Test 1: Joint Products and By Products: answer key

Question 1 · 2 marks · Chapter 11: Joint Products and By Products · medium

Scenario. Scenario I - Apex Agrochem Ltd operates a common extraction process for NovaSeed. During September 2026 it processed 12,000 kg of NovaSeed and incurred a joint cost of ₹8,60,000, including raw material, direct labour and common overheads up to split-off. The common process has a rated capacity of 15,000 kg per month; current output is lower due to demand. Common fixed overhead included in joint cost is ₹1,40,000 and is unavoidable. At split-off, three main products Alpha, Beta and Gamma and one by-product Omega emerge. Omega has no further processing; its net realisable value at split-off is ₹60,000. The company deducts by-product NRV from joint cost before allocating joint cost to main products on the basis of net realisable value at split-off. There is no opening or closing inventory and no normal loss. Product-wise data: Alpha output 5,000 kg; selling price at split-off ₹110/kg; final selling price after further processing ₹140/kg; further processing cost ₹2,00,000. Beta output 3,000 kg; split-off price ₹100/kg; final price ₹120/kg; further processing cost ₹60,000. Gamma output 2,000 kg; split-off price ₹115/kg; final price ₹130/kg; further processing cost ₹60,000. The marketing department is reviewing whether each main product should be sold at split-off or processed further. All quantities produced can be sold in either form. Ignore taxes and time value of money.

What is the net joint cost to be allocated to the three main products after deducting the by-product NRV?

1. ₹8,00,000 (correct answer)
2. ₹8,60,000
3. ₹7,40,000
4. ₹9,20,000

Answer: A — ₹8,00,000

Explanation. Joint cost incurred up to split-off is ₹8,60,000. By-product Omega has NRV ₹60,000. Under the NRV deduction method, net joint cost = ₹8,60,000 - ₹60,000 = ₹8,00,000. Option b ignores by-product credit; option c deducts by-product twice; option d adds by-product NRV instead of deducting it.

Where it goes wrong. Ignoring by-product NRV or adding it to joint cost instead of deducting it.

Authority. ICAI SM: Cost and Management Accounting, Chapter 11 (Joint Products and By Products)

Question 2 · 2 marks · Chapter 11: Joint Products and By Products · hard

Using NRV at split-off for main products, what amount of net joint cost is allocated to Beta?

1. ₹2,00,000
2. ₹2,40,000 (correct answer)
3. ₹4,00,000
4. ₹3,00,000

Answer: B — ₹2,40,000

Explanation. NRV: Alpha = (5,000 × ₹140) - ₹2,00,000 = ₹5,00,000; Beta = (3,000 × ₹120) - ₹60,000 = ₹3,00,000; Gamma = (2,000 × ₹130) - ₹60,000 = ₹2,00,000. Total NRV = ₹10,00,000. Beta allocation = ₹8,00,000 × 3,00,000/10,00,000 = ₹2,40,000. Option d uses Beta NRV itself, not allocated cost.

Where it goes wrong. Using final sales value directly without deducting post-split-off costs.

Authority. ICAI SM: Cost and Management Accounting, Chapter 11 (Joint Products and By Products)

Question 3 · 2 marks · Chapter 11: Joint Products and By Products · medium

What is the joint cost per kg allocated to Gamma under the NRV method?

1. ₹70
2. ₹75
3. ₹80 (correct answer)
4. ₹90

Answer: C — ₹80

Explanation. Gamma NRV = (2,000 × ₹130) - ₹60,000 = ₹2,00,000. Net joint cost ₹8,00,000 is allocated in NRV ratio 5:3:2, so Gamma gets ₹8,00,000 × 2/10 = ₹1,60,000. Gamma output is 2,000 kg. Joint cost per kg = ₹1,60,000 ÷ 2,000 = ₹80. Option b uses gross joint cost or wrong ratio.

Where it goes wrong. Dividing total joint cost by total output instead of product-specific allocated cost.

