Cost accounting chapter 16

Joint Cost TerminologyJoint Costs – costs of a single production process that yields multiple products simultaneously.. Splitoff Point – the place in a joint production process where t

Cost Allocation:Joint Products and Byproducts

Joint Cost Terminology

Joint Costs – costs of a single production

process that yields multiple products

simultaneously

Splitoff Point – the place in a joint production process where two or more products become separately identifiable

Separable Costs – all costs incurred beyond

Joint Cost Terminology

1 Outputs with a positive sales value

2 Outputs with a zero sales value

value, or an output that enables a firm to avoid incurring costs

 Value can be high or low

Joint Cost Terminology

process that yields one product with a high

sales value compared to the sales values of the other outputs

process that yields two or more products with

a high sales value compared to the sales

values of any other outputs

Joint Cost Terminology

process that have low sales values compare to the sales values of the other outputs

Examples of Joint Cost Situations

Joint Process Overview

Reasons for Allocating Joint Costs

Joint Cost Allocation Methods

market-derived data (dollars):

1 Sales value at splitoff

2 Net Realizable Value (NRV)

3 Constant Gross-Margin percentage NRV

attributes of the products, such as pounds, gallons, barrels, etc

Sales Value at Splitoff Method

of the accounting period to calculate

allocation percentage

Joint Cost Illustration Data

Joint Cost Illustration Overview

Sales Value at Splitoff Illustration

Net Realizable Value Method

basis of relative NRV of total production of the joint products

 NRV = Final Sales Value – Separable

Costs

Net Realizable Value Method Overview

Net Realizable Value Method Illustrated

Net Realizable Value Method Illustrated

Constant Gross Margin NRV Method

way that the overall gross-margin percentage

is identical for the individual products

amount

Constant Gross Margin NRV Illustrated

Physical-Measure Method

basis of the relative weight, volume, or other physical measure at the splitoff point of total production of the products

Physical Measures Illustration

If simplicity is the primary consideration,

Physical-Measures Method or the Constant Gross-Margin Method could be used

Despite this, some firms choose not to

Sell-or-Process Further Decisions

are irrelevant Joint products have been

produced, and a prospective decision must be made: to sell immediately or process further and sell later

relevance individually

Sell-or-Process Further Flowchart

inventory as it is created, and sales and costs

at the time of sale

inventory, and recognizes only sales at the

time of sales: byproduct costs are not tracked separately

Byproducts Illustration Overview

Comparative Income Statements for Accounting for Byproducts