joint products are outputs from common inputs and a common production process.

Since these costs can be attributed to specific products, you should never set a product price to be at or below the total costs incurred after the split-off point. Otherwise, the company will lose money on every product sold. Allocating joint costs does not help management, since the resulting information is based on essentially arbitrary allocations. Consequently, the best allocation method does not have to be especially accurate, but it should be easy to calculate, and be readily defensible if it is reviewed by an auditor. Identify which of the three joint products Arnold should sell at the splitoff point in the future and which of the three the company should process further to maximize operating income.

joint products are outputs from common inputs and a common production process.

It may also be produced from waste or scrap of materials of a process. It is thus, a secondary or subsidiary product that emerges incidentally from the production of the chief or major product. It may be sold in the condition in which it emerges, or it may be made to undergo further processing to make it marketable. It is equitable joint products are outputs from common inputs and a common production process. to allocate joint costs on the basis of physical weight without consideration of its sale value. Common costs are those costs which are incurred for more than one product, job, territory or any other specific costing object. Common costs are not easily identifiable with individual products and, therefore, are generally apportioned.

Methods of Joint Cost Allocation in Cost Accounting

Summarize the result of accepting the special order in requirement c using the format presented in Figure 7.14 “Summary of Differential Analysis for Tony’s T-Shirts”. Summarize the result of dropping the Murray account using the format presented in Figure 7.12 “Summary of Differential Analysis for Colony Landscape Maintenance”. Summarize the result of dropping the Davis account using the format presented in Figure 7.12 “Summary of Differential Analysis for Colony Landscape Maintenance”. Product Line Decision and Qualitative Factors. The following annual segmented income statement is for Wax, Inc., a maker of wax for cars, boats, and floors. Summarize the result of dropping the tools product line using the format presented in Figure 7.7 “Summary of Differential Analysis for Barbeque Company”.

What are the features of the product?

Product features are things your product has or does. They're the functionality, the attributes, and the capabilities – even the visual characteristics of your product are a feature. They essentially differentiate your product from similar ones on the market and give customers a preview of what they'll get if they buy.

All costs must be calculated per unit of the product. Kenneth W. Boyd has 30 years of experience in accounting and financial services. He is a four-time Dummies book author, a blogger, and a video host on accounting and finance topics. The method relates the benefit of production to the related expenses. Such products need simultaneous standard processing. Management has asked you to look at the numbers for each product line and make a recommendation on how to increase overall company profit.

Horngren’s Cost Accounting

In March, Garden, which had no opening inventory, processed one batch of chemicals. It sold 2,000 gallons of product for human use and 300 gallons of the veterinarian product. Garden uses the net realizable value method for allocating joint production costs. Possible environmental problems, i.e., dumping of waste and smoke from unprocessed coal. It also results in identical cost being assigned to different grades or quantities of products. It cannot be used for setting prices of the products especially in highly competitive market.

Use the following data relating to two chemicals A and B obtained from a joint process and allocate joint costs using each of the above methods. Allocate joint costs to each product using the physical quantities method, and calculate the profit or loss for each product. Allocate joint costs to each product using the physical quantities method , and calculate the profit or loss for each product. This stage is known as ‘split off’ point. The expenditure incurred up to the split off point is called as joint cost and the apportionment of the same to different products is the main objective of the joint product accounting. Some of joint products may require further processing or may be sold directly after the split off point. Cost reimbursement for companies that have a few, but not all, of their products or services reimbursed under cost-plus contracts with, say, a government agency.

Other Related Materials

By-product produced in one period may be sold in the next period. A factory produces three products which originate from a joint process.

  • The management has little or no control over the relative quantities of the various products that will result.
  • By considering number of units produced and weights assigned for each joint product, weighted average cost of each product is found.
  • Examples of joint products include the production of liquid oxygen and nitrogen from air, beef and hides from steers, and gasoline and fuel oil from crude oil.
  • The factory lease has five years remaining and cannot be terminated before then.
  • We are a non-profit group that run this website to share documents.
  • Another spoon of sugar shall be used for Tea.

Number of units produced are 1,500, 1,200 and 1,000 respectively. https://business-accounting.net/ The total joint cost incurred during a period is Rs.4,980.

What Is A Joint Cost And How Is It Usually Allocated Among The Products Produced From Them?

Under this method, estimated profit, selling expenses and further processing cost of the by-product is deducted from the sales value of the by-products to get the joint cost of the by-product. This method helps in accurate apportionment of joint costs over various joint products.