2nd Flr, GF Partners Bldg, 139 H.V.

dela Costa, Salcedo Village, Makati City

SUMMARY OF STUDY OBJECTIVES

 When two or more different products are manufactured in the same production process it is called
a Joint production process.
 The major products resulting from a joint production process are called Joint products.
 A products yield in joint production process with a relatively small value is a by – products.
 The costs incurred in the joint production process which is common to all products are called Joint
costs.
 The split-off point is the point in the production process where the products become identifiable,
and as a result of their separate identity, their production costs can be measured separately.
 All costs incurred beyond the split-off point that is assignable to one or more individual products
are called separable costs.

METHODS OF ALLOCATING JOINT COSTS

1. Allocate joint costs using market value
a. Sales Value at Split off – allocates joint costs to joint products on the basis of the
relative sales value at the split off point.
b. Approximated Net Realizable Value- allocates joint costs to joint products on the basis
of relative estimated NRV(Final sales value minus the expected separable costs)
c. Net Realizable Value at Split-off- allocates joint costs on the basis of estimated
realizable value at split-off point.
d. Constant Margin Approach- allocates joint costs in such a way that the overall gross
margin percentage is identical for the individual products.

2. Allocate joint costs using physical measure

a. Units of Production Method-allocates joint costs based on the number of units
produced.
b. Weighted Average Method-allocates joint costs based on the weight, units or other
measure.

ACCOUNTING FOR BY PRODUCTS

1. By products are accounted during production (Net Realizable Value approach) - NRV of the
by products is treated as a reduction from the joint costs of the main products. Any loss of the
by products or scrap is added to the cost to the cost of the main products
2. By products are accounted during sale (Realizable Value approach) – The realized value of
the by products or scrap maybe reported as other sales revenue or other income.

Standard Cost – the predetermined costs of manufacturing a single unit or a number of product units
during a specific period in the immediate future.

 The purpose of standard cost accounting is to control and promote efficiency.

 Organizations have many reasons for using standard costs, including: Costs control; Pricing
decisions; Performance appraisal; Cost awareness; and Management by objectives.

Types of Variance
A variance exists when standard costs differ from actual costs.

I. Materials
a. Price variance
b. Quantity variance
II. Labor
a. Rate variance
b. Efficiency variance
III. Factory Overhead
1. Two – variance method
a. Controllable variance
b. Volume variance
2. Three variance method

a. Spending variance
b. Idle capacity variance
c. Efficiency variance
 a. Spending variance
b. Variable Efficiency variance
c. Volume variance

Material Price Variance

AQ x AP = Pxxx (AP – SP) X AQ = MPV AQ = Actual Quantity

AQ x SP = xxx AP = Actual Price
MPV = Pxxx SP = Standard Price

Material price variance is caused by paying a higher or lower price than the standard price for
materials.

Material Quantity Variance

AQ x SP = Pxxx (AQ - SQ) X SP = MQV AQ = Actual Quantity

SQ x SP = xxx SQ = Standard Quantity
MQV = Pxxx SP = Standard Price

Material efficiency variance is caused by using more or less than the standard amount of materials to
produce a product.

Labor Rate Variance

AH x AR= Pxxx (AR - SR) X AH = LRV AH = Actual Hours

AH x SP = xxx AR = Actual Rate
LRV = Pxxx SR = Standard Rate

Labor rate variance is caused by paying a higher or lower rate of pay than the standard to produce a
product or complete a process.

Labor Efficiency Variance

AH x SP = Pxxx (AH - SH) X SR = LEV AH = Actual Hours

SH x SP = xxx SH = Standard Hours
LEV = Pxxx SR = Standard Rate

Labor efficiency variance is caused by using more or less than the standard amount of labor hours to
produce a product or complete a process.

Two Variance methods

Controllable Variance

AFO Pxxx BASH = Fixed Overhead + Variable (SH x VR)

BASH (xxx)
CV Pxxx BASH = Budgeted Allowance based on Standard Hours
VR = Variable Rate
AFO = Actual Factory Overhead

Volume Variance

BASH Pxxx FOSH = SH x FOR

FOSH (xxx)
VV Pxxx FOSH = Factory Overhead Applied
FOR = Factory Overhead Rate

The Golden Key Company produces three joint products: A, B, and C. Total production cost for November was
P216,000.

