CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila
ADVANCED FINANCIAL ACCOUNTING GERMAN/LIM/VALIX/K. DELA CRUZ/MARASIGAN
JOINT PRODUCTS, BY-PRODUCT COSTING AND SERVICE COST ALLOCATIONS
Part I: Theory of Accounts
1. If a company obtains two salable products from the refining of a single raw material, the refining
process should be accounted for as a(n)
A. Mixed cost process
B. Joint process
C. Extractive process
D. Reduction process
2. Which of the following components of production are allocable as joint costs when a single
manufacturing process produces several salable products?
A. Direct material, direct labor, and overhead
B. Direct material and direct labor only
C. Direct labor and overhead only
D. Direct material and overhead only
3. The method of pricing by-products where no value is assigned to these items until they are sold is
known as the
A. Net realizable value at split-off point method
B. Sales value at split-off method
C. Realized value approach
D. Approximated net realizable value method
4. Which service department cost allocation method assigns overhead costs to cost objects after
considering interrelationships of the cost objects?
Algebraic Step
A. no no
B. no yes
C. yes yes
D. yes no
5. Which service department cost allocation method considers all interrelationships of the departments
and reflects these reflects these relationships in equations?
A. Step method
B. Indirect method
C. Algebraic method
D. Direct method
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Part II: Problem Solving
Problem 1
Miguel Company produces two floor cleaners from the same process, A and B. Joint product costs
were 90,000.
Sales price per Disposal cost Further
Final sales price
Barrels barrel per barrel processing cost
per barrel
at split-off at split-off per barrel
A 800 P100.00 P60.00 P20.00 P150.00
B 1,000 P70.00 P20.00 P30.00 P120.00
If Miguel Company sells the products after further processing, the following disposal cost per barrel
will be incurred: 30.00 for A; 10.00 for B
1. Using the physical measure in allocating the joint cost, what amount of joint processing cost is
allocated to Product A?
A. 72,000
B. 40,000
C. 18,000
D. 50,000
2. Using the relative sales value at split-off in allocating the joint cost, what is the gross profit of
Product B if it was sold at the split-off point?
A. 28,000
B. 32,941
C. 32,000
D. 27,059
3. Using the net realizable value at split-off in allocating the joint cost, what is the net
income/(loss) of Product A if it was sold at the split-off point?
A. 30,909
B. (17,091)
C. (3,122)
D. 44,878
4. Using the approximate net realizable value in allocating the joint cost, what is the net
income/(loss) of Product B if it was sold after further processing?
A. 75,000
B. 35,000
C. 45,000
D. 40,000
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Problem 2
Isabel Company produced two main products jointly, A and B. C was a by-product. A and B were
produced from the same raw material. The joint cost was P200,000 and the company opted to use the
net realizable value method in allocating the joint cost to the main products.
The following were the data available for the month of January:
Number of lbs
Number of lbs sold Sales price per lbs Further processing cost
produced
A 8,000 6,400 P43.75 P50,000
B 2,000 1,800 P65.00 P30,000
C 200 150 P30.00 P4,000
1. Assuming the net realizable value of by-product C is accounted for as an additional sales
revenue in the sale of Product A, what is the gross profit of Product A?
A. 121,500
B. 122,000
C. 161,500
D. 162,000
2. Assuming the net realizable value of by-product C is accounted for as other income in the sale
of Product B, what is the gross profit of Product B?
A. 46,500
B. 47,000
C. 45,000
D. 72,000
3. Assuming the net realizable value of by-product C is accounted for as a reduction in the joint
cost, what is the gross profit of Product A?
A. 121,600
B. 121,200
C. 122,000
D. 121,500
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Problem 3
RAV Manufacturing Company has two production departments (Fabrication and Assembly) and two
service departments (General Factory Administration and Factory Maintenance).
A summary of the year's overhead costs and other data for each department prior to allocation of
service department costs appears below:
General Factory Factory
Fabrication Assembly
Administration Maintenance
Overhead costs P6,730,000 P4,850,000 P160,000 P425,000
Direct labor hours 46,250 43,750 35,000 10,000
Square footage occupied 88,000 72,000 40,000 20,000
The overhead costs of the General Factory Administration Department and Factory Maintenance
Department are allocated on the basis of direct labor hours and square footage occupied respectively. It
is the company’s policy that the order of distribution is based on the highest peso amount of costs
originating in the service departments.
1. Under the DIRECT METHOD, what is the total overhead cost allocated to the Fabrication
department?
A. 315,972
B. 292,500
C. 269,028
D. 311,528
2. Under the STEP METHOD, what is the total overhead cost of the Assembly department?
A. 272,097
B. 312,903
C. 5,122,097
D. 4,850,000
3. Under the ALGEBRAIC / RECIPROCAL METHOD, what is the total overhead cost to be
allocated by the Factory Maintenance department?
A. 425,000
B. 250,000
C. 441,000
D. 450,000
END
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