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1、Cost Allocation: Joint Products and Byproducts,CHAPTER 16,Learning objectives,Identify the splitoff point in a joint-cost situation Distinguish joint products from byproducts Explain why joint costs are allocated to individual products Allocate joint costs using four methods Explain why the sales va
2、lue at splitoff method is preferred when allocating joint costs Explain why joint costs are irrelevant in a sell-or-process-further decision Account for byproducts using two methods,Joint Cost Terminology,Joint Costs costs of a single production process that yields multiple products simultaneously S
3、plitoff 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,Example of Joint Cost stituation,Chart of Joint Cost Term
4、inology,Separable Costs,Joint Cost Terminology，conts.,Categories of Joint Process Outputs: Outputs with a positive sales value Outputs with a zero sales value Product any output with a positive sales value, or an output that enables a firm to avoid incurring costs Value can be high or low,Joint Cost
5、 Terminology ，conts.,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.P452(574) Joint Products outputs of a joint production process that yields two or more products with a high sales value compared to
6、 the sales values of any other outputs Byproducts outputs of a joint production process that have low sales values compare to the sales values of the other outputs,Joint Process Flowchart,Reasons for Allocating Joint Costs,Determination of inventoriable costs and cost of goods sold for external fina
7、ncial reporting and income tax determination. Determination of inventoriable costs and cost of goods sold for internal reporting purposes such as division profitability analysis. Cost reimbursement when a company has cost-reimbursement contracts as with a governmental agency.,Joint Cost Allocation M
8、ethods,Physical Measures allocate using tangible attributes of the products, such as pounds, gallons, barrels, etc. Market-Based allocate using market-derived data (dollars): Sales value at splitoff Net Realizable Value (NRV) Constant Gross-Margin percentage NRV,Sales Value at Splitoff Method,Uses t
9、he sales value of the entire production of the accounting period to calculate allocation percentage Ignores inventories,Example p454(576),Joint Cost Illustration Overview,Sales Value at Splitoff Example,Sales Value at Splitoff Example,Physical-Measure Method,Allocates joint costs to joint products o
10、n the basis of the relative weight, volume, or other physical measure at the splitoff point of total production of the products p455(577),Physical-Measure Example p456(578),Physical-Measure Example,Net Realizable Value Method,Allocates joint costs to joint products on the basis of relative NRV of to
11、tal production of the joint products NRV = Final Sales Value Separable Costs,NRV Example p457(579),NRV Example，conts.,NRV Example ，conts.,NRV Example ，conts.,Constant Gross Margin NRV Method,Allocates joint costs to joint products in a way that the overall gross-margin percentage is identical for th
12、e individual products Joint Costs are calculated as a residual amount,Constant Gross Margin NRV Example,Method Selection,If selling price at splitoff is available, use the Sales Value at Splitoff Method.p459(581) If selling price at splitoff is not available, use the NRV Method If simplicity is the
13、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 Flowchart,Sell-or-Process Further Decisions,In Sell-or-Process Further decisions, joint costs are irrelevant. J
14、oint products have been produced, and a prospective decision must be made: p461(583) to sell immediately or process further and sell later Joint Costs are sunk Separable Costs need to be evaluated for relevance individually,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,Byproducts,conts.,Byproducts,conts.,THE END!,
