Below are exam-oriented MCQ questions on Joint Products, By-Products, and Joint Cost Allocation Methods (Physical/Weight, NRV, Sales Value at Split-off, Constant Gross Margin method), aligned with US CMA Part 1 & Part 2 difficulty and wording.
A. Conceptual MCQs (Joint vs By-Products)
Q1. Joint products are best described as:
A. Products produced sequentially
B. Products with insignificant sales value
C. Two or more products generated simultaneously from a common process with significant value
D. Products requiring further processing only
✅ Answer:
Q2. The point at which joint products become separately identifiable is called:
A. Contribution point
B. Process completion point
C. Split-off point
D. Break-even point
✅ Answer:
Q3. Costs incurred prior to the split-off point are known as:
A. Avoidable costs
B. Conversion costs
C. Joint costs
D. Sunk costs
✅ Answer:
Q4. By-products differ from joint products because by-products:
A. Are produced after joint products
B. Have insignificant sales value
C. Require further processing always
D. Are produced in different departments
✅ Answer:
Q5. Under US GAAP, joint costs are allocated mainly for:
A. Decision making
B. Performance evaluation
C. Inventory valuation and financial reporting
D. Pricing decisions
✅ Answer:
B. Joint Cost Allocation – Physical (Weight / Volume) Method
Q6. The physical measure method allocates joint costs based on:
A. Sales value
D. Gross margin
✅ Answer:
Q7. Which measure is commonly used under the physical method?
A. Kilograms
B. Liters
C. Units
D. All of the above
✅ Answer:
Q8. Physical method is most appropriate when:
A. Products have similar selling prices
B. Market values fluctuate significantly
C. Physical quantities are homogeneous
D. Products require different processing levels
✅ Answer:
Q9. A disadvantage of the physical method is that it:
A. Ignores selling prices
B. Is complex
C. Overstates profits
D. Violates GAAP
✅ Answer:
Q10. If joint cost = $100,000 and output weights are 1,000 kg and 3,000 kg, allocation to Product A (1,000 kg) is:
A. $25,000
B. $33,333
C. $75,000
D. $50,000
✅ Answer:
C. Sales Value at Split-Off Method
Q11. Joint costs are allocated based on:
A. Physical quantities
B. Final selling price
C. Sales value at split-off
D. Variable cost
✅ Answer:
Q12. This method assumes that:
A. Further processing increases value equally
B. Market prices reflect benefits received
C. Physical units drive cost incurrence
D. Products have equal margins
✅ Answer:
Q13. Which is a major advantage of the sales value method?
A. Simplicity
B. Objectivity
C. Market-based allocation
D. No need for selling prices
✅ Answer:
Q14. Sales value method cannot be used if:
A. Joint costs are high
B. Output quantities differ
C. No sales value exists at split-off
D. Products have by-products
✅ Answer:
Q15. If total sales value at split-off is $200,000 and Product A sales value is $50,000, its joint cost share (%) is:
A. 20%
B. 25%
C. 40%
D. 50%
✅ Answer:
D. Net Realizable Value (NRV) Method
Q16. NRV is calculated as:
A. Sales price – joint cost
B. Sales price – selling & further processing costs
C. Sales price – variable cost
D. Contribution margin
✅ Answer:
Q17. NRV method is most suitable when:
A. Products are sold at split-off
B. No further processing is required
C. Products require significant further processing
D. Physical quantities are equal
✅ Answer:
Q18. Compared to sales value method, NRV method:
A. Ignores further processing costs
B. Adjusts for post split-off costs
C. Uses physical measures
D. Is not GAAP compliant
✅ Answer:
Q19. Which cost is excluded from NRV calculation?
A. Selling costs
B. Further processing costs
C. Joint costs
D. Variable costs
✅ Answer:
Q20. If final sales value is $120,000 and further processing costs are $30,000, NRV equals:
A. $150,000
B. $120,000
C. $90,000
D. $30,000
✅ Answer:
E. Constant Gross Profit Margin Method
Q21. This method allocates joint costs so that:
A. All products have equal selling prices
B. All products earn the same gross margin percentage
C. Physical quantities match
D. NRV equals sales value
✅ Answer:
Q22. Which of the following is required for this method?
A. Split-off selling prices
B. Further processing costs
C. Total sales value
D. All of the above
✅ Answer:
Q23. Compared to other methods, this method is:
A. Simplest
B. Least theoretical
C. Most complex
D. Not acceptable under CMA syllabus
✅ Answer:
Q24. Which cost is derived as a balancing figure under this method?