The units produced and unit sales prices at the split –off point were:

Product Units Produced Unit Sales Price Point

A 60,000 P 2.20 6
B 80,000 1.25 4
C 100,000 1.28 4
Requirements: Allocation of joint costs using:
1. Market value method
2. Average unit cost method
3. weighted average method

The Marco Daniel Company produces three products: W, X and Y that maybe sold at the split off point or processed
further. Additional processing costs are entirely variable and are traceable to the respective products produced. Total
joint costs incurred amounted to P50,000.

Units Sales Value If processed further

Product Produced At Split-off Additional cost Sales Value
W 20,000 P45,000 P20,000 P60,000
X 15,000 P75,000 P20,000 P98,000
Y 15,000 P30,000 P16,000 P62,000

Requirements:

A. Allocate joint costs and compute for the total cost using:
1. Market value at split-off point
2. Hypothetical market value method (assuming sales value at split-off point is not given)

MULTIPLE CHOICE

Lee Co. produces two joint products, Bex and Rom. Joint production costs for June 2001 were P30,000.
During June 2001, further processing costs beyond the split-off point needed to convert the products
into salable form, were P25,000 and P35,000 for 1,600 units of Bex and 800 units of Rom, respectively.
Bex sells for P50 per unit, and Rom sells for P100 per unit. Lee uses the net realizable value method
for allocating joint product costs.

1. For June 2001, the joint costs allocated to product Bex were
a. P20,000
b. P16,500
c. P13,500
d. P10,000

Life Co. manufactures products X and Y from a joint process that also yields a by-product, Z. Revenue
from sales of Z is treated as a reduction of joint costs. Additional information is as follows:

PRODUCTS
X Y Z TOTAL
Units produced 20,000 20,000 10,000 50,000
Joint costs ? ? ? P262,000
Sales value at split-off P300,000 P150,000 P10,000 P460,000

Joint costs were allocated using the sales value at split-off method.

2. The joint costs allocated to product X were

a. P75,000
b. P100,000
c. P150,000
d. P168,000

Alpha Corp. manufactures a product that yields the by-product “Yum”. The only costs associated with
Yum are selling costs of P.10 for each unit sold. Alpha accounts for sales of Yum’s separable costs from
Yum’s sales, and then deducting this net amount from the major product’s cost of goods sold. Yum’s
sales were 100,000 units at P1.00 each.

3. If Alpha changes its method of accounting for Yum’s sales by showing the net amount as
additional sales revenue, then Alpha’s gross margin would
a. Increase by P90,000
b. Increase by P100,000
c. Increase by P110,000
d. Be unaffected
Bravo Company manufactures product J and K from a joint process. For product J, 4,000 units were
produced having a sales value at split-off of P15,000. If product J were processed further, the
additional costs would be P3,000 and the sales value would be P20,000. For product K, 2,000 units
were produced having a sales value at split-off of P10,000. If product K were processed further, the
additional costs would be P1,000 and the sales value would be P12,000.

4. Using the sales value at split-off method, the portion of the total joint costs allocated to
product J was P9,000. What were the total joint costs?
a. P14,400
b. P15,000
c. P18,400
d. P19,000

The Wooden Shoe Company produced three products at a joint cost of P100,000. Two of these products
were processed further. Production and sales were:
Product Weight Sales Additional Processing Costs
A 300,000 lbs. P245,000 P200,000
B 100,000 lbs. 30,000 None
C 100,000 lbs. 175,000 P100,000

5. If the net realizable value method is used, how much of the joint costs would be allocated to
Product C? Assume that B is accounted for as a joint product.
a. P38,889
b. P41,667
c. P50,000
d. P62,500

6. Assume B is a by-product whose sales value is credited to the joint processing costs. If net
realizable value is used, how much of the joint costs would be allocated to Product C?
a. P38,889
b. P43,750
c. P50,000
d. P62,500

7. If joint costs are allocated based on relative weight of the outputs, how much of the joint costs
would be allocated to Product A? (All products are joint products).
a. P43,750
b. P50,000
c. P60,000
d. P62,500

8. Delta Company produces two products from a joint processes: X and Z. Joint processing costs
for this production cycle are P8,000.

