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Cost Allocation: Joint Products and Byproducts
Cost Allocation: Joint Products and Byproducts
and Byproducts
Chapter 16
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Learning Objective 1
Identify the splitoff point(s)
in a joint-cost situation.
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Joint-Cost Basics
Joint costs
Joint products
Byproduct
Splitoff point
Separable costs
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Joint-Cost Basics
Raw milk
Cream
Liquid
Skim
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Joint-Cost Basics
Coal
Gas
Benzyl
Tar
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Learning Objective 2
Distinguish joint products
from byproducts.
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Byproducts
High
Low
Sales Value
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Learning Objective 3
Explain why joint costs should be
allocated to individual products.
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Learning Objective 4
Allocate joint costs using
four different methods.
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Approaches to Allocating
Joint Costs
Two basic ways to allocate
joint costs to products are:
Approach 1:
Market based
Approach 2:
Physical measure
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Joint processing
cost is $200,000
Splitoff point
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A
$100,000
B
$315,000
C
$230,000
Total
$645,000
31,008
97,674
71,318
$217,326
$158,682
200,000
$445,000
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$75,000
23,256
$51,744
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B1: $46,500
C1: $51,500
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A1
B1
C1
Total
Allocated
joint costs
$ 29,565
104,348
66,087
$200,000
Separable
costs
$ 35,000
46,500
51,500
$133,000
Inventory
costs
$ 64,565
150,848
117,587
$333,000
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Constant Gross-Margin
Percentage NRV Method
This method entails three steps:
Step 1:
Compute the overall gross-margin percentage.
Step 2:
Use the overall gross-margin percentage
and deduct the gross margin from the
final sales values to obtain the total
costs that each product should bear.
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Constant Gross-Margin
Percentage NRV Method
Step 3:
Deduct the expected separable costs from the
total costs to obtain the joint-cost allocation.
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Constant Gross-Margin
Percentage NRV Method
What is the expected final sales value of total
production during the accounting period?
Product A1:
$120,000
Product B1:
346,500
Product C1:
241,500
Total
$708,000
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Constant Gross-Margin
Percentage NRV Method
Step 1:
Compute the overall gross-margin percentage.
Expected final sales value
$708,000
Deduct joint and separable costs
333,000
Gross margin
$375,000
Gross margin percentage:
$375,000 $708,000 = 52.966%
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Constant Gross-Margin
Percentage NRV Method
Step 2:
Deduct the gross margin.
Sales
Gross
Cost of
Value
Margin Goods sold
Product A1: $120,000 $ 63,559 $ 56,441
Product B1: 346,500 183,527 162,973
Product C1: 241,500 127,913 113,587
Total
$708,000 $375,000 $333,000
($1 rounding)
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Constant Gross-Margin
Percentage NRV Method
Step 3:
Deduct separable costs.
Cost of Separable Joint costs
goods sold
costs
allocated
Product A1: $ 56,441 $ 35,000 $ 21,441
Product B1: 162,973
46,500 116,473
Product C1: 113,587
51,500
62,087
Total
$333,000 $133,000 $200,000
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
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Approach 2: Physical
Measure Method Example
$200,000 joint cost
20,000
pounds A
48,000
pounds B
12,000
pounds C
Product A
$50,000
Product B
$120,000
Product C
$30,000
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Learning Objective 5
Explain why the sales value at
splitoff method is preferred
when allocating joint costs.
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Choosing a Method
Why is the sales value at splitoff method widely used?
It measures the value
of the joint product
immediately.
It uses a
meaningful basis.
It is simple.
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Choosing a Method
The purpose of the joint-cost allocation is
important in choosing the allocation method.
The physical-measure method is a more
appropriate method to use in rate regulation.
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Learning Objective 6
Explain why joint costs
are irrelevant in a
sell-or-process-further decision.
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Learning Objective 7
Account for byproducts
using two different methods.
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$9,000
400
1,720
$6,880
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$10,400
300
$10,700
$ 7,200
$ 3,200
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End of Chapter 16
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