Question :
81)
Green Paper Company processes wood pulp into two products. During : 1196102
81)
Green Paper Company processes wood pulp into two products. During January the joint costs of processing were $144,000. Production and sales value information for the month were as follows:
Sales Value at
Product Kilograms Produced Split off Point Separable Costs
Paper130,000$80,000$224,000
Cardboard108,000
70,000
264,000
Paper sells for $2.75 a kilogram and cardboard sells for $3.50 a kilogram.
There were no beginning inventories for April but ending inventories totalled 10,000 kilograms for paper and 12,000 kilograms for cardboard.
Required:
Prepare a product line income statement without allocation of joint costs. 81)
_____________
82)
North York Statue Company makes miniature Mountie statues from cast iron. Sales total 40,000 units a year. The statues are finished either rough or polished, with an average demand of 60 percent rough and 40 percent polished. Iron ingots, the direct material, costs $6 per kilogram. Processing costs are $200 to convert 20 kilograms into 40 statues. Rough statues are sold for $15 each and polished statues can be sold for $18 or engraved for an additional cost of $5. Polished statues can then be sold for $30.
Required:
Determine the product mix for statues that allows maximization of the company’s operating margin. 82)
_____________
83)
BC Lumber Company prepares lumber for companies who manufacture furniture. The main product is
finished lumber with a byproduct of wood shavings. The byproduct is sold to plywood manufacturers.
For July, the manufacturing process incurred $332,000 in total costs. Eighty thousand board feet of
lumber were produced and sold along with 6,800 pounds of shavings. The finished lumber sold for $6.00
per board foot and the shavings sold for $0.60 a pound. There were no beginning or ending inventories.
Required:
Prepare an income statement showing the byproduct (1) as a cost reduction during production, and (2) as
a revenue item when sold.
83)
_____________
84)
Distinguish between the two principal methods of accounting for byproducts, the production byproduct
method and the sale byproduct method. Briefly discuss the relative merits (or lack thereof) of each.
84)
_____________
85)
Lumber Company prepares lumber for companies who manufacture furniture. The main product is finished lumber with a byproduct of wood shavings. The byproduct is sold to plywood manufacturers. For July the manufacturing process incurred $166,000 in total costs. Eighty thousand board metres of lumber were produced and sold along with 6,800 kilograms of shavings. The finished lumber sold for $3.00 per boardmetre and the shavings sold for $0.30 a kilogram. There were no beginning or ending inventories.
Required:
Prepare an income statement showing the byproduct (1) as a cost reduction during production and (2) as a revenue item when sold. 85)
_____________
Cost reduction
when producedRevenue
when sold
Sales:
Lumber
Shavings$480,000$480,000
4,080
Total Sales:$480,000484,080
Cost of Good Sold:
Total manufacturing costs
Byproduct
$332,000
4,080
$332,000
0
Total COGS327,920332,000
Gross Margin$152,080$152,080
84)
a.Production byproduct method.
This method recognizes byproducts in the financial statements at the time their production is completed. The estimated net realizable value from the byproduct produced is offset against the costs of the main (or joint) products, and it is reported in the balance sheet as inventory. Accounting entries are made and the byproducts are reported in the balance sheet at their selling price.
b.Sale byproduct method.
This method delays recognition of the byproducts until the time of their sale. Revenues could be recorded in one accounting period, while the expense in an earlier period. Companies may find it necessary to keep an inventory of the byproduct processing costs in a separate account until the byproducts are sold. This practice can be rationalized on the grounds that the dollar amounts of byproducts are immaterial. But managers can use this method to manage reported earnings by timing when they sell byproducts.
85)
Cost reductionRevenue
when produced when sold
Sales:
Lumber$240,000$240,000
Shavings
n/a
2,040
Total sales$240,000$242,040
Cost of goods sold:
Total manufacturing costs $166,000$166,000
Byproduct
2,040n/a
163,960
Gross margin$ 76,040$ 76,040 86)
It appears that the company needs to start assigning all extraction costs to a joint cost category. It is unfair that the finished products receive a high cost simply because a certain batch of ore was very expensive to run through the extraction process when the next finished products were produced from gold that was easy to extract.
If all extraction costs are considered joint, then each finished product would share in the average cost of extraction, rather than being charged with the cost of a specific batch. This should result in costs that are more reflective of the product’s actual cost.
Additional problems may be with the purchasing department. The accounting may help highlight the problem but does not pinpoint the actual problem. Maybe they should buy refined gold or else hire experts in the minerals area as part of the purchasing team.
