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Unformatted text preview: chapter 16 ← Joint-Cost Basics • Joint costs Costs of a production process that yields multiple products simultaneously o Ex: cost of distillation of coal, which yields cokes, natural gas, and other products • Splitoff point The juncture in a joint production process when two or more products become separately identifiable o Ex: point at which coal becomes coke, natural gas and other products • Separable Costs All costs-manufacturing, marketing, distribution, and so on-incurred beyond the split-off point that are assignable to each of the specific products identified at the splitoff point ← ← Main Products, Joint Products, and Byproducts • The outputs of a joint production process can be classified into two general categories: o outputs with positive sales value ex: offshore processing of hydrocarbons yields oil and natural gas which yields positive sales value Product Describes any output that has a positive total sales value (or an output that enables a company to avoid incurring costs, such as an intermediate chemical product used as input in another process) o output with zero sales value ex: offshore processing yield water which has zero sales value • when a joint production process yields one product with high total sales value, compared with total sales values of other products of the process, that product is called a main product • when a joint production process yields two or more products with high total sales values compared with the total sales values of other products, if any, those products are called joint products • the products of a joint production process that have low total sales values compared with the total sales value of the main product or of joint products are called byproducts ← Why Allocate Joint Costs? Some of the contexts that require joint costs to be allocated to individual products or services are: • Computation of inventoriable costs and cost of goods sold for financial accounting purposes and reports for income tax authorities • Computation of inventoriable costs and cost of goods sold for internal reporting purposes (Such reports are used in division-profitability analysis, and they affect evaluation of division managers’ performance) • Cost reimbursement for companies that have a few, but not all, of their products or services reimbursed under cost-plus contracts with, say, a government agency • Insurance-settlement computations for damage claims made on the basis of cost information of jointly produced products • Rate regulation for one or more of the jointly produced products or services...
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- Fall '08
- Cost Accounting