Authority. ICAI SM: Cost and Management Accounting, Chapter 11 (Joint Products and By Products)

Question 4 · 2 marks · Chapter 11: Joint Products and By Products · hard

What is the incremental profit or loss from further processing Alpha instead of selling it at split-off?

1. Profit ₹50,000
2. Loss ₹30,000
3. Profit ₹30,000
4. Loss ₹50,000 (correct answer)

Answer: D — Loss ₹50,000

Explanation. Final sales of Alpha = 5,000 × ₹140 = ₹7,00,000. Less further processing cost ₹2,00,000 = ₹5,00,000. Split-off sales = 5,000 × ₹110 = ₹5,50,000. Incremental result = ₹5,00,000 - ₹5,50,000 = loss ₹50,000. Option a reverses the sign; option b uses ₹120 instead of ₹140 or wrong split-off price.

Where it goes wrong. Comparing final sales with further cost only, ignoring split-off sales foregone.

Authority. ICAI SM: Cost and Management Accounting, Chapter 11 (Joint Products and By Products)

Question 5 · 2 marks · Chapter 11: Joint Products and By Products · medium

Scenario. Scenario II - Zenith Polychem Ltd operates a continuous common process that yields three main joint products P, Q and R and a by-product S. In October 2026, 20,000 kg of input was processed and joint cost incurred up to split-off was ₹11,20,000. The plant has a normal monthly capacity of 24,000 kg of input; fixed overhead included in joint cost is ₹2,00,000 and remains unaffected by further processing decisions. Output at split-off is P 8,000 kg, Q 6,000 kg and R 4,000 kg. By-product S output is 2,000 kg and its net realisable value at split-off is ₹40,000. The company deducts by-product NRV from joint cost and allocates the net joint cost to main products using the physical unit method. There is no normal loss, and all output is sold or further processed. Post-separation costs and selling prices are: P - further processing cost ₹1,20,000; split-off selling price ₹70/kg; final selling price ₹90/kg. Q - further processing cost ₹90,000; split-off selling price ₹65/kg; final selling price ₹80/kg. R - further processing cost ₹80,000; split-off selling price ₹55/kg; final selling price ₹70/kg. The management wants to identify the profit-maximising processing plan for P, Q and R. Assume all final products can be sold in the market and no additional fixed costs arise on further processing.

Under the physical unit method, what amount of net joint cost is allocated to product Q?

1. ₹3,60,000 (correct answer)
2. ₹3,00,000
3. ₹4,00,000
4. ₹4,80,000

Answer: A — ₹3,60,000

Explanation. Net joint cost = ₹11,20,000 - ₹40,000 by-product NRV = ₹10,80,000. Main output total = 8,000 + 6,000 + 4,000 = 18,000 kg. Allocation rate = ₹10,80,000 ÷ 18,000 = ₹60/kg. Q allocation = 6,000 × ₹60 = ₹3,60,000. Option d is P allocation; option b ignores by-product credit.

Where it goes wrong. Allocating gross joint cost without deducting by-product NRV.

Authority. ICAI SM: Cost and Management Accounting, Chapter 11 (Joint Products and By Products)

Question 6 · 2 marks · Chapter 11: Joint Products and By Products · hard

What is the average unit joint cost per kg of the main products under the average unit cost method?

1. ₹54
2. ₹60 (correct answer)
3. ₹64
4. ₹58

Answer: B — ₹60

Explanation. Net joint cost = ₹11,20,000 - ₹40,000 = ₹10,80,000. Total main output = 8,000 + 6,000 + 4,000 = 18,000 kg. Average unit cost = ₹10,80,000 ÷ 18,000 = ₹60 per kg. Option c uses gross joint cost ₹11,20,000 ÷ 17,500 or similar; option a ignores by-product adjustment.

Where it goes wrong. Dividing gross joint cost by main output or including by-product quantity in denominator.

Authority. ICAI SM: Cost and Management Accounting, Chapter 11 (Joint Products and By Products)

Question 7 · 2 marks · Chapter 11: Joint Products and By Products · medium

What is the total cost per kg of product R if it is further processed and sold as a final product?

