Ch11 - Chapter 11 Cost Allocation for Joint Products and...

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Chapter 11 Cost Allocation for Joint Products and By- Products Questions 1. Joint processing output is based on the sales value of each type of output. Joint products are those resulting from a joint process that has a relatively greater sales value for each type of output. By-products are output of insufficient sales value to justify undertaking the joint process. Scrap output has little sales value. Thus, the distinction among the three product groups is their relative sales value. Joint products have the highest value followed by by-products. Usually, the classification of output is determined before production. Management decides whether a joint process output is a joint product, a by-product, or scrap based on judgment. Output from a joint process is subjectively classified according to management's assessment of the relative sales value of each type. The classification of outputs of a joint process is usually decided before the process is undertaken. However, in unusual cases, the actual outputs of the joint process may not result as planned. In such cases, management may classify them differently than originally intended. 2. All processing of joint production does not always stop at the split-off point. Some products may not have a saleable product at the split-off point. Rather, the product must be processed further before it can be sold. 3. The three decision points are (1) before the joint process is undertaken, (2) at the split-off point, and (3) after the split-off point. The criterion for proceeding at any point is whether the anticipated incremental revenues will exceed the anticipated incremental costs. 4. Cost allocation refers to the assignment of an indirect cost to a cost object using some reasonable method. Since production costs are incurred in a joint process to produce several outputs, those costs are indirect to the individual output produced and must be assigned to the output because of the cost principle. This is necessary in order to have appropriate inventory valuations for the joint products produced in the joint process. Accountants allocate fixed production costs to products produced within a period, and allocate certain plant and equipment costs to the time periods during which those assets are used through depreciation. Amortization and allocation of intangible costs are other examples. 5. Approaches to allocating joint process costs are classified into two general categories: (1) physical measures and (2) monetary measures. Physical measures (e.g., tons, barrels, feet) are unchanging yardsticks; monetary measures change over time with inflation. However, monetary measures assign joint process costs to joint products proportionately to relative sales value. Physical measures treat each physical unit of
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This note was uploaded on 02/28/2009 for the course ACCTG 1 taught by Professor Lupin during the Spring '09 term at De La Salle Lipa.

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Ch11 - Chapter 11 Cost Allocation for Joint Products and...

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