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business
cost accounting

Questions and Answers of Cost Accounting

The vice president of production of the company where you are employed as cost accountant has suggested that you switch from the average cost method to the FIFO method. The work in process inventory
The president of the company at which you are the chief accountant asks you why it is necessary to compute costs on a departmental basis. She suggests that the entire factory be treated as one
You are employed as cost accountant in a company in which the process cost accounting method is used. The financial vice president is concerned because about 5 percent of the units brought into the
Explain why equivalent unit computations for work in process are so important under the FIFO method.LO.1
Account for the removal and sale of by-products that do not require further processing.LO.1
Account for the removal, additional processing costs, and sale of by-products that require further processing when byproducts are assigned additional processing costs only.LO.1
Account for the removal, additional processing costs, and sale of by-products that require further processing when the by-products are assigned both common costs and additional processing costs.LO.1
Prepare cost of production reports where by-products are involved.LO.1
Record the value of a byproduct at the point of separation using the normal net profit or the reversal cost method.LO.1
Explain and illustrate the computation of net profits on the sale of by-products under different methods of cost assignment.LO.1
Decide whether a by-product should be sold without further processing or should be further processed before sale.LO.1
Explain the difference between by-products and joint products.LO.1
Explain briefly two methods of costing by-products that do not require further processing after separation from the main product.LO.1
How are by-products reflected in the computation of equivalent production for the main product?LO.1
Under what conditions would it be appropriate for no value to be assigned to by-products but, instead, for the sales proceeds to be treated as other income?LO.1
When the estimated sales value of the by-product is treated as a reduction in the cost of the main product, what entry is made if the by-product is sold for more than the estimated sales value?LO.1
If a by-product must be further processed after separation from the main product and only additional processing costs are assigned to the by-product, what will be the effect on the cost of the main
What is meant by the normal net profit method?LO.1
How is the amount of common costs to be assigned to a by-product computed when common costs are to be assigned to by-products on the basis of the normal profit method?LO.1
If the market value at the point of separation is assigned as cost of a by-product, how are costs of further processing of the by-product accounted for?LO.1
What are the major disadvantages of the normal net profit method for assigning common costs to a by-product?LO.1
What is a by-product?LO.1
Explain the difference between a by-product and a joint product.LO.1
What is meant by common costs?LO.1
If no part of common costs is assigned to by-products when they are moved from the main product's manufacturing process, what will be the value assigned to the Work in Process—By-Product account if
If a company treats the entire sales proceeds from by-products as other income, how does a sale of a by-product affect the cost of goods manufactured for the main product?LO.1
A company's manufacturing process produces a by-product in its Trimming Department. The by-product is sold without further processing. The estimated market value of the by-product is treated as a
Village Company does not record the value of its by-product until it is sold. Typically, the by-product accumulates for several months before sale. When it is sold, the sales proceeds are credited to
If a by-product is to be processed further after separation, in what ways might the value of the by-product at the point of separation be determined?LO.1
Explain in detail the reversal cost method of allocating common costs to by-products.LO.1
Assume that a by-product from the manufacturing process is accumulated for several months before it is sold. Explain the conditions under which an accountant might make an entry crediting Work in
Assume that a by-product from the manufacturing process is accumulated for several months before it is sold. Explain the conditions under which the accountant might make an entry only when the
The company for which you are cost accountant has traditionally sold, without further processing, the by-product resulting from manufacturing the main product. Management has asked you whether the
Assume that your company's manufacturing process produces a rather large physical volume of by-product. The company has not maintained a perpetual inventory of by-product, but a question has been
A company's accounts show a net profit of $3,400 on the sale of by-products. Comment on the usefulness of this information to the company's management.LO.1
Management has asked you whether the existence of a by-product affects the cost of the main product. Give an appropriate answer.LO.1
What factors should management consider in deciding how to dispose of a by-product?LO.1
Your manager has looked at your cost accounting book and has observed that the use of some methods of recording by-product results in a higher profit from the sale of by-products than do other
Record the sale of a by-product not requiring further processing—sales proceeds treated as income. (Obj. 1). The Bridgeport Company uses marble and other types of stone in the manufacture of its
Record the value of a by-product not requiring further processing—value credited to work in process. (Obj. 1). Each week the George Company accumulates the by-product arising from its manufacturing
Record the value of a by-product not requiring further processing—value credited to work in process. (Obj. 1). The manufacturing process in the Trimming Department of the Paige Company results in a
Record the removal and sale of a by-product not requiring further processing. (Obj. 1). The Carlton Company produces field seed.Screenings, a by-product, are sold to a garden outlet to be used in
Account for removal, further processing, and a sale of a byproduct—only additional costs assigned. (Obj. 2). The Kankakee Company assigns to its by-products only the additional cost needed to
Compute the value of a by-product using the normal net profit method. (Obj. 5). In the Decomposing Department of Krum Com-/pany, a by-product Is removed. The material is further processed and then
