Joint and By-Product Costing Flashcards
Define Joint and By-Products:
Joint products and by-products are 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:
1) Are produced from the same set of raw materials
2) Are not separately identifiable until a split-off point
What is split-off point?
The point at which products manufactured through a common process are differentiated and processed separately.
What are joint costs?
Costs incurred prior to split-off; must be allocated to the joint products
What are separable costs?
Additional costs incurred beyond the split-off point
How do you allocated joint costs?
1) physical value method
2) Sales value at split off method
3) net realizable value method
4) Constant gross margin percentage method
What is the relative physical volume method?
Costs are allocated based on the quantity of products purchased.
The total volume of all products is established (pounds, feet, gallons) each product pro rata share is determined, and the joint costs are allocated based on that proportion
What is the relative sales value method?
Costs are allocated on the relative sales values of the products either at split-off method or after additional processing.
When significant markets exist for the products at the split-off point. the relative sales value of each product is used to allocate costs
What is Net Realizable Value method?
When there is no market value at split off, the ratio of net realizable value is used to split off costs.
(Final market value less any additional separable processing costs of each product)
What are by-products?
Different from joint products in that they have relatively insignificant sales value when compared to main products.
Costing- because their relatively insignificant sales value, by-products usually are not allocated a share of joint costs of production.
Net proceeds from sale of by-products are used to reduce the cost of the main products.
No revenue is recognized form the sale of the by-products.
What is scrap?
A remnant of production process that has some, but very little, recovery value.
Reduce overhead costs.
