2 - Lecture 2 Joint-Process Costing Single Input Product 1...

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Unformatted text preview: Lecture 2 Joint-Process Costing Single Input Product 1 Product 2 Product 3 Joint Product Processes A number of products are produced from a single raw material input. Concept: in some industries, a number of products are produced from a single raw material input. Key terms: Joint products products resulting from a process with a common input. Split-off point the stage of processing where joint products are separated. Joint cost costs of processing joint products prior to the split- off point. Final product ready for sale without further processing. Intermediate product requires further processing before sale. Joint Product Processes Consider the following example of an oil refinery. We will assume only two products, gasoline and oil. Joint Product Processes Joint Input Common Production Process Split-Off Point Joint Costs Joint Product Processes Oil Gasoline Intermediate products Final Sale Final Sale Separate Processing Separate Processing Costs Separate Processing Separate Processing Costs Final products The Decision Challenge: Which Joint Products to Produce The usual objective in the production of joint products is to maximize profits. Identify final products possible from the joint process. Forecast the sales price of each final product. Estimate costs to further process joint products into final products. Choose the set of products with the overall maximum profit. Decision to Sell Products at Split Off or Process Them Further Joint product costs incurred prior to the split-off point are sunk costs not affected by a decision to process further after the split-off point. A product should be processed beyond the split-off point only if if the incremental revenue exceeds the incremental processing costs . Value is added only if the incremental value from processing exceeds the incremental processing costs. Sawmill, Inc. cuts logs from which unfinished lumber and wood chips are the joint products. Unfinished lumber is sold as is or processed further into finished lumber. Wood chips can also be sold as is for landscaping or processed further into 4 8 composition boards. Decision to Sell Products at Split Off or Process Them Further Data about Sawmills joint products includes: Per Log Wood Lumber Chips Sales value at the split-off point 140 $ 40 $ Sales value after further processing 270 50 Allocated joint product costs 176 24 Cost of further processing 50 20 Decision to Sell Products at Split Off or Process Them Further Analysis of Sell or Process Further Per Log Wood Lumber Chips Sales value after further processing 270 $ 50 $ Sales value at the split-off point 140 40 Incremental revenue 130 10 Cost of further processing 50 20 Profit (loss) from further processing 80 $ (10) $ Decision to Sell Products at Split Off or Process Them Further Should we process the lumber further and sell the wood chips as is? Analysis of Sell or Process Further Per Log Wood Lumber Chips...
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2 - Lecture 2 Joint-Process Costing Single Input Product 1...

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