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Joint Products and By-Products: de Leon/ de Leon/ de Leon

- Joint production yields two or more products simultaneously from the same raw materials, incurring joint costs that are allocated to the products. - Joint products are the primary objective of production and have relatively high sales value, while by-products have lower sales value and are not the primary objective. - Accounting methods to allocate joint costs include physical units, net realizable value, and relative sales value.

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May Grethel Joy Perante
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494 views17 pages

Joint Products and By-Products: de Leon/ de Leon/ de Leon

- Joint production yields two or more products simultaneously from the same raw materials, incurring joint costs that are allocated to the products. - Joint products are the primary objective of production and have relatively high sales value, while by-products have lower sales value and are not the primary objective. - Accounting methods to allocate joint costs include physical units, net realizable value, and relative sales value.

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May Grethel Joy Perante
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JOINT PRODUCTS AND

BY-PRODUCTS

DE LEON/ DE LEON/ DE LEON


JOINT PRODUCTION

• IS A PRODUCTION PROCESS THAT YIELDS TWO OR MORE PRODUCTS


SIMULTANEOUSLY FROM THE SAME RAW MATERIALS.
• CAN YIELD JOINT PRODUCTS AND BY-PRODUCTS.
• INCURS JOINT COST; CONSISTING OF DIRECT MATERIALS, DIRECT
LABOR AND FACTORY OVERHEAD WHICH IS NOT SPECIFICALLY
IDENTIFIABLE WITH ANY OF THE PRODUCTS BEING SIMULTANEOUSLY
PRODUCED
JOINT PRODUCTS AND BY-PRODUCTS
JOINT PRODUCTS BY PRODUCTS

❑ The products must be the ❑ The product is not the primary


primary objective of the objective of the manufacturing
manufacturing operations. operations.

❑ Sales value must be relatively ❑ Sales value of the by-product is


high if compared with the comparatively low as compared
products resulting at the same with the sales value of the main
time period. product.
ACCOUNTING METHODS FOR
MAIN PRODUCTS

❑PHYSICAL OUTPUT METHOD/ AVERAGE UNIT COST METHOD


❑MARKET VALUE AT SPLIT-OFF METHOD
❑NRV METHOD (APPROXIMATED MARKET VALUE AT SPLIT-OFF)
PROBLEM # 1
1.
PROD U.P. MV/ Unit Total MV JT Cost
A 500 40 20,000 8,000
B 300 60 18,000 7,200
C 200 35 7,000 2,800
1,000 45,000 18,000
18,000/ 45,000 = 40%
2.
PROD U.P. JT Cost
A 500 9,000
B 300 5,400
C 200 3,600
1,000 18,000
18,000/ 1,000 = 18
PROBLEM # 1
3. Points Total
PROD U.P. Assigned Points JT Cost
A 500 5 2,500 7,500
B 300 9 2,700 8,100
C 200 4 800 2,400
1,000 6,000 18,000
18,000/ 6,000 = 3
4. Weight per Total
PROD U.P. Unit Weight JT Cost
A 500 4 2,000 6,000
B 300 10 3,000 9,000
C 200 5 1,000 3,000
1,000 6,000 18,000
18,000/ 6,000 = 3
PROBLEM # 2
1.
PROD U.P. JT Cost APC Total Cost
A 13,200 66,000 19,800 85,800
B 8,800 44,000 15,000 59,000
C 4,400 22,000 11,000 33,000
26,400 132,000 45,800 177,800
132,000/ 26,400= 5

2. Total
PROD Total SV JT Cost APC Cost
A 88,000 52,800 19,800 72,600
B 77,000 46,200 15,000 61,200
C 55,000 33,000 11,000 44,000
220,000 132,000 45,800 177,800
132,000/ 220,000= 0.60
PROBLEM # 3 Sales- (JC + APC)= GP
Sales- JC – APC = GP
Sales – APC – JC = GP
(Sales – APC) – JC = GP
NRV- JC = GP

PROD SALES APC NRV % JT Cost GP


A 115,000 30,000 85,000 80% 68,000 17,000
B 10,000 6,000 4,000 80% 3,200 800
C 4,000 4,000 80% 3,200 800
D 30,000 1,000 29,000 80% 23,200 5,800
159,000 37,000 122,000 97,600 24,400

97,600/ 122,000= 80%


PROD U.P. USP TSP JT Cost GP
A 500,000 0.15 75,000 65,946 9,054
B 10,000 0.50 5,000 4,396 604
C 5,000 0.80 4,000 3,517 483
D 9,000 3.00 27,000 23,741 3,259
524,000 111,000 97,600 13,400
PROBLEM # 4