Yard Sales price per Disposal cost per Further processing Final sales
s yard at split-off yard at split-off per yard Price per yard
X 1,500 P6.00 P3.50 P1.00 P7.50
Z 2,200 P9.00 P5.00 P3.00 P11.25

If X and Z are processed further, no disposal costs will be incurred or such costs will be borne y the
buyer. Using a physical measure, what amount of joint processing cost is allocated to X and Z?
a. P2,500 and P5,500
b. P3,243 and P5,500
c. P2,500 and P4,757
d. P3,243 and P4,757

9. Referring to number 8, using sales value at split-off, what is the total cost allocated to Z?
a. P5,500
b. P12,100
c. P11,357
d. P4,757

10. Referring to number 8, if all units of product X were sold, what is the gross profit on sale of
product X if the approximated net realizable value at split-off is used for allocating joint costs?
a. P8,450
b. P5,071
c. P6,954
d. P9,750
 11. Love Co. manufactures product A and B from a joint process. Sales value at split-off was
P700,000 for 10,000 units of A and P300,000 for 15,000 units of B. Using the sales value at split-
off approach, joint costs properly allocated to A were P140,000. Total joint costs were
a. P98,000
b. P200,000
c. P233,333
d. P350,000

Ablen Corporation uses a process cost system and sells a variety of cooked meat. Four joint products
produced out of the process are as follows:
Product Pounds Produced
Class A 1,000
Class B 9,000
Class C 400
Class D 5,100

The split-off point for these products occurs in Division B and the costs incurred up to this point are
P20,000 for direct materials, P15,000 for direct labor, and P7,000 for factory overhead.

12. What are the joint cost allocated to Class A and Class B assuming the use of physical method
for joint cost allocation.
a. P1,000 and P9,000
b. P3,000 and P24,387
c. P20,000 and P15,000
d. P2,710 and P24,387

The Sunrise Corp. produces three production L, M and N from one input. The net realizable value of L
at split-off is P100,000; M is P200,000; N is P20,000. Final sales value are P200,000, P300,000 and
P20,000 for L, M and N respectively. However, these prices are subject to erratic change. Additional
processing costs for L, M and N are P50,000, P75,000 and P 0 respectively. The numbers of units of
each product are 60,000 of L, 60,000 for M and 30,000 of N. The total costs incurred up to the split-off
are P150,000.

13. If the physical quantities method is used, what amount of joint costs should be allocated to
product L? Assume that product N is accounted for as a by-product whose income is credited to
the joint costs of production.
a. P46,875
b. P50,000
c. P62,500
d. P65,000

14. The expected net income for the Sunrise Corp. is

a. P200,000
b. P225,000
c. P245,000
d. P370,000

Victoria Mills manufactures three products: A, B, and C in a joint process. For every ten kilos of
materials input, the output is five kilos of A, three kilos of B, and two kilos of C, respectively. During
the month, 50,000 kilos of raw materials costing P1,200,000 were process and completed with a joint
conversion costs of P2,000,000. Conversion costs are allocated to the products salable, further
processing which does not require additional raw materials was done at the following costs:
A, P300,000; B, P200,000; C, P300,000. The unit selling price are: A, P100; B, P120 and C, P150.

15. The unit cost of product A is

a. P80
b. P100
c. P253.20
d. P71.20

16. Assuming all units are sold, the gross margin on sale for product B is
a. P800,000
b. P720,000
c. P600,000
d. P480,000

17. If all units of Product C are sold, and selling and administrative expenses are 20% of sales, the
net income from the sale of Product C is
a. P220,000
b. P180,000
 c. P240,000
d. P640,000

Tiny Co produces three products: Bo Mo and Lo from same process. Joint costs for this production run
are P2,100.

Sales price Disposal cost Further

Per lb at per lb at processing Final sales
Pounds Split off split off per lb. price per lb
Bo 800 P6.50 P3.00 P2.00 P7.50
Mo 1,100 8.25 4.20 3.00 10.00
Lo 1,500 8.00 4.00 3.50 10.50

If the products are process further, Tiny Co. will incur the following disposal costs upon sale: Bo,
P3.00; Mo, P2.00 and Lo, P1.00.

18. Using sales value at split-off, what amount of joint processing cost is allocated to Mo?
a. P700
b. P416
c. P725
d. P969

19. Using net realizable value at split –off, what amount of joint processing cost is allocated to Bo?
a. P706
b. P951
c. P700
d. P444

20. Using physical measurement method, what amount of joint processing cost is allocated to Mo?
a. P494
b. P679
c. P927
d. P700

Standard Costing

4.The following July information is for Kingston Company:

Standard: Materials 3.0 feet per unit @ P4.20 per foot
Labor 2.5 hours per unit @ P7.50 per hour
Actual: Production 2,750 units produced during the month
Material 8,700 feet used, 9,000 feet purchased @ P4.50 per foot
Labor 7,000 direct labor hours @ P7.90 per hour

What is the material price variance (calculated at point of purchase)?

