Accounting for Joint Products and By-Products

Sell as is or Process further?

- Inremental revenue = Final sales value – SV at split-off point
- Incremental revenue > incremental cost (process further)
- Incremental revenue < incremental cost (sell as is)
- Incremental revenue = incremental cost (either process further or sell as is, because
either way will have the same profit)

If there are additional processing costs, total mfg. cost = total joint costs + additional processing
costs
If no additional processing costs, total mfg. cost = total joint costs

Net realizable value method

- Joint cost is residual (JC = TC – APC)
- NRV = Final sales value – Add’l Processing Cost (Incremental cost) – Cost to sell
(distribution, etc)

By-products

a. Production method / Net realizable value method

- recognizes by-product in the FS at the time the production is completed
- Joint cost to be allocated = JC – Proceeds of by-products

b. Sales method / Realizable value method

- recognizes no by-product inventory, and recognizes only at the time of sales
- Joint costs to be allocated will be the same (not affected)
- Simple and is often used

Disposal cost
- Negative (loss) - addition to joint costs
- Positive – deduction to joint cost