Test 2: Joint Products and By Products: answer key

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

Scenario. Scenario I - Apex Polychem Ltd operates a common process in which 10,000 kg of input is processed in October 2026. Normal loss is 10% of input and has no scrap value. Joint cost incurred up to split-off is ₹9,00,000. At split-off, three main products A, B and C emerge; there is no by-product. Output and selling prices at split-off are: A 4,000 kg at ₹90 per kg; B 3,000 kg at ₹140 per kg; C 2,000 kg at ₹110 per kg. All output can be sold at split-off. Alternatively, each product can be further processed: A requires additional cost of ₹80,000 and can be sold at ₹150 per kg; B requires ₹1,20,000 and can be sold at ₹180 per kg; C requires ₹1,00,000 and can be sold at ₹180 per kg. The company is evaluating three market-value based methods of apportioning joint cost: sales value at split-off, net realisable value (NRV) at split-off, and constant gross-margin percentage NRV. It has been noted that sales value at split-off and NRV give different allocations because post-separation costs differ across products. The management wants to understand the impact of each method on product-wise cost and on the further-processing decision. Assume no opening or closing inventory, no abnormal loss, and no taxes. All calculations are to be made to the nearest rupee.

Under the sales value at split-off method, what amount of joint cost is allocated to product C?

1. ₹1,80,000
2. ₹1,98,000 (correct answer)
3. ₹2,20,000
4. ₹2,16,000

Answer: B — ₹1,98,000

Explanation. Split-off sales values are A ₹3,60,000 (4,000 × ₹90), B ₹4,20,000 (3,000 × ₹140) and C ₹2,20,000 (2,000 × ₹110); total ₹10,00,000. C share = ₹9,00,000 × 2,20,000/10,00,000 = ₹1,98,000. Option a is C NRV after further processing; option c is C sales value, not allocated cost; option d uses total joint cost divided by output.

Where it goes wrong. Using product sales value directly as allocated cost or confusing sales value with NRV.

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

Under the NRV at split-off method, what amount of joint cost is allocated to product A?

1. ₹3,90,000 (correct answer)
2. ₹3,60,000
3. ₹4,00,000
4. ₹3,24,000

Answer: A — ₹3,90,000

Explanation. NRV: A = ₹6,00,000 - ₹80,000 = ₹5,20,000; B = ₹5,40,000 - ₹1,20,000 = ₹4,20,000; C = ₹3,60,000 - ₹1,00,000 = ₹2,60,000. Total NRV = ₹12,00,000. A allocation = ₹9,00,000 × 5,20,000/12,00,000 = ₹3,90,000. Option b is A split-off sales; option d is sales-value allocation; option c is constant gross-margin allocation.

Where it goes wrong. Using split-off sales value or final sales value instead of NRV after deducting post-separation cost.

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 constant gross-margin percentage under the constant gross-margin percentage NRV method?

1. 15%
2. 18%
3. 20% (correct answer)
4. 24%

Answer: C — 20%

Explanation. Total final sales = A ₹6,00,000 + B ₹5,40,000 + C ₹3,60,000 = ₹15,00,000. Total joint and separable cost = ₹9,00,000 + ₹80,000 + ₹1,20,000 + ₹1,00,000 = ₹12,00,000. Gross margin = ₹15,00,000 - ₹12,00,000 = ₹3,00,000. Gross margin percentage = ₹3,00,000 ÷ ₹15,00,000 × 100 = 20%. Options a, b and d arise from using NRV total or omitting separable costs.

Where it goes wrong. Computing margin on joint cost only or omitting one product's separable 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

Under the constant gross-margin percentage NRV method, what amount of joint cost is allocated to product B?

1. ₹3,00,000
2. ₹3,12,000 (correct answer)
3. ₹3,20,000
4. ₹2,88,000

Answer: B — ₹3,12,000

Explanation. Constant gross margin is 20%. For B, final sales = 3,000 × ₹180 = ₹5,40,000. Cost of goods available for sale = ₹5,40,000 × 80% = ₹4,32,000. Joint cost allocated to B = ₹4,32,000 - separable cost ₹1,20,000 = ₹3,12,000. Option c omits separable cost; option a uses NRV; option d uses gross margin incorrectly.

