JOINT COST

ALLOCATION
(Illustrative Problems)

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Problem 1 (Joint Cost Allocation Methods)
JBP Company produces three products: A, B, and C from the same process. Joint costs for this production run are P32,500.
POUNDS SALES PRICE DISPOSAL COST FURTHER FINAL
PER LB. AT PER LB. AT PROCESSING SALES PRICE
SPLIT-OFF SPLIT-OFF PER POUND PER POUND
A 800 P6.50 P3.00 P2.00 P7.50
B 1,100 8.25 4.20 3.00 10.00
C 1,500 8.00 4.00 3.50 10.50
If the products are processed further, JBP will incur the following disposal costs upon sale: A, P3.00; B, P2.00; and C, P1.00.
1. Using a physical measurement method, what amount of joint processing cost is allocated to Product A?
2. Using sales value at split-off, what amount of joint processing cost is allocated to Product B?
3. Using net realizable value at split-off, what amount of joint processing cost is allocated to Product C?
4. Using the approximated NRV method, what amount of joint processing cost is allocated to Product B?

SOLUTIONS:

1. PHYSICAL MEASUREMENT METHOD

Total Physical Measurement Allocation Base (pounds) = 800 + 1,100 + 1,500 = P3,400

Joint Cost Allocated to Product A = 800  3,400 x P32,500 = P7,647

2. SALES VALUE AT SPLIT-OFF METHOD

- only if all products can be sold at split-off
- only if disposal costs are not significant in amount
- compare SP at split-off with disposal cost at split-off
- this method can be used only if there will be a net positive amount for all products
- allocation base computations should be monetary amounts using SP at split-off

PRODUCT ALLOCATION ALLOCATION ALLOCATION ALLOCATED

(SP AT S.O.) BASE JOINT COST
A (800 x P6.50) P 5,200
B (1,100 x P8.25) 9,075 P9,075  P26,275 x P32,500 P11,225
C (1,500 x P8) 12,000
TOTAL P 26,275

3. NRV AT SPLIT-OFF METHOD

NRV AT SPLIT-OFF = SP at Split-Off – Disposal Cost at Split-Off

PRODUCT ALLOCATION ALLOCATION ALLOCATION ALLOCATED

(NRV AT S.O.) BASE JOINT COST
A 800 x (P6.50 – P3.00) P 2,800
B 1,100 x (P8.25 – P4.20) 4,455
C 1,500 x (P8.00 – P4.00) 6,000 P6,000  P13,255 x P32,500 P14,711
TOTAL P 13,255

4. APPROXIMATED NRV / ESTIMATED NRV / HYPOTHETICAL NRV METHOD

- used if at least one product can be sold after the split-off point
- a decision has to be made whether to sell the product at split-off or process further the product

NRV AFTER SPLIT-OFF = Final SP – Further Processing Cost – Disposal Costs Upon Sale

PRODUCT NRV AT SPLIT-OFF NRV AFTER SPLIT-OFF DECISION

(SELL AT SPLIT-OFF) (PROCESS FURTHER)
A (P6.50 – P3.00) P3.50 (P 7.50 – P2.00 – P3.00) P2.50 SELL AT SPLIT-OFF
B (P8.25 – P4.20) P4.05 (P10.00 – P3.00 – P2.00) P5.00 PROCESS FURTHER
C (P8.00 – P4.00) P4.00 (P10.50 – P3.50 – P1.00) P6.00 PROCESS FURTHER

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 PRODUCT ALLOCATION ALLOCATION ALLOCATED
(APPROXIMATED NRV) BASE JOINT COST
A 800 x P3.50 P 2,800
B 1,100 x P5.00 5,500 P5,500  P17,300 x P32,500 P10,332
C 1,500 x P6.00 9,000
TOTAL P 17,300

Problem 2 (Computation of Total Cost)

The RST Company processes tomatoes into catsup, juice, and canned tomatoes. During the summer of 20Y1, the joint cost of processing the tomatoes were
P420,000. There was no beginning or ending inventories for the summer. Production and sales volume information for the summer were as follows:

PRODUCT CASES SALES VALUE AT SEPARABLE SELLING

SPLIT-OFF POINT COSTS PRICE
Catsup 100,000 P6 per case P3 per case P28 per case
Juice 150,000 8 per case 5 per case 25 per case
Canned 200,000 5 per case 2.50 per case 10 per case

Compute the cost per case for CATSUP, JUICE, and CANNED TOMATOES.

Assume the use of the ESTIMATED NET REALIZABLE VALUE METHOD.

