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Joint Product and By-Product Costing.


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Joint Product and By-Product Costing. Prepared by Douglas Cloud Pepperdine University. Objectives. 1. Identify the characteristics of the joint production process. 2. Allocate joint product costs according to the benefits-received approaches and the relative market value approaches.
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Joint Product and By-Product Costing Prepared by Douglas Cloud Pepperdine University

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Objectives 1. Recognize the qualities of the joint generation process. 2. Assign joint item costs as indicated by the advantages got approaches and the relative business sector esteem approaches. 3. Describe techniques for representing by-items. In the wake of considering this part, you ought to have the capacity to: Continued

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Objectives 4. Clarify why joint cost allotments might misdirect in administration basic leadership. 5. Examine why joint generation is from time to time found in administration businesses.

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Joint Production Process Pork Meat Material: Hog Processing Hides Split-Off Point

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Independent Multiple-Product Production Mustang Processing Material: Steel Taurus Processing

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Joint Production Process Joint items are two or more items delivered at the same time by the same procedure up to a "split-off" point. The split-off point is the time when the joint items get to be partitioned and identifiable. Distinct expenses are effectively followed to individual items and offer no specific issue.

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The qualification amongst joint and by-items lays exclusively on the relative significance of their business esteem. A by-item is an optional item recuperated over the span of assembling an essential item.

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By-items can be portrayed by their relationship to the fundamental items in the accompanying way: By-item coming about because of scrap, trimmings, et cetera, of the primary items in basically nonjoint item sorts of endeavors (e.g., fabric trimmings from garments pieces). Scrap and other deposit from basically joint item sorts of procedures (e.g., fat trimmed from meat bodies). A minor joint item circumstance (natural product skins and trimmings utilized as creature food).

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Examples of Joint Products and By-Products Industry Joint Products and By-Products Agriculture and Food Industries: Flour milling Patent flour, clear flour, bran, and wheat germ Extractive Industries: Copper mining Copper, gold, silver, and other metals Chemical Industries: Soap making Soap and glycerine Manufacturing: Cement Concrete pipe and total

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Accounting For Joint Product Costs Benefits-Received Approaches Physical Units Method Weighted Average Method Allocation Based on Relative Market Value Sales-Value-at-Split-Off-Method Net Realizable Value Method

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Accounting For Joint Product Costs Physical Units Method A sawmill forms sign into four evaluations of wood totaling 3,000,000 board feet as takes after: Percent Joint Cost Grades Board Feet of Units Allocation First and second 450,000 0.15 $ 27,900 No. 1 common 1,200,000 0.40 74,400 No. 2 common 600,000 0.20 37,200 No. 3 common 750,000 0.25 46,500 Totals 3,000,000 $186,000

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Accounting For Joint Product Costs Number Weight Weighted No. Designated Grades of Cases Factor of Cases Percent Joint Cost Fancy 100 1.30 130 0.21667 $1,083 Choice 120 1.10 132 0.22000 1,100 Standard 303 1.00 303 0.50500 2,525 Pie 70 0.50 35 0.05833 292 Totals 600 $5,000 Weighed Average Method A peach canning production line buys $5,000 of peaches and grades and jars them by quality. The accompanying information relates to this operation:

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Accounting For Joint Product Costs Sales-Value-at-Split-Off Method Using the timber plant case from prior - Price at Percent Quantity Split-Off Sales of Total Allocated Produced (per 1,000 Value at Market Joint Grades (board ft.) board ft.) Split-Off Value Cost First and second 450,000 $300 $135,000 0.2699 $ 50,201 No. 1 common 1,200,000 200 240,000 0.4799 89,261 No. 2 common 600,000 121 72,600 0.1452 27,007 No. 3 common 750,000 70 52,500 0.1050 19,530 Totals 3,000,000 $500,100 $185,999 * *Rounding blunder

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Accounting For Joint Product Costs Net Realizable Value Method An organization fabricates two items, Alpha and Beta, from a joint procedure. One generation run costs $5,750 and brings about 1,000 gallons of Alpha and 3,000 gallons of Beta. Neither one of the products is marketable at the split-off point, yet should be further handled. The distinguishable expense for Alpha is $1 per gallon and for Beta is $2 per gallon. Further Hypothetical Allocated Market Processing Market Number Market Joint Price Cost Price of Units Value Cost Alpha $5 $1 $4 1,000 $ 4,000 $2,300 Beta 4 2 2 3,000 6,000 3,450 $10,000 $5,750

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Accounting For Joint Product Costs Alpha Beta Eventual business sector value $ 5,000 $12,000 Less: Gross edge at 25% of business sector value 1,250 3,000 Cost of merchandise sold $ 3,750 $ 9,000 Less: Separable costs 1,000 6,000 Allocated joint costs $2,750 $ 3,000 Constant Gross Margin Percentage Method Percent Revenue ($5 x 1,000) + ($4 x 3,000) $17,000 100 % Costs [$5,750 + ($1 x 1,000) + ($2 x 3,000)] 12,750 75 % Gross margin $ 4,250 25 %

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Accounting For Joint Product Costs Sales-to-Production Ratio Method Sales-to-% of % of Production Costs Assigned Product Total Sales Production Ratio Percent Sales/Production A 10 10 1.0000 19.9338 % $ 199,338 B 20 15 1.3333 26.5778 % 265,778 C 15 25 0.6000 11.9603 % 119,603 D 40 30 1.3333 26.5778 % 265,778 E 15 20 0.7500 14.9504 % 149,504 100 100 5.0166 100.001 % $1,000,001 * adjusting mistake

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Accounting for By-Product Costs By-item income likewise can be dealt with as a derivation from the expense of the fundamental item. One plausibility is to show net offers of by-items in the "Other Income" area of the salary explanation.

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Effect of Joint Product Costs on Cost Control and Decision Making It is vital to comprehend when the utilization of assigned joint item expenses might delude. In settling on choices with respect to mutually created articles, it must be recalled that the items are essentially delivered together. A few ranges that can be influenced by joint cost allotments are: Output choices Further handling of joint items Pricing together delivered items

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End of Chapter