Management Accounting chapter 11

Joint product processes

A number of products are produced from a single raw material input

Joint products

Products resulting from a joint product process

Split-off point

The stage of processing where joint products are seperated

Joint costs

Costs of processing joint products prior to the split-off point

Final product

Ready for sale without further processing

Intermediate product

Requires further processing before sale

What is the usual objective of the joint product decision

Maximising profit

Physical measure method

Joint costs are allocated based on a proportional measure (weight, volume) of the joint products at split-off point

Monetary measure method

Joint costs are allocated based on the relative values of the products at split-off point

Calculating Net Realizable Value (NRV)

Final sales value - added processing costs

Intermediate products

Products that are added to other processes or are processed further for sale as final products

By-product

If the NRV of a joint product is not material, it is considered a by-product

Equivalent units

The amount of work expressed in completed units of a product

Spoilage costs

Costs associated with units of production that are damaged and cannot be sold

FIFO costing

First-in, first-out costing, units in the opening inventory are transferred out first