1AF 3112MANAGEMENT ACCOUNTING 2Joint and By-Product Costing
2AGENDABasic TerminologiesAccounting for Joint Product CostsAccounting for By-Product CostsSell or Process Further Decision
3Single InputProduct 1Product 2Product 3Joint Product ProcessesA number of products are producedfrom a single raw material input.
4BASIC TERMINOLOGIESJoint ProductsTwo or more products produced simultaneously bythe same process up to a “split-off”pointSplitoff PointThe point in the joint production process when jointproducts becomeseparately identifiableSeparable CostsAll costs incurred beyond the split-off point that areassignable to each individual productsidentified atsplit-off point.
5Main ProductThehigher value productresulted from a joint productionprocess compared with other products.By Productthose also produced from joint product process but with lessvalueThedistinction between joint and by-products restssolely on therelative importance of their salesvalue.Products can change from by-products to joint products whentheir relative sales values increases, and vive-versaBASIC TERMINOLOGIES
7Agriculture & Food Industries:Flour millingPatent flour, clear flour,bran, and wheat germExtractive Industries:Copper miningCopper, gold, silver, andother metalsChemical Industries:Soap makingSoap and glycerineManufacturing Industries:CementConcrete pipe and aggregateIndustryJoint Products and By-ProductsExamples of Joint & By Products
8Constant Gross Margin % NRVJoint Costs Allocation ApproachesALLOCATING JOINT COSTSPhysical MeasureNet Realizable Value (NRV)Sale Value at Split-offMarket Based
9Physical Measure MethodAllocated on the basis of:Relative weight, volume or other feasible physicalmeasureNorelationship with the revenue producingpower of the productApplicable when:Output product prices are highly volatileMarket prices are unavailable for joint products suchas on cost-plus contracts