Job costing and joint and by-product

Question 1

Explain job costing

Answer 1

• Job order costing system is required where each unit or batch order costing relates to a product or service is unique.
• Contract costing is used for large cost units that take a considerable amount of time to complete

Question 2

Define joint products

Answer 2

A group of individual products is produced simultaneously and each product has a significant relative sales value

Question 3

True or False

Joint products are crucial to the commercial viability of an organization, whereas byproducts are incidental.

Answer 3

True

Question 4

What is the distinguishing feature of the production of joint and by-products?

Answer 4

The distinguishing feature of the production of joint and by products is that the products are not identifiable as different individual products until a specific point in the production process is reached called the split off point.

Question 5

True or False

After the split-off point, joint products may not be sold but can be subjected to further processing.

Answer 5

False

After the split-off point, joint products may be sold or subjected to further processing.

Question 6

Discuss by-products

Answer 6

• These are products that only have a minor sales value when compared with the joint products.
• Products that result incidentally from the main joint products. By-products may have a considerable absolute value, but the crucial classification test is that the sales value is small when compared with the values of the joint products.
• These are incidental products created by the production process

Question 7

State the different methods of allocating joint costs

Answer 7

• Physical measures
• Sales value at spilt off
• Net realisable value
• Constant gross profit percentage

Question 8

Explain physical measures

Answer 8

Allocate the joint cost in proportion to the quantity of each of the products produced

Question 9

Explain sales value at split off

Answer 9

Allocate joint costs in proportion to the estimated sales value of the production

Question 10

Explain net realizable value

Answer 10

At split off deduct from sales revenue the further processing cost and use the proportions thereof

Question 11

Explain constant gross profit percentage

Answer 11

Allocate joint costs so that the overall gross profit percentage is identical for each individual product

Question 12

State the advantage and disadvantages of physical measurement

Answer 12

Advantage
- Simple to operate where there is common unit of measurement

Disadvantage
- Can distort profit reporting and inventory
- Can be difficult to find a common unit of measurement

Question 13

State the advantages and disadvantages of sales value at split-off point

Answer 13

Advantages
- Provides more realistic inventory valuations

Disadvantages
- Assumes that sales value determines prior costs
- Assumes that a sales value at split-off can be determined

Question 14

Disclose the advantages and disadvantages of net realizable value

Answer 14

Advantages
- Takes further processing costs into account
- Simply to apply if there is only one split off point

Disadvantages
- Can be difficult to calculate for complex process with many split off points

Question 15

Disclose advantage and disadvantages of constant gross profit percentage

Answer 15

Advantage
- Appropriate only if a constant gross profit for each joint product is a logical assumption

Disadvantage
- Only appropriate if a constant gross profit for each product makes sense