Joint Costing and By Product

Joint Process

A single process in which one product cannot be manufactured withouth producing the other

Joint/Common Cost

These costs cannot be identified with a particular joint product and incurred before the split-off point. This may include DM, DL, and OH.

Split-off point

The point at which joint products are first identifiable as individual products

Separable Costs

These costs can be identified with a particular joint product. These costs are incurred for a specific product, after the split-off point. These costs are inventoriable costs.

Joint and Co-Products

The products that are the primary objective of the manufacturing operations. Sales value must be relatively high compared with the by-product resulting at the same time.

By-Product

These are incidental products to operations. The sales value of these products are relatrively low as compared with the sales volume of the main product

used if silent

• Recorded when produced. Inventoried especially if significant

  • Replacement cost method

  • Market value or reversal cost method (workback)

  • Total cost less by-product at standard price method

Accounting for By Products using Cost/Production Method

• Recorded when sold as additional sales revenue or other income and not inventoried

  • Indirect Method - a deduction from COGS of the main product

  • Direct Method - a deduction from main product (Total product divide by cost allocated)(

Accounting for By Products using Non-Cost/Sales Method

1. Physical Unit

2. Weighted Average Method

3. Sales Value @ SOP - #units x SP @ SoP

4. NRV @ SOP - #units x (SP @ SoP - Disposal Cost)

5. Approx. NRV @ SOP or Hypothetical NRV - #units x (Final SP - Disposal Cost after FPC - FPC)

6. Constant Gross Margin Percentage Method

7. Sales to Production Ratio

Methods of Allocating Joint Cost

Producing/Operating Department

This refers to the departments that are involved in manufacturing plants

Servicing/Support Department

This refers to the departments that renders supports which contributes indirectly to the manufacture of a product

Service Cost Allocation

This refers to the allocation procedure for service department costs is a process of pooling, allocating, re-pooling, and re-allocating costs

1. Direct Method

2. Step-down (Sequential) Method

   1. Has the greatest # of served other departments

   2. Provides the highest % of its total services to other service departments

   3. Has the highest cost

3. Reciprocal (Algebraic, Scientific, Simultaneous)

   1. S1 = Cost + %(S2)

   2. S2 = Cost + %(S1)

Methods of Allocation