Joint And By-Product Costing Flashcards
What is a joint process?
A process where more than 1 product is produced.
Example: Raw milk produces milk, butter, cheese, etc.
What is a split off point?
The point at which joint products are distinguishable
What is a by-product?
Product in a joint process which has a minor sales value in relation to other joint products. (often different from the original materials)
What is scrap?
Raw materials left over at the end of the process
What is Waste?
Unlike by-product or scrap, it has no value.
May even have to be disposed of at a cost.
What is the accounting treatment of by-products and scrap?
No joint costs are allocated and proceeds on sale are set off against the joint process costs.
What is the accounting treatment of WASTE?
Waste is not allocated any joint costs.
If costs are involved in getting rid of waste, these should be added to the joint cost and allocated to joint products
What is the physical measures method?
Joint costs are allocated to joint products on the basis of the volume of output of each joint product
What is a disadvantage of the physical measures method?
Where market prices differ, allocating the same costs to all products could result in widely varying product profitability.
What is the market value at split-off point method?
Allocates joint costs based on the estimated sales value at the point where they first become identifiable
What is the net realizable value method?
Certain products require further processing, either because they are not ready at split-off or because it increases profitability.
They may then be apportioned in relation to the final selling price less cost of further processing
What is the main advantage of NRV method?
Inventory will always be recorded at an amount which is below its NRV.
What is the constant growth % method?
Allocate so that each joint product yields the same gross profit percentage. (relationship between sales value and cost incurred for each product is the same)