A. Selling cost
B. Gross profit
C. Joint cost allocation
D. Further processing cost
✅ Answer:
Q25. A key criticism of this method is that it:
A. Ignores selling prices
B. Forces artificial profit uniformity
C. Is difficult to compute NRV
D. Violates matching principle
✅ Answer:
F. By-Products Accounting
Q26. Revenue from by-products may be recognized:
A. At time of production
B. At time of sale
C. As reduction of joint cost
D. Both B and C
✅ Answer:
Q27. Under the other income approach, by-product revenue is reported as:
A. Sales revenue
B. Cost of goods sold
C. Miscellaneous income
D. Deferred revenue
✅ Answer:
Q28. By-product inventory is usually valued at:
A. Full cost
B. NRV
C. Market value
D. Zero
✅ Answer:
Q29. Accounting for by-products primarily affects:
A. Joint cost allocation
B. Gross profit
C. Inventory valuation
D. Net income only
✅ Answer:
Q30. Under US CMA exams, joint cost allocation is NOT relevant for:
A. Inventory valuation
B. External reporting
C. Pricing decisions
D. Cost allocation exercises
✅ Answer:
G. Decision-Making MCQs (CMA Favorite)
Q31. Joint costs are irrelevant for decisions to:
A. Allocate inventory
B. Determine selling price
C. Process further or sell at split-off
D. Financial reporting
✅ Answer:
Q32. Decision to process further should be based on:
A. Joint cost
B. Allocated cost
C. Incremental revenue vs incremental cost
D. Gross profit percentage
✅ Answer:
Q33. If incremental revenue exceeds further processing cost, management should:
A. Sell at split-off
B. Process further
C. Allocate more joint cost
D. Discontinue product
✅ Answer:
Q34. Which cost is always sunk in joint product decisions?
A. Selling cost
B. Joint cost
C. Further processing cost
D. Variable cost
✅ Answer:
Q35. Which method results in the highest cost allocation to the product with highest sales value?
A. Physical method
B. NRV method
C. Sales value method
D. Weight method
✅ Answer:
✅ CMA Exam Tips
• Joint costs = sunk costs → irrelevant for decisions
• Allocation methods are only for inventory & reporting
• NRV & Sales Value methods are CMA favorites
• Constant gross margin often tested as theoretical & complex
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NUMERICAL, CASE-BASED MCQs on Joint Products, By-Products & Joint Cost Allocation
NUMERICAL CASE-BASED MCQs – US CMA
Case 1: Physical (Weight) Method
Joint cost incurred: $120,000
Output at split-off:
Product Units (kg)
A 2,000
B 3,000
C 5,000
Q1. Joint cost allocated to Product A using weight method is:
A. $20,000
B. $24,000
C. $30,000
D. $40,000
✅ Answer:
Explanation:
Q2. Which product receives the highest joint cost allocation?
A. A
B. B
C. C
D. Equal allocation
✅ Answer:
Case 2: Sales Value at Split-Off Method
Joint cost: $180,000
Product Units Selling Price at Split-off
X 10,000 $4
Y 6,000 $5
Z 4,000 $6
Q3. Total sales value at split-off equals:
A. $76,000
B. $94,000
C. $100,000
D. $124,000
✅ Answer:
Q4. Joint cost allocated to Product Z is:
A. $30,000
B. $45,957
C. $51,064
D. $60,000
✅ Answer:
Case 3: Net Realizable Value (NRV) Method
Joint cost: $150,000
Product Final Sales Further Processing Cost
P $120,000 $20,000
Q $100,000 $10,000
R $80,000 $5,000
Q5. NRV of Product P equals:
A. $120,000
B. $100,000
C. $90,000
D. $70,000
✅ Answer:
Q6. Total NRV of all products equals:
A. $265,000
B. $275,000
C. $285,000
D. $300,000
✅ Answer:
Q7. Joint cost allocated to Product Q is closest to:
A. $45,000
B. $50,943
C. $54,000
D. $60,000
✅ Answer
Case 4: Constant Gross Profit Margin Method
Joint cost: $200,000
Product Final Sales Further Processing Cost
A $300,000 $40,000
B $200,000 $20,000
Q8. Total gross profit equals:
A. $100,000
B. $140,000
C. $160,000
D. $180,000
✅ Answer:
Q9. Gross profit percentage under constant margin method equals:
A. 36%
B. 40%
C. 48%
D. 52%
✅ Answer:
Q10. Total cost assigned to Product A equals:
A. $144,000
B. $156,000
C. $196,000
D. $200,000
✅ Answer:
Case 5: Process Further Decision (CMA Favorite)
Product Sales at Split-off Sales after Processing Further Cost
J $80,000 $120,000 $30,000
Q11. Incremental revenue equals:
A. $30,000
B. $40,000
C. $50,000
D. $80,000
✅ Answer:
Q12. Incremental profit (loss) equals:
A. $10,000 loss
B. $10,000 gain
C. $40,000 gain
D. $30,000 loss
✅ Answer:
Q13. Decision should be to:
A. Sell at split-off
B. Process further
C. Allocate joint cost
D. Discontinue product
✅ Answer:
Case 6: By-Product Accounting
By-product sales value = $12,000
Selling expenses = $2,000
Q14. Net by-product value equals:
A. $12,000
B. $10,000
C. $8,000
D. $14,000
✅ Answer:
Q15. If treated as reduction of joint cost, total joint cost will:
A. Increase by $10,000
B. Decrease by $10,000
C. Remain unchanged
D. Decrease by $12,000
✅ Answer:
🎯 CMA Exam Strategy
• Ignore joint costs in process-further decisions
• NRV & Constant Margin = high-risk, high-reward areas
• Watch for option traps (missing correct values)
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Below are CLEAR, EXAM-ORIENTED ILLUSTRATIONS on Joint Products, By-Products & Joint Cost Allocation, exactly the way they are tested in US CMA Part 1 & Part 2
Illustration with answer ..first solve then check yourself..