1. ₹2,40,000
2. ₹3,00,000
3. ₹3,20,000 (correct answer)
4. ₹2,80,000

Answer: C — ₹3,20,000

Explanation. Joint cost allocated to R = 4,000 × ₹60 = ₹2,40,000. Post-separation cost = ₹80,000. Total cost of R after further processing = ₹2,40,000 + ₹80,000 = ₹3,20,000. Option a is joint cost only; option d deducts by-product NRV again or uses wrong allocation.

Where it goes wrong. Omitting post-separation cost or deducting by-product NRV again.

Authority. ICAI SM: Cost and Management Accounting, Chapter 11 (Joint Products and By Products)

Question 8 · 2 marks · Chapter 11: Joint Products and By Products · hard

Which product(s) should be further processed for profit maximisation?

1. P and Q only
2. Q only
3. All three products
4. P only (correct answer)

Answer: D — P only

Explanation. Incremental profit: P = (₹90 - ₹70) × 8,000 - ₹1,20,000 = ₹40,000; Q = (₹80 - ₹65) × 6,000 - ₹90,000 = ₹0; R = (₹70 - ₹55) × 4,000 - ₹80,000 = -₹20,000. Only P gives positive incremental profit. Q is indifferent, R should be sold at split-off. Hence further process P only.

Where it goes wrong. Processing all products because final selling price is higher, ignoring incremental costs.

Authority. ICAI SM: Cost and Management Accounting, Chapter 11 (Joint Products and By Products)

Question 9 · 2 marks · Chapter 11: Joint Products and By Products · medium

Scenario. A common process incurs joint cost of ₹9,60,000. By-product NRV is ₹60,000 and is deducted before allocation. Main outputs are A 4,000 kg, B 6,000 kg and C 2,000 kg. Under the average unit cost method, what amount is allocated to B?

A common process incurs joint cost of ₹9,60,000. By-product NRV is ₹60,000 and is deducted before allocation. Main outputs are A 4,000 kg, B 6,000 kg and C 2,000 kg. Under the average unit cost method, what amount is allocated to B?

1. ₹4,50,000 (correct answer)
2. ₹3,00,000
3. ₹3,75,000
4. ₹4,80,000

Answer: A — ₹4,50,000

Explanation. Net joint cost = ₹9,60,000 - ₹60,000 = ₹9,00,000. Total output = 4,000 + 6,000 + 2,000 = 12,000 kg. Average rate = ₹9,00,000 ÷ 12,000 = ₹75/kg. B allocation = 6,000 × ₹75 = ₹4,50,000. Option d uses gross joint cost ₹9,60,000 ÷ 12,000 = ₹80, giving ₹4,80,000.

Where it goes wrong. Forgetting to deduct by-product NRV before average unit cost allocation.

Authority. ICAI SM: Cost and Management Accounting, Chapter 11 (Joint Products and By Products)

Question 10 · 2 marks · Chapter 11: Joint Products and By Products · hard

Scenario. Joint cost is ₹7,50,000. Product X final sales ₹9,00,000 and post-separation cost ₹1,50,000; Y final sales ₹6,00,000 and post-separation cost ₹3,00,000; Z final sales ₹3,00,000 and post-separation cost ₹1,50,000. Under NRV at split-off, what is the allocation to Y?

Joint cost is ₹7,50,000. Product X final sales ₹9,00,000 and post-separation cost ₹1,50,000; Y final sales ₹6,00,000 and post-separation cost ₹3,00,000; Z final sales ₹3,00,000 and post-separation cost ₹1,50,000. Under NRV at split-off, what is the allocation to Y?

1. ₹1,50,000
2. ₹1,87,500 (correct answer)
3. ₹2,25,000
4. ₹3,00,000

Answer: B — ₹1,87,500

Explanation. NRV: X = ₹9,00,000 - ₹1,50,000 = ₹7,50,000; Y = ₹6,00,000 - ₹3,00,000 = ₹3,00,000; Z = ₹3,00,000 - ₹1,50,000 = ₹1,50,000. Total NRV = ₹12,00,000. Y allocation = ₹7,50,000 × 3,00,000/12,00,000 = ₹1,87,500. Option a is Z NRV; option d is Y NRV, not allocation.

