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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