Test 3: Joint Products and By Products: answer key

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

Scenario. Suryodaya Agro Ltd processes 20,000 kg of oilseed in a common process during October 2026. Normal loss is 10% of input and has no scrap value. Joint cost incurred up to split-off is ₹12,00,000. At split-off, main products A, B and C and by-product BP emerge. Output is A 6,000 kg, B 8,000 kg, C 3,000 kg and BP 1,000 kg. BP can be sold immediately at ₹40 per kg; attributable selling expenses are ₹4,000 and no further processing is required. Main product split-off selling prices are A ₹100 per kg, B ₹80 per kg and C ₹120 per kg. All main products can alternatively be processed further: A requires ₹90,000 and can then be sold at ₹125 per kg; B requires ₹1,20,000 and can be sold at ₹105 per kg; C requires ₹60,000 and can be sold at ₹140 per kg. All quantities produced can be sold in either form. No additional fixed costs arise on further processing. Current monthly capacity is 24,000 kg of input; October volume is lower due to seasonal procurement. The company uses incremental analysis for sell-or-process-further decisions because joint cost is sunk at split-off. It also wants to understand the accounting effect of crediting by-product sale proceeds to the process account rather than to the Profit and Loss Account. Ignore taxes, abnormal loss and inventories. Assume all calculations are to the nearest rupee.

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

1. Profit ₹60,000 (correct answer)
2. Profit ₹30,000
3. Profit ₹90,000
4. Profit ₹1,50,000

Answer: A — Profit ₹60,000

Explanation. Split-off sales of A = 6,000 kg × ₹100 = ₹6,00,000. Final sales = 6,000 kg × ₹125 = ₹7,50,000. Incremental revenue = ₹1,50,000. Less further processing cost ₹90,000 gives incremental profit ₹60,000. Option d is incremental revenue before cost; option c is the further processing cost itself; option b uses an incorrect price difference.

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

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

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

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

Answer: B — Profit ₹80,000

Explanation. Split-off sales of B = 8,000 kg × ₹80 = ₹6,40,000. Final sales = 8,000 kg × ₹105 = ₹8,40,000. Incremental revenue = ₹2,00,000. Less further processing cost ₹1,20,000 gives incremental profit ₹80,000. Option d is incremental revenue before cost; option c is the separable cost; option a uses an incorrect incremental revenue.

Where it goes wrong. Using final sales minus separable cost only and not deducting split-off sales.

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

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

Answer: C — Nil

Explanation. Split-off sales of C = 3,000 kg × ₹120 = ₹3,60,000. Final sales = 3,000 kg × ₹140 = ₹4,20,000. Incremental revenue = ₹60,000. Further processing cost is also ₹60,000. Hence incremental profit is nil and the company is financially indifferent between the two alternatives. Option b mistakes revenue for profit; option a reverses the result.

Where it goes wrong. Treating incremental revenue as profit without deducting the equal further processing 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

If by-product BP sale proceeds of ₹40,000 are credited gross to the process account, what is the cost of the main products?

1. ₹12,00,000
2. ₹11,64,000
3. ₹11,40,000
4. ₹11,60,000 (correct answer)

Answer: D — ₹11,60,000

Explanation. Gross joint cost is ₹12,00,000. Crediting gross by-product sale proceeds of ₹40,000 to the process account reduces the main product cost to ₹12,00,000 - ₹40,000 = ₹11,60,000. Option b uses net NRV after selling expenses; option a ignores the by-product credit; option c deducts an incorrect amount.

Where it goes wrong. Confusing gross sale proceeds credited to process account with net realisable value after selling expenses.

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. Nirmaan Chemicals Ltd operates a common process yielding main products X, Y and Z and by-product W. In November 2026, joint cost up to split-off is ₹15,00,000. W can be sold at split-off for ₹75,000; attributable selling expenses are ₹5,000 and no further processing is needed, so its net realisable value is ₹70,000. Main output and split-off selling prices are: X 10,000 kg at ₹90 per kg; Y 6,000 kg at ₹150 per kg; Z 4,000 kg at ₹100 per kg. All main products can be sold at split-off. Alternatively, X can be processed further at ₹1,50,000 and sold at ₹120 per kg; Y at ₹2,40,000 and sold at ₹190 per kg; Z at ₹80,000 and sold at ₹130 per kg. All quantities produced can be sold in either form and no additional fixed costs arise on further processing. The company currently credits by-product W at its net realisable value to the process account. The finance manager is examining the impact of instead crediting by-product sale proceeds directly to the Profit and Loss Account. The production manager wants a product-wise incremental analysis to decide whether X, Y and Z should be sold at split-off or processed further. There are no inventories, normal loss, abnormal loss or taxes. All calculations are to be made to the nearest rupee.

