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Chapter 15 In Class Questions_solutions_only.pdf

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Department
Accounting
Course
ACCTG424
Professor
Trish Stringer
Semester
Fall

Description
In Class #15.1 Usefulness of joint cost allocation Required 1 Calculate how the joint costs of $12,000 would be allocated between chocolate powder liquor base and milk chocolate liquor base under each of the following methods: (a) sales value at splitoff, (b) physical measure (containers), (c) estimated NRV, and (d) constant gross margin percentage NRV. a. Sales value at splitoff method: Chocolate- Milk- Powder Chocolate Liquor Base Liquor Base Total Sales value at splitoff, 200 × $25.20*; 300  $31.20 $5,040 $9,360 $14,400 Weighting $5,040  0.35 $9,360 0.65 $14,400 4,4 00 Allocation of joint costs, 0.35  $12,000; 0.65  $12,000 $4,200 $7,800$12,000 a  b  (2,000/200) 20 (3,400/340) 30 * [=] per container 0 [=] kg/20 containers  [=] containers 02[=] kg/30 containers b. Physical-measurmeethod: Chocolate- Milk- Powder Chocolate Liquor Base Liquor Base Total 200 (10 20) 4-litre containers 300 (10 30) 4-litre containers 200 4-litre 300 4-litre 500 4-litre containers containers containers 200 300 Weighting  0.40  0.60 500 500 Allocation of joint costs, 0.40  $12,000; 0.60  $12,000 $4,800 $7,200$12,000 c. Estimated net realizable value method: Chocolate- Milk- Powder Chocolate Liquor Base Liquor Base Total Expected sales value of producto,0,00  $4.80; 3,400.00  $9,600 $20,400 $30,000 Deduct expected separable cost * * of further processing 5,100 15,600 Estimated net realizable value at splitoff point $9,,500 $ 900 $14,400 Weighting $4,500 0.3125 $9,900 0.6875 $14,400 $14,400 Allocation of joint costs, 0.3125  $12,000; 0.6875  $12,000 $3,750 $8,250 $12,000 * Given d. Constagtross-margin percentage NRV method: Step 1: Total final sales value of production, (2,000  $4.80) + (3,400 $6.00) $30,000 Deduct joint and separable costs, ($12,000 + $5,100+ $10,500) 27,600 Gross margin $ 2,400 Gross-margin percentage($2,400 ÷ $30,000) 8% Step 2: Chocolate- Milk- Powder Chocolate Liquor Base Liquor Base Total Expected final sales value of producto,000  $4.80); (3,400  $6.00) $9,600 $20,400 $30,000 Deduct gross margin, using overall gross-margircentage of sales (8%) 768 1,632 2,400 Cost of goods sold 8,832 18,768 27,600 Step 3: Deduct separable cost of further 5,100 processing 10,500 15,600 Joint costs allocated$8,232 68 $12,000 Required 2 What are the gross margin percentage of chocolate powder and milk chocolate under each methods (a), (b), (c), and (d) in requirement 1? Chocolate- Milk- Powder Chocolate Liquor Base Liquor Base Total a. Sales $9,600 $20,400$30,000 Jcinstts 4,200 7,800 12,000 Separable costs 5,100 10,500 15,600 Total costs 9,300 18,300 27,600 Gross margin $ 300 $ 2,100 $ 2,400 Grossrgircentage 3.125% 10.294% 8% b. Sales $9,600 $20,400$30,000 Jcinstts 4,800 7,200 12,000 Separable costs 5,100 10,500 15,600 Total costs 9,900 17,700 27,600 Grossrgin (3$ 00) $ 2,700 $ 2,400 Gross-marpgircentage (3.125)% 13.235% 8% c. Sales $9,600 $20,400$30,000 Jcinstts 3,750 8,250 12,000 Separable costs 5,100 10,500 15,600 Total costs 8,850 18,750 27,600 Gross margin $ 750 $ 1,650 $ 2,400 Gross-marpgircentage 7.812% 8.088% 8% d. Sales $9,600 $20,400$30,000 Jcinstts 3,732 8,268 12,000 Separable costs 5,100 10,500 15,600 Total costs 8,832 18,768 27,600 Gross margin $ 768 $ 1,632 $ 2,400 Gross-marpgircentage 8% 8% 8% Required 3 Could Roundtree Chocolates have increased its operating income by a change in its decision to fully process both of its intermediate products? Further processing of chocolate-powderliquor base into chocolate powder: Incremental revenue, $9,600 – $5,040 1 $4,560 Incremental costs 5,100 Incremental operating income fromfurther processing $ (540) Further processing of milk-chocolateliquor base into milk chocolate: Incremental revenue, $20,400 – $9,360 2 $11,040 Incremental costs 10,500 Incremental operating income fromfurther processing $ 540 Roundtree Chocolates could increase operatin g income by $540 (to $ 2,940) if chocolate- powder liquor base is sold at the splitoff point and if milk-chocolate liquor base is further processed into milk chocolate. 