Compute the value assigned to a by-product by the reversal cost method. (Obj . 5) . In the Mixing Department of the Toronto Company,scrap materials (a by-product) are removed, further processed, and
Account for the removal, additional processing, and sale of a byproduct;use the normal net profit method to record the value at separation. (Objs. 3, 5). In the Refining Department of Viva Chemicals
Measure the profit from a by-product; decide whether to further process a by-product before sale. (Objs. 6, 7). A company is attempting to decide whether to sell a by-product without additional
Allocate joint costs between products on the basis of physical units.LO1
Allocate joint costs between products on the basis of relative sales value.LO1
Allocate joint costs between products on the basis of adjusted sales value.LO1
Allocate joint costs between products on the basis of assigned weights.LO1
Prepare a cost of production report when joint costs are produced.LO1
Explain what factors the cost accountant should consider in choosing an allocation basis.LO1
How are joint products similar to by-products? How do the two differ?LO1
What factor determines whether a product is classified as a joint product or as a by-product?LO.1
When there are joint products, how are equivalent units of production computed?LO.1
Under what conditions can the common physical unit method for allocating joint costs be used? What are the major advantages of the common physical unit method?LO.1
What are the major disadvantages of the common physical unit method for allocating costs?LO.1
Explain briefly the relative sales value method for allocating joint costs.LO.1
What is the basic theory underlying the relative sales value of allocation?LO.1
Is the relative sales value method for allocating joint costs useful in setting the selling prices of products? Explain.LO.1
What is the main shortcoming of the relative sales method for allocating joint costs?LO.1
If sales prices change frequently, would the relative sales method be a logical basis for allocating joint costs? Explain.LO.1
What is the adjusted sales value method of allocating joint costs?LO.1
When is it appropriate to use the adjusted sales value method?LO.1
What is the major shortcoming of the adjusted sales value method?LO.1
Explain briefly the allocation by assigned weights method for allocating joint costs.LO.1
If joint costs are assigned on the basis of weights assigned to the products, how are those weights determined?LO.1
Explain how joint products and by-products are different.LO.1
Under what circumstances will physical units of measure provide an appropriate basis for allocating joint costs?LO.1
What are the basic assumptions underlying the sales value method of allocating joint costs?LO.1
What are the major criticisms of the relative sales value method of allocating joint costs?LO.1
How does the adjusted sales value method of allocation differ from the relative sales value method?LO.1
Explain briefly how to apply the adjusted sales value method of allocation.LO.1
What factors are considered in assigning the weights if joint costs are to be allocated on the basis of assigned weights?LO.1
If one of the joint products requires further processing and the other one does not, would the relative sales value method be an appropriate allocation method? Explain.LO.1
Do you think that it would be appropriate for a company to use different allocation methods in allocating joint costs if the results are to be used for different purposes? Explain.LO.1
How does the monthly production report differ when a manufacturing process produces joint products rather than a single product?LO.1
Is the method used to compute the equivalent units of production for joint products the same as the method used for a single product? Explain.LO.1
You are chief accotmtant for your company, which manufactures three joint products. The company president has told you that it is very important for the costs of the three products to be determined
Your company produces two joint products, both of which are sold at the point of separation. Management is trying to decide whether one of the products should be further processed before being
Your company manufactures three joint products. After separation, the three products are transferred to three different sales organizations in the company. The products are charged to the three
Assume that the only use made of joint product costing in the company for which you work is to arrive at an inventory carrying value and, consequently, the income reported in each period. To what
Your company has been using the relative sales value method for allocating joint costs. The products are similar in physical quantity but have substantial differences in price per unit. Management
EXERCISE 19-1 Allocate joint costs on the basis of physical units. (Obj. 1). As a result of the manufacturing process, the Extraction Department of the Big Sky Company produces two joint products.
Allocate joint costs on the basis of physical units. (Obj. 1). The Raif Company produces oil and gas from the same wells. During October 19X9, the total operating costs of a lease were $68,000.
Allocate joint costs on the basis of relative sales value. (Obj. 2).Assume the same data as in Exercise 1 . Determine the cost per pound of each product if relative sales value is used as the basis
Allocate joint costs on the basis of relative sales value. (Obj. 2).Assume the same facts as in Exercise 2. In addition, assume that the oil sold for $20 per barrel and the gas sold for $2 per mcf.
Allocate joint costs on the basis of adjusted sales value. (Obj.3). The total manufacturing costs applicable to two joint products transferred out of a department in July 19X9 were $30,000. As a
Allocate joint costs to products on the basis of physical units, relative sales price, and adjusted relative sales price. (Objs. 1, 2, 3}.The following information relates to the costs and production
Allocate joint costs on the basis of assigned weights. (Obj. 4).The total costs of two joint products transferred out of the final producing department of the Samuelson Company during June 19X9 were
Allocate joint costs on the basis of assigned weights. (Obj. 4). At the output of the Steaming Department of Cambridge Corporation, the two joint products must be physically separated. Because of the
Develop a sales budget.LO.1
Prepare production, materials, labor, and overhead budgets and combine them into a manufacturing costs budget.LO.1
Develop a flexible overhead budget for planning and control purposes.LO.1
Prepare an operating expenses budget.LO.1
Prepare a budgeted income statement.LO.1
Use the flexible budget as a management tool in controlling costs.LO.1
What is included in the master budget?LO.1
Why is the master budget sometimes called the operating budget?LO.1

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