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

1. Profit ₹1,50,000 (correct answer)
2. Profit ₹75,000
3. Profit ₹3,00,000
4. Profit ₹2,25,000

Answer: A — Profit ₹1,50,000

Explanation. Split-off sales of X = 10,000 kg × ₹90 = ₹9,00,000. Final sales = 10,000 kg × ₹120 = ₹12,00,000. Incremental revenue = ₹3,00,000. Less further processing cost ₹1,50,000 gives incremental profit ₹1,50,000. Option c is incremental revenue before cost; option b is half of profit; option d uses an incorrect price difference.

Where it goes wrong. Ignoring the further processing cost and treating incremental revenue as incremental profit.

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

1. Loss ₹2,40,000
2. Nil (correct answer)
3. Profit ₹2,40,000
4. Profit ₹1,20,000

Answer: B — Nil

Explanation. Split-off sales of Y = 6,000 kg × ₹150 = ₹9,00,000. Final sales = 6,000 kg × ₹190 = ₹11,40,000. Incremental revenue = ₹2,40,000. Further processing cost is also ₹2,40,000. Hence incremental profit is nil. Option c mistakes revenue for profit; option a reverses the result; option d uses only half of the revenue.

Where it goes wrong. Assuming further processing is profitable because final selling price is higher, without deducting separable cost.

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

Answer: C — Profit ₹40,000

Explanation. Split-off sales of Z = 4,000 kg × ₹100 = ₹4,00,000. Final sales = 4,000 kg × ₹130 = ₹5,20,000. Incremental revenue = ₹1,20,000. Less further processing cost ₹80,000 gives incremental profit ₹40,000. Option d is incremental revenue; option b is the separable cost; option a uses an incorrect cost.

Where it goes wrong. Deducting only part of the separable cost or ignoring split-off sales foregone.

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 W NRV is credited to the Profit and Loss Account instead of the process account, by how much does the cost of main products increase compared with the current treatment?

1. ₹0
2. ₹75,000
3. ₹5,000
4. ₹70,000 (correct answer)

Answer: D — ₹70,000

Explanation. Current treatment credits by-product NRV of ₹75,000 - ₹5,000 = ₹70,000 to the process account, reducing main product cost by ₹70,000. If credited to the Profit and Loss Account, main product cost is not reduced. Hence main product cost increases by ₹70,000. Option b uses gross sale proceeds and ignores selling expenses.

Where it goes wrong. Using gross sale proceeds instead of net realisable value after attributable selling expenses.

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. Product P has split-off sales value ₹5,00,000. If processed further, final sales value is ₹6,50,000 and separable cost is ₹1,20,000. What is the incremental profit from further processing?

Product P has split-off sales value ₹5,00,000. If processed further, final sales value is ₹6,50,000 and separable cost is ₹1,20,000. What is the incremental profit from further processing?

1. ₹30,000 (correct answer)
2. ₹1,50,000
3. ₹1,20,000
4. ₹50,000

Answer: A — ₹30,000

Explanation. Incremental revenue = ₹6,50,000 - ₹5,00,000 = ₹1,50,000. Less separable cost ₹1,20,000 gives incremental profit ₹30,000. Option b is incremental revenue before cost; option c is the separable cost; option d uses an incorrect revenue difference.

Where it goes wrong. Treating incremental revenue as profit without deducting the separable cost.

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 ₹4,00,000. By-product sale proceeds of ₹25,000 are credited to the process account. What is the cost of the main product?

Joint cost is ₹4,00,000. By-product sale proceeds of ₹25,000 are credited to the process account. What is the cost of the main product?

1. ₹4,00,000
2. ₹3,75,000 (correct answer)
3. ₹4,25,000
4. ₹3,50,000

Answer: B — ₹3,75,000

Explanation. When by-product sale proceeds are credited to the process account, they reduce the cost of the main product. Main product cost = ₹4,00,000 - ₹25,000 = ₹3,75,000. Option a ignores the credit; option c adds the proceeds; option d deducts ₹50,000 instead of ₹25,000.

Where it goes wrong. Forgetting that crediting by-product proceeds to the process account reduces main product cost.

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. Joint cost is ₹5,00,000. By-product sale proceeds of ₹60,000 are credited directly to the Profit and Loss Account. What is the cost of the main product?

Joint cost is ₹5,00,000. By-product sale proceeds of ₹60,000 are credited directly to the Profit and Loss Account. What is the cost of the main product?