Where it goes wrong. Deducting separable cost from final sales before applying the gross-margin percentage.

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 Consumer Care Ltd processes 12,000 kg of a common input in November 2026 to yield three main products X, Y and Z and a by-product W. Gross joint cost up to split-off is ₹9,60,000. By-product W has a net realisable value at split-off of ₹60,000, which the company deducts from joint cost before allocating the net joint cost to main products. Main output at split-off and split-off selling prices are: X 5,000 kg at ₹80 per kg; Y 4,000 kg at ₹125 per kg; Z 3,000 kg at ₹100 per kg. There is no normal loss and all output is readily saleable at split-off. Further processing data: X can be processed further at ₹60,000 and sold at ₹120 per kg; Y at ₹1,60,000 and sold at ₹175 per kg; Z at ₹1,80,000 and sold at ₹150 per kg. The company uses sales value at split-off for some internal reports and NRV at split-off for pricing decisions. It is also considering whether each product should be sold at split-off or processed further. The by-product W requires no further processing and no separate selling expenses. Assume all quantities produced can be sold in either form, no additional fixed costs arise, and there are no inventories.

Under the sales value at split-off method, what amount of net joint cost is allocated to product X?

1. ₹3,00,000 (correct answer)
2. ₹3,20,000
3. ₹3,75,000
4. ₹4,00,000

Answer: A — ₹3,00,000

Explanation. Net joint cost = ₹9,60,000 - ₹60,000 by-product NRV = ₹9,00,000. Split-off sales: X ₹4,00,000; Y ₹5,00,000; Z ₹3,00,000; total ₹12,00,000. X allocation = ₹9,00,000 × 4,00,000/12,00,000 = ₹3,00,000. Option d is X split-off sales; option b uses gross joint cost without by-product deduction.

Where it goes wrong. Ignoring by-product NRV deduction before applying the sales-value ratio.

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

Under the NRV at split-off method, what amount of net joint cost is allocated to product Z?

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

Answer: C — ₹1,80,000

Explanation. NRV: X = ₹6,00,000 - ₹60,000 = ₹5,40,000; Y = ₹7,00,000 - ₹1,60,000 = ₹5,40,000; Z = ₹4,50,000 - ₹1,80,000 = ₹2,70,000. Total NRV = ₹13,50,000. Z allocation = ₹9,00,000 × 2,70,000/13,50,000 = ₹1,80,000. Option d uses gross joint cost; option a is Z split-off sales value.

Where it goes wrong. Using Z final sales or split-off sales instead of NRV in the ratio.

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 incremental profit or loss from further processing product Z instead of selling it at split-off?

1. Profit ₹30,000
2. Profit ₹15,000
3. Loss ₹15,000
4. Loss ₹30,000 (correct answer)

Answer: D — Loss ₹30,000

Explanation. Split-off sales of Z = 3,000 kg × ₹100 = ₹3,00,000. Final sales = 3,000 kg × ₹150 = ₹4,50,000. Incremental revenue = ₹1,50,000. Less further processing cost ₹1,80,000 gives incremental loss ₹30,000. Option a wrongly ignores separable cost; option c uses only part of the cost; option b reverses the sign.

Where it goes wrong. Comparing final sales with split-off sales without deducting the full separable cost.

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

If by-product NRV were not deducted before allocation, how much more joint cost would be allocated to product Y under the sales value at split-off method?

1. ₹25,000 (correct answer)
2. ₹30,000
3. ₹20,000
4. ₹15,000

Answer: A — ₹25,000

Explanation. With by-product deduction, Y allocation = ₹9,00,000 × 5,00,000/12,00,000 = ₹3,75,000. Without deduction, allocation = ₹9,60,000 × 5,00,000/12,00,000 = ₹4,00,000. Additional allocation to Y = ₹4,00,000 - ₹3,75,000 = ₹25,000. Option b apportions entire by-product NRV to Y; others use wrong ratios.

Where it goes wrong. Charging the whole by-product NRV to one product instead of allocating through the sales-value ratio.