SOLUTIONS:

PRODUCT NRV AT SPLIT-OFF NRV AFTER SPLIT-OFF DECISION

(SELL AT SPLIT-OFF) (PROCESS FURTHER)
CATSUP P6.00 (P28.00 – P3.00) P25.00 PROCESS FURTHER
JUICE P8.00 (P25.00 – P5.00) P20.00 PROCESS FURTHER
CANNED P5.00 (P10.00 – P2.50) P 7.50 PROCESS FURTHER

PRODUCT ALLOCATION ALLOCATION ALLOCATED

(APPROXIMATED NRV) BASE JOINT COST

CATSUP 100,000 x P25.00 P2,500,000 P2,500,000  P7,000,000 x P420,000 P150,000

JUICE 150,000 x P20.00 3,000,000 P3,000,000  P7,000,000 x P420,000 P180,000
CANNED 200,000 x P 7.50 1,500,000 P1,500,000  P7,000,000 x P420,000 P90,000
TOTAL P7,000,000

PRODUCT ALLOCATED FURTHER TOTAL TOTAL COST

JOINT COST PROCESSING COST COST PER CASE

CATSUP P150,000 (100,000 x P3.00) P300,000 P450,000  100,000 cases P4.50

JUICE P180,000 (150,000 x P5.00) P750,000 P930,000  150,000 cases P6.20
CANNED P 90,000 (200,000 x P2.50) P500,000 P590,000  200,000 cases P2.95

Problem 3 (RPCPA)

JKLM Company buys Article G for P0.80 per unit. At the end of processing in Department 1, Article G split into products D, E, and F. Product D is sold at split-off
with no further processing. E and F require further processing before they can be sold. E is processed in Department 2 and F is processed in Department 3. The
following is a summary of costs and other related data for the year ended July 30, 20Y1.

COST OF ARTICLE G DEPT 1 DEPT 2 DEPT 3

Direct Materials P144,000 - -
P180,000
Direct Labor 21,000 Joint Cost P67,500 P99,000
Further Processing Cost
P97,500 P171,000
Further Processing Cost
Factory Overhead 15,000 31,500 73,500

PRODUCT D PRODUCT E PRODUCT F

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Units sold 30,000 45,000
units produced
45,000 45,000
units
67,500 90,000
units
Units on hand at July 30, 20Y1 15,000 - produced 22,500 produced
Sales P45,000 P144,000 P212,625

JKLM used the ESTIMATED NET REALIZABLE VALUE METHOD to allocate joint cost.

1. The market value of Product D to be used for purposes of allocating joint costs is _____
2. The cost of Products E sold for the year ended July 30, 20Y1 is _____
3. The cost of ending inventory for Product D is _____
4. The cost of ending inventory for Product F is _____

SOLUTIONS:

COMPUTATION OF ALLOCATION BASE – always based on units produced in the joint process

PRODUCT D
ALLOCATION BASE
Selling Price per unit (P45,000 sales amount  30,000 units sold) P1.50
Further Processing Cost --
NRV P1.50 x 45,000 units produced P67,500 (1)

PRODUCT E
ALLOCATION BASE
Selling Price per unit (P144,000 sales amount  45,000 units sold) P3.20
Further Processing Cost (P99,000  45,000 units produced) (2.20)
NRV P1.00 x 45,000 units produced P45,000

PRODUCT F
ALLOCATION BASE
Selling Price per unit (P212,625 sales amount  67,500 units sold) P3.15
Further Processing Cost (P171,000  90,000 units produced) (1.90)
NRV P1.25 x 90,000 units produced P112,500

TOTAL ALLOCATION BASE P225,000

COMPUTATION OF TOTAL COST

PRODUCT ALLOCATION ALLOCATED FURTHER TOTAL TOTAL

JOINT COST PROCESSING COST COST PER
COST UNIT

D P 67,500  P225,000 x P180,000 P54,000 -- P 54,000  45,000 prod P1.20

E P 45,000  P225,000 x P180,000 P36,000 P 99,000 P135,000 (2)  45,000 prod P3.00
F P112,500  P225,000 x P180,000 P90,000 P171,000 P261,000  90,000 prod P2.90

ENDING INVENTORY

Product D 15,000 units x P1.20 total cost per unit P18,000 (3)

Product F 22,500 units x P2.90 total cost per unit P65,250 (4)

1. The market value of Product D to be used for purposes of allocating joint costs is _____ P67,500
2. The cost of Products E sold for the year ended July 30, 20Y1 is _____ P135,000
3. The cost of ending inventory for Product D is _____ P18,000
4. The cost of ending inventory for Product F is _____ P65,250

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