BL Company

BL Company produces only two products and incurs joint processing costs that total P3,750. Products
Aba and Ibi are produced in the following quantities during each month: 4,500 and 6,000 gallons,
respectively. BL also runs one ad each month that advertises both products at a cost of P1,500. The
selling price per gallon for the two products are P20 and P17.50, respectively.

1. Refer to BL Company. What amount of joint processing costs is allocated to each product based on
gallons produced?

ANS:
A = 4,500/10,500  P3,750 = P1,607
I = 6,000/10,500  P3,750 = P2,143

2. Refer to BL Company. What amount of advertising cost is allocated to each product based on sales value?

ANS:

A = 4,500  P20.00 = P 90,000/P195,000  P1,500 = P692

I = 6,000  P17.50 = 105,000/P195,000  P1,500 = P808
P195,000

GAB Company

GAB Company produces three products from the same process and incurs joint processing costs of
P3,000.

Disposal
Sales price cost per Further Final sales
per gallon gallon at processing price per
Gallons at split-off split-off costs gallon
Mat 2,300 P 4.50 P1.25 P1.00 P 7.00
Nat 1,100 6.00 3.00 2.00 10.00
Qat 500 10.00 8.00 2.00 15.00

Disposal costs for the products if they are processed further are:

Mat, P3.00; Nat, P5.50; Qat, P1.00.

1. Refer to GAB Company. What amount of joint processing cost is allocated to the three products using
sales value at split-off?

ANS:

M = 2,300  P 4.50 = P10,350/P21,950  P3,000 = P1,415

N = 1,100  P 6.00 = P 6,600/P21,950  P3,000 = P902
Q = 500  P10.00 = P 5,000/P21,950  P3,000 = P683
P21,950
2. Refer to GAB Company. What amount of joint processing cost is allocated to the three products using net
realizable value at split-off?

ANS:

Sales price minus disposal cost*

P4.50 - P1.25 = P3.25
P6.00 - P3.00 = 3.00
P10.00 - P8.00 = 2.00

M = 2,300  P 3.25* = P 7,475/P11,775  P3,000 = P1,904

N = 1,100  P 3.00* = P 3,300/P11,775  P3,000 = P 841
Q = 500  P 2.00* = P 1,000/P11,775  P3,000 = P 255
P11,775

. A company produces two main products jointly, A and B, and C, which is a by-product of B. A and B are
produced form the same raw material. C is manufactured from the residue of the process creating B.

Costs before separation are apportioned between the two main products by the net realizable value
method. The net revenue realized from the sale of C is deducted from the cost of B. Data for April were
as follows:

Costs before separation P200,000

Costs after separation:
A 50,000
B 32,000
C 4,000

Production for April, in pounds:

A 800,000
B 200,000
C 20,000

Sales for April:

A 640,000 pounds @ P.4375
B 180,000 pounds @ .65
C 20,000 pounds @ .30

Required: Determine the gross profit for April.

ANS:

NRV C REVENUE 20,000  .30 = P6,000

COST (4,000)
NRV P2,000

NRV:
A (800,000  P.4375) = P350,000 - P50,000 = P300,000
 B (200,000  P.65) = P130,000 - (P32,000 - P2,000) = 100,000
P400,000

ALLOCATION:
A (P300,000/P400,000  P200,000 = P150,000
B (P100,000/P400,000  P200,000 = 50,000

UNIT COST:
A (P150,000 + P50,000)/800,000 = P .25
B (P50,000 + P30,000)/200,000 = P .40

GROSS PROFIT:
A (P .4375 - P.25)  640,000 = P120,000
B (P .65 - P.40)  180,000 = 45,000
P165,000

. The total joint cost of producing 2,000 pounds of Product A; 1,000 pounds of Product B; and 1,000
pounds of Product C is P7,500. Selling price per pound of the three products are P15 for Product A; P10
for Product B; and P5 for Product C. Joint cost is allocated using the sales value method.

Required:
a. Compute the unit cost of Product A if all three products are main products.

b. Compute the unit cost of Product A if Products A and B are main products and
Product C is a by-product for which the cost reduction method is used.

