5. Joint and By product costing v1_w5.pdf - AF 3112...

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AF 3112
MANAGEMENT ACCOUNTING 2
Joint and By-Product Costing

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AGENDA
Basic Terminologies
Accounting for Joint Product Costs
Accounting for By -Product Costs
Sell or Process Further Decision

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Single Input
Product 1
Product 2
Product 3
Joint Product Processes
A number of products are produced
from a single raw material input.

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BASIC TERMINOLOGIES
Joint Products

Two or more products produced simultaneously by
the same process up to a “split - off” point
Split off Point

The point in the joint production process when joint
products become separately identifiable
Separable Costs

All costs incurred beyond the split-off point that are
assignable to each individual products identified at
split-off point.

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Main Product

The higher value product resulted from a joint production
process compared with other products.
By Product

those also produced from joint product process but with less
value
The distinction between joint and by-products rests
solely on the relative importance of their sales
value .

Products can change from by-products to joint products when
their relative sales values increases, and vive-versa
BASIC TERMINOLOGIES

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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

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Agriculture & Food Industries :
Flour milling Patent flour, clear flour,
bran, and wheat germ
Extractive Industries :
Copper mining Copper, gold, silver, and
other metals
Chemical Industries :
Soap making Soap and glycerine
Manufacturing Industries :
Cement Concrete pipe and aggregate
Industry Joint Products and By - Products
Examples of Joint & By Products

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Constant Gross Margin % NRV
Joint Costs Allocation Approaches
ALLOCATING JOINT COSTS
Physical Measure
Net Realizable Value (NRV)
Sale Value at Split-off
Market Based

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Physical Measure Method
Allocated on the basis of:

Relative weight, volume or other feasible physical
measure
No relationship with the revenue producing
power of the product
Applicable when:

Output product prices are highly volatile

Market prices are unavailable for joint products such
as on cost-plus contracts

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Joint
Input
Common
Production
Process
Split-Off
Point
Joint
Costs
Oil
Gasoline
240,000 gallons
360,000 gallons
Physical Measure Method
Example

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Common
Production
Process
240,000 gallons
360,000 gallons
Joint
material
cost =
$275,000
Joint conversion
cost = $225,000
Oil
Gasoline
Split-Off
Point
Physical Measure Method
Example

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Product
Oil Gasoline Total
Output quantities in gallons 240,000 360,000 600,000
Proportionate share:
?