a. P2,700 U c. P2,610 F
b. P3,105 F d. P1,890 U

5. Refer to number 1, what is the labor efficiency variance?

a. P3,480 U c. P2,800 F
b. P938 U d. P1,125 U

3. The following March information is available for Batt Manufacturing Company when it produced
2,100 units:
Standard: Materials 2 pounds per unit @ P5.80 per pound
Labor 3 direct labor hours per unit @ P10.00 per hour
Actual: Materials 4,250 pounds purchased and used @ P5.65 per pound
Labor 6,300 direct labor hours @ P9.75 per hour

What is the material quality variance?

a. P275 F c. P290 U
b. PP637.50 U d. P630 F

4. Refer to number 3, what is the labor rate variance?

a. P731.25 U c. P1,594 U
b. P1,575 F d. P750 F

5. Information on Kennedy Company’s direct material costs is as follows: Standard price 3.60;
Actual quantity purchased 1,600 units; standard quantity allowed for actual production, 1,450
units; material variance, P240 favorable. What was the actual purchase price per unit?
a. P3.06 c. P3.45
b. P3.11 d. P3.75
6. Lab Corp. uses a standard cost system. Direct labor information for product CER for the month of
October is as follows: standard rate P6.00 per hour; actual rate paid P6.10 per hour; standard
hours allowed for actual production, 1,500 hours; direct labor efficiency variance P600
unfavorable. What are the actual hours worked?
a. 1,400 c. 1,598
b. 1,402 d. 1,600

7. Redd Co. uses a standard cost system for its production process and applies overhead based on
direct labor hours. The following information is available for August when Redd made 4,500 units:

Standard: Direct labor hours per unit 2.5 hours

Variable overhead per direct labor hour P1.75
Fixed overhead per direct labor hour 3.10
Budgeted variable overhead 21,875
Budgeted fixed overhead 38,750
Actual: Direct labor hours 10,000 hrs.
Variable overhead P26,250
Fixed overhead 38,000

Using the two-variance approach, what is the controllable variance?

a. P5,812.50 U c. P3,625 F
b. P4,375 F d. P2,187.50 U

8. Refer to number 7, what is the volume variance?

a. P3,125 F c. P2,937.50 F
b. P3,875 U d. P6,063 U

9. Actual fixed overhead is P33,300 (12,000 machine hours) and fixed overhead was estimated at
P34,000 when the predetermined rate of P3.00 per machine hour was set. If 11,500 standard
hours were allowed for actual production, applied fixed overhead is
a. P33,300 c. P34,500
b. P34,000 d. P36,000

10. One unit requires 2 direct labor hours to produce. Standard variable overhead per unit is P1.25
and standard fixed overhead per unit is P1.75. If 330 units were produced this month, what
total amount of overhead is applied to the units produced?
a. P990 c. P660
b. P1,980 d. undeterminable

Activity Based Costing

Olivia Enterprise is an exporter of souvenir items. The following overhead costs data have been accumulated:

Activity Center Cost Driver Amt. of Activity Center Costs

Materials handling Grams handled 100,000 grams P50,000
Painting Units painted 50,000 units 200,000
Assembly Labor hours 4,000 hours 120,000

Job 1234 contains3,000 units. It weighs 10,000 grams and uses 300 hours of labor. Prime costs incurred amounts to
P180,000.
1. The overhead costs that should be assigned to Job 1234 is
a. P14,000
b. P26,000
c. P12,000
d. P9,000

2. The cost to produce a unit of Job 1234 is

a. P64.67
b. P68.67
c. P64.00
d. P60.00
Sekar Company manufactures two types of Electronic Toy,the Regular and SuperPro. The following data have been
obtained:
Regular Super Pro
Direct material cost per unit P33 P38
Direct labor cost per unit P32 P44
Direct labor hours 12,000 3,000
Machine hours 2,000 4,000
Engineering hours 450 450
Number of set ups 5 20
Number of units 8,000 2,200

Currently, overhead costs are assigned to products on the basis of direct labor hours, but the company decided to
adopt the ABC method of cost allocation. The overhead consist of the following items:

Overhead Cost Item Cost Driver Amount

Setup costs No. of setups P250,000
Engineering costs No. of engineering hours 180,000
Machine costs No. of machine hours 900,000

3. Using direct labor hours to allocate overhead costs, the total cost of product Regular is
a. P1,576,000
b. P1,056,000
c. P1,312,000
d. P520,000

4. Using ABC, the total overhead costs assigned to product Super Pro is
a. P1,576,000
b. P1,402,000
c. P890,000
d. P1,056,000