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. Joint cost is ₹6,00,000. Sales values at split-off are: A ₹4,00,000, B ₹3,00,000 and C ₹1,00,000. Under the sales value at split-off method, what amount is allocated to B?

Joint cost is ₹6,00,000. Sales values at split-off are: A ₹4,00,000, B ₹3,00,000 and C ₹1,00,000. Under the sales value at split-off method, what amount is allocated to B?

1. ₹2,00,000
2. ₹2,25,000 (correct answer)
3. ₹2,40,000
4. ₹2,50,000

Answer: B — ₹2,25,000

Explanation. Total sales value at split-off = ₹4,00,000 + ₹3,00,000 + ₹1,00,000 = ₹8,00,000. B share = ₹3,00,000 ÷ ₹8,00,000 = 37.5%. Joint cost allocated to B = ₹6,00,000 × 37.5% = ₹2,25,000. Option c uses a 40% ratio; option a allocates on equal units; option d uses ₹3,33,333 denominator error.

Where it goes wrong. Using output quantity rather than split-off sales value as the allocation base.

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 ₹8,00,000. Final sales values are: A ₹5,00,000, B ₹4,50,000 and C ₹4,00,000. Post-separation costs are: A ₹1,00,000, B ₹1,50,000 and C ₹1,00,000. Under the NRV method, what amount is allocated to B?

Joint cost is ₹8,00,000. Final sales values are: A ₹5,00,000, B ₹4,50,000 and C ₹4,00,000. Post-separation costs are: A ₹1,00,000, B ₹1,50,000 and C ₹1,00,000. Under the NRV method, what amount is allocated to B?

1. ₹2,40,000 (correct answer)
2. ₹2,00,000
3. ₹2,56,000
4. ₹2,24,000

Answer: A — ₹2,40,000

Explanation. NRV: A = ₹5,00,000 - ₹1,00,000 = ₹4,00,000; B = ₹4,50,000 - ₹1,50,000 = ₹3,00,000; C = ₹4,00,000 - ₹1,00,000 = ₹3,00,000. Total NRV = ₹10,00,000. B allocation = ₹8,00,000 × 3,00,000/10,00,000 = ₹2,40,000. Option b ignores post-separation costs; option c uses final sales ratio.

Where it goes wrong. Using final sales values directly without 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. Total final sales value is ₹12,00,000. Joint cost is ₹6,00,000 and total separable costs are ₹1,80,000. What is the constant gross-margin percentage?

Total final sales value is ₹12,00,000. Joint cost is ₹6,00,000 and total separable costs are ₹1,80,000. What is the constant gross-margin percentage?

1. 25%
2. 30%
3. 35% (correct answer)
4. 40%

Answer: C — 35%

Explanation. Total cost to be recovered = joint cost ₹6,00,000 + separable costs ₹1,80,000 = ₹7,80,000. Gross margin = final sales ₹12,00,000 - ₹7,80,000 = ₹4,20,000. Gross margin percentage = ₹4,20,000 ÷ ₹12,00,000 × 100 = 35%. Option b divides by total cost; option d deducts only joint cost; option a uses NRV incorrectly.

Where it goes wrong. Computing margin as a percentage of cost instead of final sales value.

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. Joint cost is ₹5,00,000 and total separable costs are ₹2,00,000. Final sales are P ₹6,00,000 (separable cost ₹1,00,000) and Q ₹4,00,000 (separable cost ₹1,00,000). Under the constant gross-margin percentage NRV method, what joint cost is allocated to P?

Joint cost is ₹5,00,000 and total separable costs are ₹2,00,000. Final sales are P ₹6,00,000 (separable cost ₹1,00,000) and Q ₹4,00,000 (separable cost ₹1,00,000). Under the constant gross-margin percentage NRV method, what joint cost is allocated to P?

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

Answer: B — ₹3,20,000

Explanation. Total final sales = ₹10,00,000; total joint and separable cost = ₹5,00,000 + ₹2,00,000 = ₹7,00,000; gross margin = ₹3,00,000, i.e. 30%. For P, cost of goods available = ₹6,00,000 × 70% = ₹4,20,000. Joint cost allocated = ₹4,20,000 - separable cost ₹1,00,000 = ₹3,20,000. Option d omits separable cost; option a uses 50% margin.