Total Unit
PROD U.P. USP TSP APC NRV JT Cost Cost Cost
M 1,500 10 15,000 3,000 12,000 8,400 11,400 7.60
N 2,500 12 30,000 2,000 28,000 19,600 21,600 8.64
O 1,000 15 15,000 5,000 10,000 7,000 12,000 12.00
5,000 60,000 10,000 50,000 35,000 45,000

Actual Cost of Inventory


PROD Sales Sales Gross Profit Value
M 12,000 9,120 2,880 (300*7.60) 2,280
N 24,000 17,280 6,720 (500*8.64) 4,320
O 12,000 9,600 2,400 (200*12) 2,400
48,000 36,000 12,000 9,000

35,000/50,000= .70
ACCOUNTING FOR BY-PRODUCT

CATEGORY 1: in which by-products are recognized when sold.


The net revenue may be presented on the income statement as:
❑ Other income
❑ Additional sales revenue
❑ A deduction from the cost of goods sold of the main product
ACCOUNTING FOR BY-PRODUCT
CATEGORY2: in which by-products are recognized when produced.
Shown on the I/S as a deduction from the total production cost

1. Net realizable value method – under this method, the


expected sales value of the by-product produced is reduced by
the expected additional processing costs and marketing and
administrative expenses.

1. Reversal cost method – under this method, the expected value


of the by-product produced is reduced by the expected
additional processing costs, selling and administrative expenses
and normal gross profit of the by-product.
PROBLEM # 5
Total Joint Production Cost P 204,000
Less:NRV of by-Products:
Est. SP(6*2,000) 12,000
Less:
APC (2*2,000) 4,000
EXP (1*2,000) 2,000
NPM (1*2,000) 2,000 8,000 4,000
net joint cost allocated to main
products P 200,000

Allocated using the NRV-M NRV


X 8,000 * (20-5) 120,000 80,000
Y 10,000 *(25-7) 180,000 120,000
TOTAL NRV 300,000 200,000
MULTIPLE CHOICE
1. C
Joint
PROD U.P. SP Total MV APC NRV Cost
A 8,500 6 51,000 10,200 40,800 22,440
B 9,700 5 48,500 19,400 29,100 16,005
C 6,900 4 27,600 6,900 20,700 11,385
90,600 49,830
49,830/ 90,600= 0.55

2. B
Product A Product B Product C
Share in the joint cost 22,440 16,005 11,385
Cost after split-off 10,200 19,400 6,900
Total cost 32,640 35,405 18,285
3.A
Product A Product B Product C
Total cost 32,640 35,405 18,285
Divide by units produced 8,500 9,700 6,900
Cost per unit 3.84 3.65 2.65
Multiply by units sold 8,400 9,700 6,400
Cost of sales 32,256 35,405 16,960

4. B

Cost Per Unit 49,830/ 25,100 = P 1.985


5. A

PROD KGS SV/KG Total SV JT Cost


A 4,000 11 44,000 22,880
B 3,000 10 30,000 15,600
C 1,000 26 26,000 13,520
100,000 52,000
Rate 52,000/ 100,000= 0.52
6. B Cost/kg= 22,880/4,000 = 5.72

1. PROD Sales Value APC NRV JT Cost


A 245,000 200,000 45,000 30,000
B 30,000 30,000 20,000
C 175,000 100,000 75,000 50,000
150,000 100,000
100,000/ 150,000= 2/3
Joint Cost 100,000
NRV of By- Product 30,000
7. C Remaining Joint Cost 70,000

PROD Sales Value APC NRV JT Cost


A 245,000 200,000 45,000 26,250
C 175,000 100,000 75,000 43,750
120,000 70,000
(45,000/ 120,000) * 70,000= 26,250
(75,000/ 120,000) * 70,000= 43,750

8. B
A 300,000 lbs. /500,000 x 100,000= 60,000
B 100,000 lbs.
C 100,000 lbs.
500,000 lbs.
9. C

Total Sales ( 245,000 + 30,000 + 175,000) 450,000


Less: Joint Cost (Need Not Be Allocated) 100,000
Additional Processing Cost 300,000 400,000
Net Income 50,000

10. C

PROD Sales Value APC NRV JT Cost


A 9,000 3,000 6,000 4,400
B 6,000 3,000 3,000 2,200
9,000 6,600
(6,000/ 9,000) * 6,600= 4,400
(3,000/ 9,000) * 6,600= 2,200

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