A Management Purpose for Allocating Joint Costs of a Processing

question 90

Multiple Choice

A management purpose for allocating joint costs of a processing center to the various products produced is to:

• A) Establish inventory values for unsold units.
• B) Record accurate cost of sales by product line.
• C) Compute total processing cost variances by product.
• D) Report correct standard product costs for comparative analysis.

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Definitions:

Compensating Balances

Minimum cash balances that a business agrees to maintain in its account as part of a loan agreement, often used to reduce the lender's risk.

Pledging Agreement

An agreement where a borrower pledges an asset as collateral to secure a loan, ensuring the lender can seize the asset if the loan defaults.

Warehousing

In finance, a method of securing the lender’s interest when borrowing is secured by inventories. The inventory is placed in a warehouse operated by a third party. When it is drawn out of the warehouse by the borrower, a pro rata share of payment on the loan is due.

Legal Control

The power or authority to direct the management and policies of a company or organization, typically through ownership of voting shares or by contract.