are fully processed by the splitoff point, and there are no separable costs.
6. For the month of October 2020, the cost of operations is $380,000. Production and sales data are as follows:

1. There were no beginning inventories on October 1, 2020.
2. Required
   1. 1. What is the gross margin for Holy Cow under the production method and the sales method of byproduct accounting?
   2. 2. What are the inventory costs reported in the balance sheet on October 31, 2020, for the main product and byproduct under the two methods of byproduct accounting in requirement 1?
3. 17-39. BYPRODUCT-COSTING JOURNAL ENTRIES (CONTINUATION OF 17-38). The accountant for Holy Cow needs to record the information about the joint and byproducts in the general journal, but is not sure what the entries should be. The company has hired you as a consultant to help the accountant.
4. Required
   1. 1. Show journal entries at the time of production and at the time of sale assuming Holy Cow accounts for the byproduct using the production method.
   2. 2. Show journal entries at the time of production and at the time of sale assuming Holy Cow accounts for the byproduct using the sales method.
5. 17-40. ALTERNATIVE JOINT-COST-ALLOCATION METHODS, FURTHER-PROCESS DECISION. The Palm Company produces two products—coconut and coconut water—by a joint process. Joint costs amount to $14,000 per batch of output. Each batch totals 4,000 pounds of coconut and 6,000 pounds of coconut water. Both products are processed further without a gain or loss in volume. Separable processing costs for the coconut are $1.47 per pound and for the coconut water are $2.02 per pound. Coconut sells for $6.30 per pound and the coconut water sells for $5.80 per pound.
6. Required
   1. 1. How much of the joint costs per batch will be allocated to coconut and to coconut water, assuming that joint costs are allocated based on the number of pounds at the splitoff point?
   2. 2. If joint costs are allocated on an NRV basis, how much of the joint costs will be allocated to the coconut and to the coconut water?
   3. 3. Prepare product-line income statements per batch for requirements 1 and 2. Assume no beginning or ending inventories of either product.
   4. 4. The company has the option of processing the coconut further and producing coconut slices. The selling price of the coconut slices would be $8 per pound after incurring additional processing costs of $0.3875 per pound. Assuming no other changes in cost, what is the joint cost allocated to coconut slices (using the NRV method)? Should the company produce the coconut slices? Show your computations.
7. 17-41. PROCESS FURTHER OR SELL, BYPRODUCT. (CMA, adapted) Newcastle Mining Company (NMC) mines coal, puts it through a one-step crushing process, and loads the bulk raw coal onto river barges for shipment to customers.
8. NMC’s management is currently evaluating the possibility of further processing the raw coal by sizing and cleaning it and selling it to an expanded set of customers at higher prices. The option of building a new sizing and cleaning plant is ruled out as being financially infeasible. Instead, Amy Kimbell, a mining engineer, is asked to explore outside-contracting arrangements for the cleaning and sizing process. Kimbell puts together the following summary:

1. Kimbell also learns that 75% of the material waste that occurs in the cleaning and sizing process can be salvaged as coal fines, which can be sold to steel manufacturers for their furnaces. The sale of coal fines is erratic. The selling price of coal fines ranges from $14 to $25 per ton, and costs of preparing coal fines for sale range from $3 to $5 per ton.
2. Required
   1. 1. Prepare an analysis to show whether it is more profitable for NMC to continue selling raw bulk coal or to process it further through sizing and cleaning. (Ignore coal fines in your analysis.)
   2. 2. How would your analysis be affected if the cost of producing raw coal could be held down to $20 per ton?
   3. 3. Now consider the potential value of the coal fines and prepare an addendum that shows how their value affects the results of your analysis prepared in requirement 1.

1. 17-42. JOINT-COST ALLOCATION: SELL IMMEDIATELY OR PROCESS FURTHER. Forrest Products buys cut trees and processes them into wood products. Each batch of trees that Forrest purchases for $500 can be converted for an additional $400 into 2,000 ft of rough sawn lumber and 200 bundles of bulk firewood. Rough sawn lumber can be sold at splitoff for $0.90 per foot, and the bulk firewood can be sold for $0.50 per bundle.
2. Forrest can process the 2,000 ft of rough sawn lumber into 1,720 ft of dried, treated lumber for an additional cost of $800, and the firewood can be split into smaller pieces and bundled into 180 bundles for an additional cost of $200. Dried, treated lumber can be sold for $1.50 per foot. The 180 bundles of firewood can be sold for $2.50. per bundle.
3. Required
   1. 1. Allocate the joint cost to the dried, treated lumber and the processed firewood bundles using the following:
      1. a. Sales value at splitoff method
      2. b. NRV method
   2. 2. Should Forrest process each of the products further or sell at spittoff? What effect does the allocation method have on this decision?

1. 17-43. METHODS OF JOINT-COST ALLOCATION, COMPREHENSIVE. Kardash Cosmetics purchases flowers in bulk and processes them into perfume. From a certain mix of petals, the firm uses Process A to generate Seduction, its high-grade perfume, as well as a certain residue. The residue is then further treated, using Process B, to yield Romance, a medium-grade perfume. An ounce of residue typically yields an ounce of Romance.
2. In July, the company used 25,000 pounds of petals. Costs involved in Process A, i.e., reducing the petals to Seduction and the residue, were 

1. The additional costs of producing Romance in Process B were

1. During July, Process A yielded 7,000 ounces of Seduction and 49,000 ounces of residue. From this, 5,000 ounces of Seduction were packaged and sold for $109.50 an ounce. Also, 28,000 ounces of Romance were processed in Process B and then packaged and sold for $31.50 an ounce. The other 21,000 ounces remained as residue. Packaging costs incurred were $137,500 for Seduction and $196,000 for Romance. The firm has no beginning inventory on July 1.
2. If it so desired, the firm could have sold unpackaged Seduction for $56 an ounce and the residue from Process A for $24 an ounce.
3. Required
   1. 1. What is the joint cost of the firm to be allocated to Seduction and Romance?
   2. 2. Under the physical measure method, how would the joint costs be allocated to Seduction and Romance?
   3. 3. Under the sales value at splitoff method, what portion of the joint costs would be allocated to Seduction and Romance, respectively?
   4. 4. What is the estimated net realizable value per ounce of Seduction and Romance?
   5. 5. Under the net realizable value method, what portion of the joint costs would be allocated to Seduction and Romance, respectively?
   6. 6. What is the gross margin percentage for the firm as a whole?
   7. 7. Allocate the joint costs to Seduction and Romance under the constant gross-margin percentage NRV method.
   8. 8. If you were the manager of Kardash Cosmetics, would you continue to process the petal residue into Romance perfume? Explain your answer.