BEC - 11 Flashcards
Joint and By-Products
The result of a single manufacturing process that yields multiple products
Two or more products of significant sales value are said to be joint products when they:
- Are produced from the same set of raw materials
* Are not separately identifiable until a split-off point
Split-off
The point at which products manufactured through a common process are differentiated and processed separately.
Joint Costs
Costs incurred prior to split-off, just allocated to the joint products
Separable costs
Additional processing costs incurred beyond the split-off point
Separable costs are attributable to individual products; they are not allocated to the joint products.
4 common methods of allocating joint costs:
- Physical volume method
- Sales value at split off method
- Net realizable value method
- Constant gross margin percentage method
Relative Physical Volume Method
costs are allocated based on the quantity of products purchased
Relative Sales Value Method
costs are allocated based on the relative sales values of the products either at split-off or after additional processing
When significant markets exist for products at the split-off point, the relative sales value of each product is used to allocated costs.
When there is no market at split-off, the ratio of net realizable value of each product to the total net realizable value is used to allocate costs.
How do by-products differ from joint products
Relatively insignificant sales value when compared to the main products
By-Product Costing
Usually not allocated a share of the joint costs of production.
Net proceeds are used to reduce cost of the main product (i.e. no revenue) or can be considered miscellaneous income (not both).