Where it goes wrong. Using final sales value instead of NRV after deducting post-separation costs.

Authority. ICAI SM: Cost and Management Accounting, Chapter 11 (Joint Products and By Products)

Question 11 · 2 marks · Chapter 11: Joint Products and By Products · medium

Scenario. A by-product has output 2,000 kg. Its final selling price is ₹80/kg, further processing cost ₹30/kg and selling cost ₹10/kg. What is the NRV at split-off to be credited to the main product?

A by-product has output 2,000 kg. Its final selling price is ₹80/kg, further processing cost ₹30/kg and selling cost ₹10/kg. What is the NRV at split-off to be credited to the main product?

1. ₹60,000
2. ₹70,000
3. ₹80,000 (correct answer)
4. ₹90,000

Answer: C — ₹80,000

Explanation. NRV per kg at split-off = final selling price ₹80 - further processing ₹30 - selling cost ₹10 = ₹40/kg. Total NRV = 2,000 kg × ₹40 = ₹80,000. Option d uses ₹45/kg; option b ignores selling cost partially; option a uses ₹30/kg.

Where it goes wrong. Deducting only further processing cost and ignoring attributable selling costs.

Authority. ICAI SM: Cost and Management Accounting, Chapter 11 (Joint Products and By Products)

Question 12 · 2 marks · Chapter 11: Joint Products and By Products · hard

Scenario. A product can be sold at split-off: 10,000 units at ₹45 each. If further processed, output is 9,500 units at ₹70 each and further processing cost is ₹2,00,000. What is the incremental profit or loss from further processing?

A product can be sold at split-off: 10,000 units at ₹45 each. If further processed, output is 9,500 units at ₹70 each and further processing cost is ₹2,00,000. What is the incremental profit or loss from further processing?

1. Profit ₹25,000
2. Loss ₹15,000
3. Loss ₹25,000
4. Profit ₹15,000 (correct answer)

Answer: D — Profit ₹15,000

Explanation. Final sales = 9,500 × ₹70 = ₹6,65,000. Split-off sales = 10,000 × ₹45 = ₹4,50,000. Incremental revenue = ₹2,15,000. Less further processing cost ₹2,00,000 = incremental profit ₹15,000. Option a ignores loss of 500 units; option b reverses sign; option c treats profit as loss.

Where it goes wrong. Using original 10,000 units for final sales and ignoring processing yield loss.

Authority. ICAI SM: Cost and Management Accounting, Chapter 11 (Joint Products and By Products)

Question 13 · 2 marks · Chapter 11: Joint Products and By Products · medium

Scenario. Joint cost ₹1,00,000; separable costs: A ₹20,000 and B ₹30,000; final sales: A ₹1,20,000 and B ₹1,80,000. Under the constant gross-margin NRV method, what joint cost is allocated to A?

Joint cost ₹1,00,000; separable costs: A ₹20,000 and B ₹30,000; final sales: A ₹1,20,000 and B ₹1,80,000. Under the constant gross-margin NRV method, what joint cost is allocated to A?

1. ₹40,000 (correct answer)
2. ₹30,000
3. ₹50,000
4. ₹60,000

Answer: A — ₹40,000

Explanation. Total final sales = ₹3,00,000. Total joint plus separable cost = ₹1,00,000 + ₹20,000 + ₹30,000 = ₹1,50,000. Gross margin = ₹3,00,000 - ₹1,50,000 = ₹1,50,000, i.e. 50%. For A, cost of goods available = ₹1,20,000 - 50% of ₹1,20,000 = ₹60,000. Less separable cost ₹20,000 gives joint cost ₹40,000.

Where it goes wrong. Allocating joint cost on final sales ratio without adjusting for constant gross margin.