Where it goes wrong. Deducting separable cost from final sales before applying the constant gross-margin percentage.

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. A by-product has final selling price ₹1,50,000, further processing cost ₹30,000 and attributable selling expenses ₹10,000. What is its NRV at split-off to be credited to the main product?

A by-product has final selling price ₹1,50,000, further processing cost ₹30,000 and attributable selling expenses ₹10,000. What is its NRV at split-off to be credited to the main product?

1. ₹1,20,000
2. ₹1,10,000 (correct answer)
3. ₹1,00,000
4. ₹90,000

Answer: B — ₹1,10,000

Explanation. NRV at split-off = final selling price ₹1,50,000 - further processing cost ₹30,000 - attributable selling expenses ₹10,000 = ₹1,10,000. Option a deducts only further processing cost; option c deducts only selling expenses; option d deducts both but also incorrectly treats a non-existent normal loss.

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)

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

Scenario. Joint cost is ₹7,20,000. Total sales value of main products at split-off is ₹9,00,000. Product M has a split-off sales value of ₹2,25,000. Under the market value at split-off method, what joint cost is allocated to M?

Joint cost is ₹7,20,000. Total sales value of main products at split-off is ₹9,00,000. Product M has a split-off sales value of ₹2,25,000. Under the market value at split-off method, what joint cost is allocated to M?

1. ₹1,80,000 (correct answer)
2. ₹2,25,000
3. ₹1,60,000
4. ₹2,00,000

Answer: A — ₹1,80,000

Explanation. Multiplying factor = joint cost ÷ total split-off sales value = ₹7,20,000 ÷ ₹9,00,000 = 80%. M allocation = ₹2,25,000 × 80% = ₹1,80,000. Option b is M sales value, not allocated cost; option c uses 71.11% incorrectly; option d uses ₹2,50,000 as base.

Where it goes wrong. Using product sales value as allocated cost instead of applying the multiplying factor.

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. A product has split-off sales value ₹2,40,000. If further processed, final sales value is ₹3,00,000 and separable cost is ₹80,000. What is the incremental profit or loss from further processing?

A product has split-off sales value ₹2,40,000. If further processed, final sales value is ₹3,00,000 and separable cost is ₹80,000. What is the incremental profit or loss from further processing?

1. Profit ₹60,000
2. Profit ₹20,000
3. Loss ₹20,000 (correct answer)
4. Loss ₹60,000

Answer: C — Loss ₹20,000

Explanation. Incremental revenue = ₹3,00,000 - ₹2,40,000 = ₹60,000. Less separable cost ₹80,000 = incremental loss ₹20,000. Option a ignores separable cost; option b reverses the sign; option d deducts separable cost from final sales twice. The product should be sold at split-off on financial grounds.

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

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. Final sales total ₹10,00,000; joint cost is ₹6,50,000 and total separable costs are ₹1,50,000. Product Q has final sales ₹3,00,000 and separable cost ₹50,000. Under the constant gross-margin percentage NRV method, what joint cost is allocated to Q?

Final sales total ₹10,00,000; joint cost is ₹6,50,000 and total separable costs are ₹1,50,000. Product Q has final sales ₹3,00,000 and separable cost ₹50,000. Under the constant gross-margin percentage NRV method, what joint cost is allocated to Q?

1. ₹2,40,000
2. ₹2,10,000
3. ₹2,00,000
4. ₹1,90,000 (correct answer)

Answer: D — ₹1,90,000

Explanation. Total cost = ₹6,50,000 + ₹1,50,000 = ₹8,00,000. Gross margin = ₹10,00,000 - ₹8,00,000 = ₹2,00,000, i.e. 20%. For Q, cost of goods available = ₹3,00,000 × 80% = ₹2,40,000. Joint cost allocated = ₹2,40,000 - ₹50,000 = ₹1,90,000. Option a omits separable cost; option b uses 30% margin.

Where it goes wrong. Using final sales value minus separable cost directly as joint cost allocation.

