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Chapter 9 Joint Product and By-Product Costing. Key Topics: Joint processes and common costs Main products and byproducts Allocation methods Choosing a method Using joint cost allocation information Decisions to process further Choosing a method Uses of joint costing information.

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chapter 9 joint product and by product costing
Chapter 9Joint Product and By-Product Costing

Key Topics:

  • Joint processes and common costs
    • Main products and byproducts
  • Allocation methods
  • Choosing a method
  • Using joint cost allocation information
    • Decisions to process further
    • Choosing a method
    • Uses of joint costing information
joint processes and common costs
Joint Processes and Common Costs
  • Jointly produce more than one product
  • Joint (common) costs cannot be traced to individual products
  • Joint production ends at the split-off point
  • Individual products might or might not be processed beyond the split-off point
allocation methods
Allocation Methods
  • Physical output
  • Sales at split-off point
  • Net realizable value
  • Constant gross margin NRV
physical output method
Physical Output Method
  • Allocate joint costs in proportion to the physical output for each main product
  • Examples of physical measures: meters, pounds, gallons
  • All main products must be expressed in the same physical measure
sales at split off method
Sales at Split-Off Method
  • Allocate joint costs in proportion to the sales value for each main product at the point where joint production ends
  • Not always possible to measure sales value at the split-off point
net realizable value method
Net Realizable Value Method
  • Allocate joint costs in proportion to the net realizable value for each main product, taking into account the final selling price and separable costs
  • Same as the sales value at split-off method if there is no additional production beyond the split-off point
constant gross margin nrv method
Constant Gross Margin NRV Method
  • Allocate joint costs so that the gross margin for all main products is the same
    • First, calculate combined gross margin for all main products
    • Second, calculate joint cost allocation that will result in the same gross margin for all main products, taking into account the final selling price and separable costs
choosing a method
Choosing a Method

Major Goal

Avoid distortion of individual main product values

uses of joint cost information
Uses of Joint Cost Information
  • Financial statements
  • Income tax returns
  • Government regulatory reports
  • Other external reports
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Estimations (Uncertainties) in Allocations

  • Physical quantities
  • Sales value at split-off point
  • Sales prices if processed further
  • Separable costs
  • Joint costs are irrelevant for many types of decisions
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