1 2 Sales value at splitoff =$5,040 (chocolate-powder liquor) Sales value at splitoff =$9,360 (milk chocolate liquor) In Class #15.2 Estimated net realizable value method, byproducts, governance Required 1 The Princess Corporation uses the estimated NRV method to determine inventory cost of its joint products; byproducts are reported on the balance sheet at their selling price when produced. For the month of November 2013, calculate the following: a. The output for apple slices, applesauce, apple juice, and animal feed, in kilograms. b. The estimated NRV at the splitoff point for each of the three joint products. c. The amount of the cost of the Cutting Department assigned to each of the three joint products and the amount assigned to the byproduct in accordance with corporate policy. d. The gross margins in dollars for each of the three joint products. a. For the month of November 2010,Princess Corporation’s output was: • applselices 89,100 • applesauce 81,000 • appluice 67,500* • animfeed 27,000 These amounts were calculated as follows: KiNlegrtmls ProductInpuPt roportioKilograms Lost Kilograms Sliceskg,000 0.33 89,100 —89,100 Sauc2e70,000 0.30 81,000 —81,000 Juice270,000 0.27 72,900 5,40067,500* Feed270,000 0.2 10, 000 — 27,000 1.00 270,000 5,400 264,600 *Net kilograms: = 72,900 – (0.08 net kilograms) 1.08 net kilograms = 72,900 Net kilograms = 67,500 b. The estimated net realizable value for eac h of the three main products is calculated below: Estimated Net ReNaltabllee Product Kilograms Price Revenue Costs Value Slices 89,100 $0.96 $ 85,536 $13,536 $ 72,000 Sauce81,000 0.66 53,460 10,260 43,200 Juice 67,500 0.48 32,400 3,600 28,800 $171,396 $27,396$144,000 c.andd. The estimated net realizable value of the byproduct is deducted from the production costs prior to allocation to int products, as presented below: Allocation of Cutting Department Cost to Joint Products and Byproducts Net realizable value (NRV) of byproduct = Byproduct revenue – Separable costs (270,000 $0.12 =  10%) – $840 = $3,240 – $840 = $2,400 Costs to be allocated = Joint costs – NRV of byproduct $2,400 – $72,000 = $69,600 = GrJseiatrable Product Revenue Costs Costs 853,,360 Slices 1$37,200 2 Sau52,,6800 322,320 Juice 32,400 3,600 13,92880 $1$71,,966 $69,600 $74,400 1) Slices 72K/144K $69,600 = $34,800 2) Sauce 43.2K/144K $69,600 = $20,880 3) Juice 28.8K/144K $69,600 = $13,920 SOLUTION EXHIBIT IN CLASS #15.2 Required 2 Comment on the significance to management of the gross margin dollar information by joint product for planning and control purposes, as opposed to inventory costing purposes. The gross-margin dollar information by main product is determined by the arbitrary allocation of joint production costs. As a result,these cost figures and the resulting gross-margin information are of little significance for planning and control purposes. The allocation is made only for purposes of inventory costing and income determination. Required 3 Assume that Princess managers aim to maximize their bonuses over time. What byproduct method (the pre-2013 method or the 2013 method) would the manager prefer? The 2013 method gives Pr incess managers relatively little di scretion vis-à-vis the pre-2013 method. The 2013 meth od recognizes all four products in the accounting system at the time of production. The pre-2013 method recognizes only two products (apple slices and applesauce) at the time of production. Consider the data in the question. Th e $72,000 of joint costs would be allocated as follows (using the $72,000 and 43,200 estimated NRV amounts): $72,000 Apple Slices: $72,000 $45,000 $115,200 $43,200 Applesauce: $72,000 $27,000 $115,200 The gross margin on each product is:
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