5. Using ABC, the total manufacturing costs for product Regular is

a. P1,576,000
b. P1,402,000
c. P520,000
d. P960,000

6. Using ABC, the cost per unit of product SuperPro is

a. P486.54
b. P82.00
c. P562.00
d. P682.00

In manufacturing Roller blades, Super Store Company’s plant used 400 direct labor hours, 500 machine hours and
20 setups. The following overhead costs were taken from the factory accounts:

Overhead Expenses Volume of Activities

Machining center P120,000 20,000 machine hours
Setup center 40,000 100 setups
4,000 direct labor hours
The plant was using a factory wide overhead rate based on direct labor hours. A new ABC system will use machine
hours in the Machining Department and number of setups in the Setup Department as cost drivers.

7. The overhead costs assigned to roller blades using direct labor hours to allocate overhead cost is
a. P160,000
b. P16,000
c. P12,000
d. P120,000

8. Using ABC, the overhead costs assigned to roller blades is

a. P160,000
b. P16,000
c. P12,000
d. P11,000

The controller of D’Day Chemical Supply has established the following activity centers with overhead costs and
related cost drivers:

Activity Centers Budgeted Overhead Cost Drivers Budgeted Level for Cost
Costs Drivers
Materials Handling P120,000 Weight of raw materials 60,000 pounds
Machine setups 240,000 Number of setups 120 setups
Hazardous waste 60,000 Weight of hazardous 12,000 pounds
Materials
Quality Control 85,000 Number of inspections 1,000 inspections
Others 205,000 Machine Hours 102,500 hours

An order for 1,000 boxes of powdered chemicals has the following production requirements:

Raw materials (in pounds) 10,500

Machine setups 5
 Hazardous materials (in pounds) 1,850
Inspections 13
Machine hours 490

9. Assume the company allocates overhead costs on a plant wide basis using machine hours, the plant wide
overhead rate is
a. P1.45/mhr
b. P6.93/mhr
c. P2.00/mhr
d. P2.50/mhr

10. The same assumption as in number 9, the overhead cost per box of powdered chemicals is
a. P3.396
b. P3,396
c. P2.50
d. P.98

11. Using ABC, the total overhead costs charged to the 1,000 boxes of powdered chemical is
a. P120,000
b. P205,000
c. P42,335
d. P3,396

12. The same assumption as in number 11, the overhead costs per unit of powdered chemical is
a. P42,335
b. P3,396
c. P120
d. P205
e. P42.335

The Chromosome Manufacturing Company produces two products, X and Y. X is selling at P12.70 per unit while Y
is selling at P12.50 per unit.
The following data are obtained for the current period.
Product X Product Y
Number of units 11,000 3,000
Direct material cost per unit P3.50 P3.00
Direct labor hours 10,000 2,500
Direct labor cost per unit P5.50 P4.00
Machine hours 2,100 2,800
Inspection hours 80 100
Purchase orders 10 30

Overhead costs Amount

Inspection costs P16,200
Purchasing costs 8,000
Machine costs 49,000

13. Using direct labor hours to allocate overhead costs, the gross margin of product X is
a. P17,860
b. (P17,860)
c. P32,500
d. (P32,500)

14. Using ABC, the total manufacturing costs for product Y is

a. P64,000
b. P19,000
c. P35,640
d. P92,200

15. Using ABC, the total gross margin for the period is
a. P185,700
b. P267,200
c. (P15,400)
d. (P44,360)

Amend Instrument Inc. manufactures two product: missile instruments and pressure gauges. During January, 50
range instruments and 300 pressure gauges were produced, Direct cost of P54,000 and P85,000 are incurred for
Instruments and Gauges, respectively and overhead costs of P81,000 were incurred. An analysis of overhead costs
reveals the following activities:

Activity Cost Driver Total Cost

Material handling Number of requisitions P30,000
 Machine setups Number of setups P27,000
Quality inspections Number of inspections P24,000

The cost driver volume for each product was as follows:

Cost Driver Instruments Gauges Total

Number of requisitions 400 600 1,000
Number of setups 150 300 450
Number of inspections 200 400 600

16. The amount of overhead assigned to product Instruments is

a. P27,000
b. P30,000
c. P40,500
d. P29,000

17. The total manufacturing cost of product Instrument is

a. P83,000
b. P54,000
c. P85,000
d. P135,000

18. The cost per unit of product Gauge is

a. P270
b. P553
c. P457
d. P283