🔷 ILLUSTRATION 1: Joint Cost Allocation – Physical (Weight) Method
Problem
A company processes raw material into three joint products A, B and C.
Total joint cost incurred = $150,000
Product Output (kg)
A 3,000
B 2,000
C 5,000
Required
Allocate joint cost using weight method.
Solution
Step 1: Total output = 3,000 + 2,000 + 5,000 = 10,000 kg
Step 2: Cost per kg = 150,000 ÷ 10,000 = $15 per kg
Step 3: Allocation
Product Kg Allocation
A 3,000 45,000
B 2,000 30,000
C 5,000 75,000
✅ Answer:
• A = $45,000
• B = $30,000
• C = $75,000
📌 CMA Tip: Physical method ignores selling price → purely quantitative.
🔷 ILLUSTRATION 2: Sales Value at Split-Off Method
Problem
Joint cost = $180,000
Product Units Selling Price at Split-off
X 8,000 $5
Y 6,000 $6
Z 4,000 $10
Solution
Step 1: Sales value at split-off
Product Calculation Sales Value
X 8,000 × 5 40,000
Y 6,000 × 6 36,000
Z 4,000 × 10 40,000
Total sales value = $116,000
Step 2: Joint cost allocation
Product Ratio Allocation
X 40,000 / 116,000 62,069
Y 36,000 / 116,000 55,862
Z 40,000 / 116,000 62,069
✅ Answer:
• X = $62,069
• Y = $55,862
• Z = $62,069
📌 CMA Insight: This is the most commonly tested method.
🔷 ILLUSTRATION 3: Net Realizable Value (NRV) Method
Problem
Joint cost = $200,000
Product Final Sales Further Processing Cost
P $180,000 $30,000
Q $150,000 $20,000
R $120,000 $10,000
Solution
Step 1: Compute NRV
Product Calculation NRV
P 180,000 – 30,000 150,000
Q 150,000 – 20,000 130,000
R 120,000 – 10,000 110,000
Total NRV = $390,000
Step 2: Allocate joint cost
Product NRV Ratio Joint Cost
P 150,000 / 390,000 76,923
Q 130,000 / 390,000 66,667
R 110,000 / 390,000 56,410
✅ Answer:
• P = $76,923
• Q = $66,667
• R = $56,410
📌 CMA Tip: NRV used when no market exists at split-off.
🔷 ILLUSTRATION 4: Constant Gross Profit Margin Method
Problem
Joint cost = $240,000
Product Final Sales Further Processing Cost
A $300,000 $40,000
B $200,000 $20,000
Solution
Step 1: Total sales = 300,000 + 200,000 = 500,000
Step 2: Total cost = Joint cost + further cost
= 240,000 + 60,000 = 300,000
Step 3: Gross profit = 500,000 – 300,000 = 200,000
Gross profit % = 200,000 / 500,000 = 40%
Step 4: Apply GP %
Product Sales GP (40%) Total Cost
A 300,000 120,000 180,000
B 200,000 80,000 120,000
Joint cost allocation
Product Total Cost Less Further Cost Joint Cost
A 180,000 40,000 140,000
B 120,000 20,000 100,000
✅ Answer:
• Joint cost to A = $140,000
• Joint cost to B = $100,000
📌 CMA Note: Most complex & theoretical method.
🔷 ILLUSTRATION 5: Process Further Decision (Joint Cost Irrelevant)
Particulars Amount
Sales at split-off $90,000
Sales after processing $140,000
Further processing cost $30,000
Solution
Incremental revenue = 140,000 – 90,000 = 50,000
Incremental cost = 30,000
Incremental profit = 50,000 – 30,000 = 20,000
✅ Decision: Process further
📌 Golden CMA Rule:
👉 Joint cost is sunk → NEVER relevant
🔑 EXAM QUICK SUMMARY
• Physical method → quantity driven
• Sales value & NRV → CMA favorites
• Constant GP → tricky but high-scoring
• Process further → incremental analysis only
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