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. Gross joint cost is ₹8,00,000. By-product NRV is ₹50,000 and is deducted before allocation. Main product split-off sales are A ₹4,00,000, B ₹3,00,000 and C ₹1,00,000. Under the sales value at split-off method, what amount is allocated to A?

Gross joint cost is ₹8,00,000. By-product NRV is ₹50,000 and is deducted before allocation. Main product split-off sales are A ₹4,00,000, B ₹3,00,000 and C ₹1,00,000. Under the sales value at split-off method, what amount is allocated to A?

1. ₹4,00,000
2. ₹3,90,000
3. ₹3,60,000
4. ₹3,75,000 (correct answer)

Answer: D — ₹3,75,000

Explanation. Net joint cost = ₹8,00,000 - ₹50,000 = ₹7,50,000. Total main sales value = ₹8,00,000. A share = ₹4,00,000 ÷ ₹8,00,000 = 50%. A allocation = ₹7,50,000 × 50% = ₹3,75,000. Option a ignores by-product deduction; option b uses gross joint cost and wrong ratio; option c deducts by-product twice.

Where it goes wrong. Applying the sales-value ratio to gross joint cost instead of net joint cost after by-product credit.

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. Total final sales value is ₹15,00,000. Joint cost is ₹8,00,000 and total separable costs are ₹1,75,000. What is the constant gross-margin percentage?

Total final sales value is ₹15,00,000. Joint cost is ₹8,00,000 and total separable costs are ₹1,75,000. What is the constant gross-margin percentage?

1. 20%
2. 25%
3. 30%
4. 35% (correct answer)

Answer: D — 35%

Explanation. Total joint and separable cost = ₹8,00,000 + ₹1,75,000 = ₹9,75,000. Gross margin = ₹15,00,000 - ₹9,75,000 = ₹5,25,000. Gross margin percentage = ₹5,25,000 ÷ ₹15,00,000 × 100 = 35%. Option c uses total cost as denominator; option b deducts only joint cost; option a omits separable costs.

Where it goes wrong. Expressing gross margin as a percentage of total cost rather than final sales value.

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. Joint cost is ₹10,00,000. NRVs at split-off are A ₹5,00,000, B ₹3,00,000 and C ₹2,00,000. Under the NRV method, what amount is allocated to C?

Joint cost is ₹10,00,000. NRVs at split-off are A ₹5,00,000, B ₹3,00,000 and C ₹2,00,000. Under the NRV method, what amount is allocated to C?

1. ₹1,50,000
2. ₹1,80,000
3. ₹2,20,000
4. ₹2,00,000 (correct answer)

Answer: D — ₹2,00,000

Explanation. Total NRV = ₹5,00,000 + ₹3,00,000 + ₹2,00,000 = ₹10,00,000. C share = ₹2,00,000 ÷ ₹10,00,000 = 20%. C allocation = ₹10,00,000 × 20% = ₹2,00,000. Option b uses B NRV; option c is C final sales; option a applies an incorrect 15% ratio.

Where it goes wrong. Using output units or final sales instead of NRV as the allocation base.

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 has final sales value ₹2,00,000, further processing cost ₹40,000 and attributable selling expenses ₹20,000. Main product cost before by-product adjustment is ₹6,00,000. Under the NRV method, what is the cost of the main product?

A by-product has final sales value ₹2,00,000, further processing cost ₹40,000 and attributable selling expenses ₹20,000. Main product cost before by-product adjustment is ₹6,00,000. Under the NRV method, what is the cost of the main product?

1. ₹4,40,000
2. ₹4,50,000
3. ₹4,60,000 (correct answer)
4. ₹4,80,000

Answer: C — ₹4,60,000

Explanation. By-product NRV = final sales ₹2,00,000 - further processing ₹40,000 - selling expenses ₹20,000 = ₹1,40,000. Main product cost = ₹6,00,000 - ₹1,40,000 = ₹4,60,000. Option a deducts ₹1,60,000; option b deducts only further processing and selling; option d ignores selling expenses.

Where it goes wrong. Deducting gross by-product sales proceeds without deducting further processing and selling costs.

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