1. ₹4,40,000
2. ₹5,60,000
3. ₹5,00,000 (correct answer)
4. ₹4,70,000

Answer: C — ₹5,00,000

Explanation. If by-product sale proceeds are credited to the Profit and Loss Account, the process account and main product cost are not reduced. Hence main product cost remains ₹5,00,000. Option a wrongly deducts the proceeds from main product cost; option b adds them; option d deducts an incorrect amount.

Where it goes wrong. Applying process-account by-product treatment when proceeds are credited to the Profit and Loss Account.

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 by-product has NRV at split-off ₹30,000. Main product sales value at split-off is ₹2,70,000. If the by-product is treated as a joint product using sales value at split-off, what share of joint cost ₹3,00,000 is allocated to the by-product?

A by-product has NRV at split-off ₹30,000. Main product sales value at split-off is ₹2,70,000. If the by-product is treated as a joint product using sales value at split-off, what share of joint cost ₹3,00,000 is allocated to the by-product?

1. ₹0
2. ₹27,000
3. ₹33,000
4. ₹30,000 (correct answer)

Answer: D — ₹30,000

Explanation. Total sales value = main product ₹2,70,000 + by-product ₹30,000 = ₹3,00,000. By-product share = ₹30,000 ÷ ₹3,00,000 = 10%. Joint cost allocated = ₹3,00,000 × 10% = ₹30,000. Option b uses 9%; option c uses 11%; option a ignores the by-product when it is treated as a joint product.

Where it goes wrong. Continuing to treat the by-product as a deduction instead of allocating joint cost when it is treated as a joint product.

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. Product M has split-off sales value ₹2,40,000. Further processing would yield final sales ₹3,00,000 at a separable cost of ₹70,000. What is the appropriate decision?

Product M has split-off sales value ₹2,40,000. Further processing would yield final sales ₹3,00,000 at a separable cost of ₹70,000. What is the appropriate decision?

1. Sell at split-off; further processing would reduce profit by ₹10,000 (correct answer)
2. Process further; profit increases by ₹10,000
3. Indifferent between the two alternatives
4. Process further; loss is ₹60,000

Answer: A — Sell at split-off; further processing would reduce profit by ₹10,000

Explanation. Incremental revenue = ₹3,00,000 - ₹2,40,000 = ₹60,000. Less separable cost ₹70,000 gives incremental loss ₹10,000. Therefore the product should be sold at split-off. Option b reverses the sign; option d treats incremental revenue as loss; option c ignores the negative incremental result.

Where it goes wrong. Choosing further processing because final sales value is higher without comparing incremental revenue and separable cost.

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. A by-product has final sales value ₹80,000, further processing cost ₹20,000 and attributable selling expenses ₹5,000. What is its NRV at split-off?

A by-product has final sales value ₹80,000, further processing cost ₹20,000 and attributable selling expenses ₹5,000. What is its NRV at split-off?

1. ₹60,000
2. ₹55,000 (correct answer)
3. ₹75,000
4. ₹80,000

Answer: B — ₹55,000

Explanation. NRV at split-off = final sales value ₹80,000 - further processing cost ₹20,000 - attributable selling expenses ₹5,000 = ₹55,000. Option a deducts only further processing cost; option c deducts only selling expenses; option d 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)

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

Scenario. Joint cost is ₹6,00,000 and by-product NRV is ₹40,000. What is the difference in main product cost between crediting by-product NRV to the process account and crediting sale proceeds to the Profit and Loss Account?

Joint cost is ₹6,00,000 and by-product NRV is ₹40,000. What is the difference in main product cost between crediting by-product NRV to the process account and crediting sale proceeds to the Profit and Loss Account?

1. ₹0
2. ₹5,60,000
3. ₹40,000 (correct answer)
4. ₹6,00,000

Answer: C — ₹40,000

Explanation. Crediting by-product NRV to the process account reduces main product cost to ₹6,00,000 - ₹40,000 = ₹5,60,000. Crediting to the Profit and Loss Account leaves main product cost at ₹6,00,000. The difference is ₹40,000. Option a ignores the by-product credit; option b is the reduced cost; option d is the unreduced cost.

Where it goes wrong. Comparing absolute main product costs instead of the difference caused by the by-product treatment.

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. Product Q has split-off sales value ₹4,00,000. If processed further, final sales value is ₹5,20,000 and separable cost is ₹1,00,000. What is the incremental profit from further processing?

