Accounting Analysis

Learning Team Textbook

Week 5

ACC/561

April 14, 2011

Richard Gottfried

ACC/561 Learning Team Textbook Assignment, Week 5

Q12-19

Briefly explain each of the two conventional ways of allocating joint costs of products.

The physical unit method involves a familiar physical unit for measuring the output of each product. For instance, board feet are a common unit for a variety of products in the lumber industry. Nevertheless, occasionally such a common denominator is missing. As an alternative, several companies use the relative sales value method for allocating joint costs. The relative sales value method can also be used when one or more of the joint products cannot be sold at the split-off point (Horngren, C, Sundem, G ,Stratton, W, and Burgstahler, D. 2008).

Q12-20

What are by-products and how do we account for them?

A product that, like a joint product, is not individually identifiable until manufacturing reaches a split-off point, but has relatively insignificant total sales value (Horngren, C, Sundem, G ,Stratton, W, and Burgstahler, D. 2008). If we report an item as a by-product, we allocate only the separable costs to it. We allocate all joint costs to the main products. Also, a deduction of all revenues from by-products, less their separable costs, from the cost of the main products.

Q13-16

“An increasing number of companies are using variable costing in their corporate annual reports.” Do you agree? Explain.

We do not agree that companies should use variable costing in their corporate annual reports. Variable costing should only be used for internal reporting and short-term management decisions. Neither the public accounting profession nor the IRS approves of variable costing for external reporting or tax purposes. On the other contrary, gross margins (i.e. absorption costing) are required for financial reporting and also appear in "absorption-costing" income statements

Q13-18

Compare the contribution margin with...