ch16joint cost and byproducts

ch16joint cost and byproducts - Cost Allocation: Joint...

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ACG 3482C Cost Allocation: Joint Products and Byproducts Chapter 16
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ACG 3482C Learning Objectives 1. Explain basic concepts in a joint cost situation 2. Explain why joint costs are allocated to individual products 3. Allocate joint costs using different methods 4. Explain why the sales value at split-off method is preferred when allocating joint costs 5. Explain why joint costs are irrelevant in a sell-or- process further decision 6. Account for byproducts using two methods
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ACG 3482C Learning Objective 1 Explain basic concepts in a joint-cost situation.
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ACG 3482C Joint Input Common Production Process Split-Off Point Joint Costs Oil Gasoline Joint Costs - Basics 240,000 gallons 360,000 gallons
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ACG 3482C Joint-Cost Basics Joint products Joint costs Separable costs Splitoff point Byproduct
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ACG 3482C Joint Products and Byproducts Sales Value High Low Main Products Joint Products Byproducts
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ACG 3482C Learning Objective 2 Explain why joint costs should be allocated to individual products.
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ACG 3482C Why Allocate Joint Costs? to compute inventory cost and cost of goods sold to determine cost reimbursement under contracts for insurance settlement computations for rate regulation for litigation purposes
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ACG 3482C Learning Objective 3 Allocate joint costs using different methods.
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ACG 3482C Approaches to Allocating Joint Costs Approach 2: Physical measure Approach 1: Market based Two basic ways to allocate joint costs to products are:
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ACG 3482C Approach 1: Market-based Data Sales value at splitoff method Estimated net realizable value (NRV) method Constant gross-margin percentage NRV method
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ACG 3482C Allocating Joint Costs Example 10,000 units of A at a selling price of $10 = $100,000 10,500 units of B at a selling price of $30 = $315,000 11,500 units of C at a selling price of $20 = $230,00 Joint processing cost is $200,000 Splitoff point
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ACG 3482C Allocating Joint Costs Example A B C Total Sales Value $100,000 $315,000 $230,000 $645,000 Allocation of Joint Cost 100 ÷ 645 31,008 315 ÷ 645 97,674 230 ÷ 645 71,318 200,000 Gross margin $ 68,992 $217,326 $158,682 $445,000
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ACG 3482C Sales Value at Splitoff Method Example Assume all of the units produced of B and C were sold. 2,500 units of A (25%) remain in inventory. What is the gross margin percentage of each product?
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ACG 3482C Sales Value at Splitoff Method Example Product A Revenues: 7,500 units × $10.00 $75,000 Cost of goods sold: Joint product costs $31,008 Less ending inventory $31,008 × 25% 7,752 23,256 Gross margin $51,744
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ACG 3482C Sales Value at Splitoff Method Example Product A: ($75,000 – $ 23,256) ÷ $75,000 = 69% Product B: ($315,000 – $97,674) ÷ $315,000 = 69% Product C: ($230,000 – $71,318) ÷ $230,000 = 69%
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Estimated Net Realizable Value (NRV) Method Example Assume the Company can process products A, B, and, C further into A1, B1, and C1. The new sales values after further processing are:
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ch16joint cost and byproducts - Cost Allocation: Joint...

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