Authority. ICAI SM: Cost and Management Accounting, Chapter 11 (Joint Products and By Products)

Question 14 · 2 marks · Chapter 11: Joint Products and By Products · hard

Scenario. Joint cost ₹12,00,000 is apportioned by survey method. Survey points: A 4, B 3, C 2 and D 1. What amount is allocated to C?

Joint cost ₹12,00,000 is apportioned by survey method. Survey points: A 4, B 3, C 2 and D 1. What amount is allocated to C?

1. ₹2,00,000
2. ₹2,40,000 (correct answer)
3. ₹2,20,000
4. ₹2,60,000

Answer: B — ₹2,40,000

Explanation. Total survey points = 4 + 3 + 2 + 1 = 10. C share = 2/10 of ₹12,00,000 = ₹2,40,000. Option a uses 1/6 or omits a point; option c uses 2/11; option d uses 2.166/10. Survey method requires all assigned points to be summed correctly.

Where it goes wrong. Using only main product points or mis-summing survey weights.

Authority. ICAI SM: Cost and Management Accounting, Chapter 11 (Joint Products and By Products)

Question 15 · 2 marks · Chapter 11: Joint Products and By Products · medium

Scenario. By-product sale proceeds are ₹45,000 and attributable selling expenses are ₹5,000. Main product cost before by-product adjustment is ₹8,00,000. Under the NRV method, what is the cost of the main product?

By-product sale proceeds are ₹45,000 and attributable selling expenses are ₹5,000. Main product cost before by-product adjustment is ₹8,00,000. Under the NRV method, what is the cost of the main product?

1. ₹7,40,000
2. ₹7,50,000
3. ₹7,60,000 (correct answer)
4. ₹7,70,000

Answer: C — ₹7,60,000

Explanation. Net realisable value of by-product = ₹45,000 - ₹5,000 = ₹40,000. This is deducted from main product cost: ₹8,00,000 - ₹40,000 = ₹7,60,000. Option b deducts gross proceeds ₹45,000; option a deducts ₹60,000; option d ignores selling expense and deducts only ₹30,000.

Where it goes wrong. Deducting gross sale proceeds without deducting by-product selling expenses.

Authority. ICAI SM: Cost and Management Accounting, Chapter 11 (Joint Products and By Products)

Question 16 · 2 marks · Chapter 11: Joint Products and By Products · hard

Scenario. Input is 10,000 kg with normal loss 5% having no scrap value. Joint cost is ₹9,50,000. Main outputs are A 4,000 kg, B 3,500 kg and C 2,000 kg. Under the physical unit method, what is the allocation to B?

Input is 10,000 kg with normal loss 5% having no scrap value. Joint cost is ₹9,50,000. Main outputs are A 4,000 kg, B 3,500 kg and C 2,000 kg. Under the physical unit method, what is the allocation to B?

1. ₹3,00,000
2. ₹4,00,000
3. ₹4,50,000
4. ₹3,50,000 (correct answer)

Answer: D — ₹3,50,000

Explanation. Normal loss = 5% of 10,000 = 500 kg. Good output = 10,000 - 500 = 9,500 kg. This equals 4,000 + 3,500 + 2,000. Allocation rate = ₹9,50,000 ÷ 9,500 = ₹100/kg. B allocation = 3,500 × ₹100 = ₹3,50,000. Option a allocates over input 10,000 kg or uses wrong denominator.

Where it goes wrong. Allocating joint cost over input quantity instead of good output after normal loss.

Authority. ICAI SM: Cost and Management Accounting, Chapter 11 (Joint Products and By Products)

Question 17 · 2 marks · Chapter 11: Joint Products and By Products · medium

Scenario. Joint cost is ₹6,00,000. Total sales value at split-off is ₹8,00,000. Product X sales value at split-off is ₹2,40,000. Under the market value at split-off method, what joint cost is allocated to X?

Joint cost is ₹6,00,000. Total sales value at split-off is ₹8,00,000. Product X sales value at split-off is ₹2,40,000. Under the market value at split-off method, what joint cost is allocated to X?

