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Joing and By products.pdf - 1 CHAPTER 2 JOINT AND BY...

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MAC4861/2APPLIED MANAGEMENT ACCOUNTINGJOINT AND BY PRODUCTS11CHAPTER 2JOINT AND BY PRODUCTSLEARNING OBJECTIVESDistinguish between Joint and By productsExplain and Identify split off point in a joint cost situationExplain and apply the alternative methods of allocating joint costs to productsDiscuss the argument for and against each method.Discuss whether products should be processed further or sold at split off point.Describe and apply accounting treatment for by products
MAC4861/2APPLIED MANAGEMENT ACCOUNTINGJOINT AND BY PRODUCTS22JOINT AND BY-PRODUCTSINTRODUCTIONWhere a common raw material or a joint production process is used, the same productionprocess can produce two or more different products.To illustrate the above, take the slaughtering of an ox at an abattoir as an example.Theprocess produces a carcass and a hide.The slaughtering process is the joint productionprocess and the carcass and the hide are the different products which are produced.The joint process can be diagrammatically represented as follows:CarcassOxSlaughteringprocessHideCLASSIFICATION INTO JOINT PRODUCTS AND BY-PRODUCTSThe products yielded by a joint process can be classified as either joint products or by-products.Products which are more or less equivalent in importance, quantity and value to the otherproducts which also arise from the same manufacturing process are classified as jointproducts.In the above example of the abattoir both the carcass and the hide would beclassified as joint products.When a product is subordinate to the joint products in importance, quantity and value, it isclassified as a by-product.By-products do have a sales value, but they are incidental tothe manufacturing process.In some cases the by-products may not even have a value atall, but they are nevertheless by-products arising from the manufacturing of the principalproduct(s).Suppose a butchery buys carcasses from the abattoir for further processing.The cutting upand processing of the carcass is the joint process and three different products are obtained,namely good quality meat, poor quality meat and bones.Both the good and poor quality meatare produced in large quantities and make a substantial contribution to the market value ofthe output of the manufacturing process and are therefore regarded as joint products.Thebones are of lesser importance and make a relatively small contribution to the total marketvalue.The bones are therefore classified as a by-product.JOINT COSTSIn the above example of the butchery, certain costs are incurred in processing the carcassinto the three products.The cost of the carcass, labour and overheads related to processingare common to all three products.

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Term
Fall
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N/A
Tags
Revenue, Net Income

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