ANS:

a. SALES VALUE UNIT COST

A 2,000  P15 = P30,000/P45,000  P7,500 = P5,000/2,000 = P2.50

B 1,000  P10 = P10,000/P45,000  P7,500 = P1,667/1,000 = P1.67

C 1,000  P5 = P 5,000/P45,000  P7,500 = P 833/1,000 = P .83

P45,000 P7,500

b. TO ALLOCATE: P7,500 - P5,000 = P2,500

SALES VALUE UNIT COST

A 2,000  P15 = P30,000/P40,000  P2,500 = P1,875/2,000 = P.9375

B 1,000  P10 = P10,000/P40,000  P2,500 = P 625/1,000 = P.625

P40,000 P2,500

. A Manufacturing Company makes three products: A and B are considered main products and C a by-
product.
Production and sales for the year were:

220,000 lbs. of Product A, salable at P6.00

180,000 lbs. of Product B, salable at P3.00
50,000 lbs. of Product C, salable at P.90

Production costs for the year:

Joint costs P276,600

Costs after separation:
Product A 320,000
Product B 190,000
Product C 6,900

Required: Using the by-product revenue as a cost reduction and net realizable value method of assigning
joint costs, compute unit costs (a) if C is a by-product of the process and (b) if C is a by-product of B.

ANS:

a. JOINT COST P276,600

- NRV C (38,100) (50,000 - P.90) - P 6,900
TO ALLOCATE P238,500

SALES VALUE - COST AFTER SEPARATION = NRV

220,000  P6 = P1,320,000 - P320,000 = P1,000,000
180,000  P3 = P 540,000 - P190,000 = 350,000
P1,350,000

ALLOCATION
P1,000,000/P1,350,000  P238,500 = P176,667
P 350,000/P1,350,000  P238,500 = 61,833
P238,500

UNIT COST:
A (P176,667 + P320,000)/220,000 = P2.26
B (P61,833 + P190,000)/180,000 = P1.40

b. NRV
A P1,000,000 = P1,000,000/P1,388,100  P276,600 = P199,265
B P350,000 + P38,100 = 388,100/P1,388,100  P276,600 = P 77,335
P1,388,100

UNIT COST
A (P199,265 + P320,000)/220,000 = P2.36
B (P77,335 + P151,900)/180,000 = P1.27

DIF: 3
Three identifiable product lines, Products A, B, and C, are obtained in fixed quantities from a basic
processing operation. The cost of the basic operation is P320,000 for a yield of 5,000 tons of Product A;
2,000 tons of Product B; and 1,000 tons of Product C. The basic processing cost is allocated to the
product lines in proportion to the relative weight produced.

Beltway Products Company does both the basic processing work and the further refinement of the three
product lines. After the basic operation, the products can be sold at the following prices per metric ton:

Product A—P60

Product B—P53

Product C—P35

Costs to refine each of the three product lines follow:

Product Lines
A B C
Variable cost per metric ton P8 P7 P4
Total fixed cost P20,000 P16,000 P6,000

The fixed cost of the refining operation will not be incurred if the product line is not refined.

The refined products can be sold at the following prices per metric ton:

Product A—P75

Product B—P65

Product C—P40

Required:
a. Determine the total unit cost of each product line in a refined state.
b. Which of the three product lines, if any, should be refined and which should be sold
after the basic processing operation? Show computations.

ANS:

WT ALLOCATION
a. A 5,000 5,000/8,000  P320,000 = P200,000
B 2,000 2,000/8,000  P320,000 = 80,000
C 1,000 1,000/8,000  P320,000 = 40,000
8,000 P320,000

UNIT COST
A (P200,000 + P20,000)/5,000 + P8 = P52
B (P80,000 + P16,000)/2,000 + P7 = P55
C (P40000 + P6,000)/1,000 + P4 = P50

b. CHANGE IN REVENUE - CHANGE IN COST = CHANGE IN PROFIT

A P75-P60 = P15 - (P20,000/5,000) + P8 = + P3
 B P65-P53 = P12 - (P16,000/2,000) + P7 = – P3
C P40-P35 = P5 - (P6,000/1,000) + P4 = – P5

Therefore, process only Product A.

. The Stone Company produced three joint products at a joint cost of P100,000. These products were
processed further and sold as follows:

Product Sales Additional Processing Costs

A P245,000 P200,000
B 330,000 300,000
C 175,000 100,000

The company has had an opportunity to sell at split-off directly to other processors. If that alternative had
been selected, sales would have been: A, P56,000; B, P28,000; and C, P56,000.

The company expects to operate at the same level of production and sales in the forthcoming year.

Required: Consider all the available information and assume that all costs incurred after split-off are
variable.

a. Could the company increase net income by altering its processing decisions? If so,
what would be the expected overall net income?

b. Which products should be processed further and which should be sold at split-off?

ANS:

a. Currently NI is Sales P750,000

Additional Processing Costs (600,000)
P150,000
- JC (100,000)
P 50,000

NI can be increased by P11,000 if A is not processed.

A B C
b.  Sales P189,000 P302,000 P119,000
-  Cost (200,000) (300,000) (100,000)
NI/(LOSS) P(11,000) P 2,000 P 19,000