Product Q has split-off sales value ₹4,00,000. If processed further, final sales value is ₹5,20,000 and separable cost is ₹1,00,000. What is the incremental profit from further processing?

1. ₹1,20,000
2. ₹1,00,000
3. ₹0
4. ₹20,000 (correct answer)

Answer: D — ₹20,000

Explanation. Incremental revenue = ₹5,20,000 - ₹4,00,000 = ₹1,20,000. Less separable cost ₹1,00,000 gives incremental profit ₹20,000. Option a is incremental revenue; option b is separable cost; option c incorrectly treats equal revenue and cost.

Where it goes wrong. Deducting separable cost from final sales only and not deducting split-off sales foregone.

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 ₹4,00,000. By-product sale value is ₹50,000 and attributable selling expenses are ₹5,000. Under the NRV method, what is the cost of the main product?

Joint cost is ₹4,00,000. By-product sale value is ₹50,000 and attributable selling expenses are ₹5,000. Under the NRV method, what is the cost of the main product?

1. ₹3,55,000 (correct answer)
2. ₹3,50,000
3. ₹3,45,000
4. ₹4,00,000

Answer: A — ₹3,55,000

Explanation. By-product NRV = ₹50,000 - ₹5,000 = ₹45,000. Under the NRV method, this is deducted from joint cost. Main product cost = ₹4,00,000 - ₹45,000 = ₹3,55,000. Option b uses gross proceeds; option c deducts ₹55,000; option d ignores the by-product adjustment.

Where it goes wrong. Deducting gross sale proceeds instead of net realisable value after selling expenses.

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. A by-product can be sold at split-off for ₹12,000. If further processed, final sales value is ₹20,000 and further processing cost is ₹9,000. What is the incremental profit or loss from further processing?

A by-product can be sold at split-off for ₹12,000. If further processed, final sales value is ₹20,000 and further processing cost is ₹9,000. What is the incremental profit or loss from further processing?

1. Profit ₹1,000
2. Loss ₹1,000 (correct answer)
3. Profit ₹8,000
4. Loss ₹8,000

Answer: B — Loss ₹1,000

Explanation. Incremental revenue = ₹20,000 - ₹12,000 = ₹8,000. Less further processing cost ₹9,000 gives incremental loss ₹1,000. Therefore the by-product should be sold at split-off. Option a reverses the sign; option c is incremental revenue; option d incorrectly treats revenue as loss.

Where it goes wrong. Comparing final sales with further processing cost only and ignoring split-off sale value foregone.

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. Main product sales value at split-off is ₹8,00,000 and by-product sales value is ₹2,00,000. If the by-product is treated as a joint product under the sales value method, what joint cost is allocated to the by-product?

Joint cost is ₹10,00,000. Main product sales value at split-off is ₹8,00,000 and by-product sales value is ₹2,00,000. If the by-product is treated as a joint product under the sales value method, what joint cost is allocated to the by-product?

1. ₹1,60,000
2. ₹2,50,000
3. ₹2,00,000 (correct answer)
4. ₹1,00,000

Answer: C — ₹2,00,000

Explanation. Total sales value = ₹8,00,000 + ₹2,00,000 = ₹10,00,000. By-product share = ₹2,00,000 ÷ ₹10,00,000 = 20%. Joint cost allocated = ₹10,00,000 × 20% = ₹2,00,000. Option a uses 16%; option b uses an incorrect ratio; option d allocates only 10%.

Where it goes wrong. Deducting by-product value from joint cost instead of allocating joint cost when it is treated as a joint product.

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 NRV of ₹25,000 and is credited to the process account. Which journal entry records this treatment?

A by-product has NRV of ₹25,000 and is credited to the process account. Which journal entry records this treatment?

1. Debit Process A/c ₹25,000; Credit Profit and Loss A/c ₹25,000
2. Debit Profit and Loss A/c ₹25,000; Credit By-product Stock A/c ₹25,000
3. Debit Main Product A/c ₹25,000; Credit By-product Stock A/c ₹25,000
4. Debit By-product Stock A/c ₹25,000; Credit Process A/c ₹25,000 (correct answer)

Answer: D — Debit By-product Stock A/c ₹25,000; Credit Process A/c ₹25,000

Explanation. When by-product NRV is credited to the process account, the by-product is brought into books as stock or receivable and the process account is reduced. The entry is: Debit By-product Stock A/c ₹25,000 and Credit Process A/c ₹25,000. Option a reverses the process treatment; option b records an expense; option c debits the main product instead of the by-product.

Where it goes wrong. Confusing credit to process account with credit to Profit and Loss Account or reversing the debit and credit.

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