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高顿财经CMA讲义——Joint Product And By-product Costing

Unit 3-3 Joint Product And By-product Costing

Susan Dai

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Independent Multiple Independent Multiple--Product Production

Raw Material:Steel

Processing

Taurus

Mustang

Processing

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Joint Production Process

Raw Material:

Hog

Processing

Hides

Pork Meat

Split-Off Point

Joint Production Process

Raw Materials

Joint Process

Process (1)

Product B

Product A

Split-Off

Point

Process (2)

Process (3)

Separable Cost:

D. Materials

Direct labor

F.O.H.

Joint Costs:

D. Materials

Direct labor

F.O.H.

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Joint Cost Terminology ?Joint Costs –costs of a single production process

that yields multiple products simultaneously ?Splitoff Point –the place in a joint production process where two or more products become separately identifiable

?Separable Costs –all costs incurred beyond the splitoff point that are assignable to each of the now-identifiable specific products

Joint Cost Terminology ?Main Product –output of a joint production process that yields one product with a high sales value compared to the sales values of the other outputs

?Joint Products –outputs of a joint production process that yields two or more products with a high sales value compared to the sales values of any other outputs

Joint Cost Terminology ?Byproducts –outputs of a joint production process that have low sales values compare to the sales values of the other outputs

Byproducts

Characteristics

n By-product resulting from scrap, trimmings, and so forth, of the main products in essentially nonjoint-product types of undertakings (e.g., fabric trimmings from clothing

pieces).

n Scrap and other residue from essentially joint-product types of processes (e.g., fat trimmed from beef

carcasses).

n A minor joint product situation (fruit skins and trimmings used as animal feed).

Byproducts

?Two methods for accounting for byproducts ?Production Method –recognizes byproduct inventory as it is created, and sales and costs at the time of sale

?Sales Method –recognizes no byproduct inventory, and recognizes only sales at the time of sales: byproduct costs are not tracked separately

Reasons for Allocating Joint Costs

?Required for GAAP and taxation purposes ?Cost values may be used for evaluation purposes

?Cost-based contracting

?Insurance settlements

?Required by regulators

?Litigation

Joint Cost Allocation Methods ?Physical Measures –allocate using tangible attributes of the products, such as pounds, gallons, barrels, etc.

?Market-Based –allocate using market-derived data (dollars):

1.Sales value at splitoff

https://www.doczj.com/doc/582879989.html, Realizable Value (NRV)

3.Constant Gross-Margin percentage NRV

Allocating Joint

Costs

Allocation based on the relative values of the products at the split-off point. Allocation based on a physical measure of the joint products at the split-off point. Allocation based on final sales values less separable processing

costs.

Relative-Sales-Value Method

Physical-Units

Method

Net-Realizable-Value Method

Allocating Joint Costs ?Physical Measure

–Treat each unit as equally desirable

–Assign same cost to each unit

–Provides an unchanging yardstick of output

–Use for products with unstable selling prices

–Use in rate-regulated industries

–Ignores revenue-generating ability of joint product

Sales Value at Splitoff Method ?Uses the sales value of the entire production of the accounting period to calculate allocation percentage

?Ignores inventories

Net Realizable Value Method ?Allocates joint costs to joint products on the basis of relative NRV of total production of the joint products

?NRV = Final Sales Value –Separable Costs

Constant Gross Margin NRV Method ?Allocates joint costs to joint products in a way that the overall gross-margin percentage is identical for the individual products

?Joint Costs are calculated as a residual amount

Constant Gross Margin NRV Method –1st step: overall GP%= (total sales value –total joint cost –total separable cost)/total sales value

–2nd step: COGS of each product = sales value *(1-GP%)

–3rd step: allocated joint cost=COGS of each product-separable cost

Method Selection

?If selling price at splitoff is available, use the Sales Value at Splitoff Method

?If selling price at splitoff is not available, use the NRV Method

?If simplicity is the primary consideration, Physical-Measures Method or the Constant Gross-Margin Method could be used

?Despite this, some firms choose not to allocate joint costs at all

Sell-or-Process Further Decisions ?In Sell-or-Process Further decisions, joint costs are irrelevant. Joint products have been produced, and a prospective decision must be made: to sell immediately or process further and sell later

?Joint Costs are sunk

?Separable Costs need to be evaluated for relevance individually

The End

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