Joint Cost Allocation Methods
Physical Measures – allocate using tangible attributes of the products, such as pounds, gallons, barrels, etc.
Market-Based – allocate using market-derived data (dollars):
CHAPTER 16
Cost Allocation: Joint Products and Byproducts
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 value at splitoff method is preferred
Sales value at splitoff Net Realizable Value (NRV) Constant Gross-Margin percentage NRV
Sales Value at Splitoff Method
Uses the sales value of the entire production of the accounting period to calculate allocation percentage
Determination of inventoriable costs and cost of goods sold for internal reporting purposes such as division profitability analysis.
Cost reimbursement when a company has costreimbursement contracts as with a governmental agency.
Joint Products – outputs of a joint production process that yields two or more products with a high sales value compared to the sales values of any other outputs
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Chart of Joint Cost Terminology
Separable Costs
Joint Cost Terminology，conts.
Categories of Joint Process Outputs:
Outputs with a positive sales value Outputs with a zero sales value
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)
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 Terminology ，conts.
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
Splitoff Point – the place in a joint production process where two or more products become separately identifiable
Reasons for Allocating Joint Costs
Determination of inventoriable costs and cost of goods sold for external financial reporting and income tax determination.
Separable Costs – all costs incurred beyond the splitoff point that are assignable to each of the nowidentifiable specific products
Example of Joint Cost stituation
Byproducts – outputs of a joint production process that have low sales values compare to the sales values of the other outputs
Joint Process Flowchart