1. ₹1,80,000 (correct answer)
2. ₹1,60,000
3. ₹2,00,000
4. ₹2,40,000

Answer: A — ₹1,80,000

Explanation. Multiplying factor = (Joint cost ÷ Total sales value at split-off) × 100 = (₹6,00,000 ÷ ₹8,00,000) × 100 = 75%. X allocation = ₹2,40,000 × 75% = ₹1,80,000. Option d is sales value, not allocated cost; option b uses 66.67% incorrectly.

Where it goes wrong. Using total sales as allocation base or forgetting to apply the multiplying factor.

Authority. ICAI SM: Cost and Management Accounting, Chapter 11 (Joint Products and By Products)

Question 18 · 2 marks · Chapter 11: Joint Products and By Products · hard

Scenario. Joint variable cost is ₹3,60,000 and fixed joint cost is ₹1,60,000. A: 6,000 units at ₹80; B: 4,000 units at ₹50. Variable cost is allocated on physical units. Under the contribution margin method, what fixed cost is allocated to B?

Joint variable cost is ₹3,60,000 and fixed joint cost is ₹1,60,000. A: 6,000 units at ₹80; B: 4,000 units at ₹50. Variable cost is allocated on physical units. Under the contribution margin method, what fixed cost is allocated to B?

1. ₹24,000
2. ₹28,000 (correct answer)
3. ₹32,000
4. ₹36,000

Answer: B — ₹28,000

Explanation. Variable cost allocation 6:4 gives A ₹2,16,000 and B ₹1,44,000. Sales: A ₹4,80,000; B ₹2,00,000. Contribution: A ₹2,64,000; B ₹56,000; ratio 33:7. Fixed cost allocated to B = ₹1,60,000 × 7/40 = ₹28,000. Option a allocates fixed cost on units; option c uses sales ratio.

Where it goes wrong. Allocating fixed joint cost on physical units instead of contribution ratio.

Authority. ICAI SM: Cost and Management Accounting, Chapter 11 (Joint Products and By Products)

Question 19 · 2 marks · Chapter 11: Joint Products and By Products · medium

Scenario. Which of the following most clearly illustrates co-products?

Which of the following most clearly illustrates co-products?

1. Diesel and petrol produced from crude oil in the same refinery process
2. Molasses recovered while manufacturing sugar
3. Mustard oil and sunflower oil produced in separate processes from separate seeds (correct answer)
4. Butter and buttermilk obtained from churning cream in one process

Answer: C — Mustard oil and sunflower oil produced in separate processes from separate seeds

Explanation. Co-products are two or more products that are contemporary but do not necessarily emerge from the same material in the same process. Mustard oil and sunflower oil from separate seeds and separate processes fit this definition. Diesel and petrol from crude are joint products; molasses is a by-product; butter and buttermilk emerge from one common process.

Where it goes wrong. Confusing co-products with joint products produced from a common process.

Authority. ICAI SM: Cost and Management Accounting, Chapter 11 (Joint Products and By Products)

Question 20 · 2 marks · Chapter 11: Joint Products and By Products · hard

Scenario. A by-product requires further processing. Final sales value is ₹1,20,000; further processing cost is ₹35,000; attributable selling expenses are ₹5,000. What is the NRV at split-off to be credited to the main product?

A by-product requires further processing. Final sales value is ₹1,20,000; further processing cost is ₹35,000; attributable selling expenses are ₹5,000. What is the NRV at split-off to be credited to the main product?

1. ₹1,20,000
2. ₹85,000
3. ₹90,000
4. ₹80,000 (correct answer)

Answer: D — ₹80,000

Explanation. NRV at split-off = final sales value - further processing cost - attributable selling expenses = ₹1,20,000 - ₹35,000 - ₹5,000 = ₹80,000. Option b deducts only further processing cost; option c deducts only selling expenses; option a ignores both deductions.

Where it goes wrong. Omitting attributable selling expenses when computing by-product NRV at split-off.

Authority. ICAI SM: Cost and Management Accounting, Chapter 11 (Joint Products and By Products)