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Lecture 17 - 13112024

This document provides the details of principles related to cost and management accounting

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Hira Shahzad
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38 views9 pages

Lecture 17 - 13112024

This document provides the details of principles related to cost and management accounting

Uploaded by

Hira Shahzad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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COST AND

MANAGEMENT
ACCOUNTING

Lecture 17:
13.11.2024
PROCESS COSTING, JOINT PRODUCTS AND BY-PRODUCTS
Joint products are two or more products separated in a process, each of which has a
significant value compared to the other. A by-product is an incidental product from a
process which has an insignificant value compared to the main product.
The distinguishing feature of a by-product is its relatively low sales value in comparison to
the main product.
Problems in accounting for joint products are basically of two different sorts.
(a) How common costs should be apportioned between products, in order to put a
value to closing inventories and to the cost of sale (and profit) for each product.
(b) Whether it is more profitable to sell a joint product at one stage of processing, or to
process the product further and sell it at a later stage.
PROCESS COSTING, JOINT PRODUCTS AND BY-PRODUCTS
The problem of costing for joint products concerns common costs, that is those common
processing costs shared between the units of eventual output up to their 'split-off point'.
Some method needs to be devised for sharing the common costs between the individual
joint products.
The main methods of apportioning joint costs, each of which can produce significantly
different results are as follows.
• Physical measurement
• Relative sales value apportionment method; sales value at split-off point
With Physical measurement, the common cost is apportioned to the joint products on the
basis of the proportion that the output of each product bears by volume to the total output.
An example of this would be the case where two products, product 1 and product 2, incur
common costs to the point of separation of $3,000 and the output of each product is 600
tons and 1,200 tons respectively.
Product 1 sells for $4 per ton and product 2 for $2 per ton.
The division of the common costs ($3,000) between product 1 and product 2 could be
based on the tonnage of output.

600 tons

1200 tons

Sales
Apportioned Cost
Profit
Common costs: sales value at split-off point:
The relative sales value method is the most widely used method of apportioning joint
costs.
With relative sales value apportionment of common costs, the cost is allocated according to
the product's ability to produce income. The common cost is apportioned to each product in
the proportion that the sales (market) value of that product bears to the sales value of the
total output from the particular processes concerned.

Using the previous example where the sales price per unit is $4 for product 1 and $2 for
product 2.
Sales
Apportioned Cost
Profit
Question:
A company manufactures two joint products, P and R, in a common process. Data for June
are as follows:
$
Opening inventory 1,000
Direct materials added 10,000
Conversion costs 12,000
Closing inventory 3,000
Production Sales Sales price
Units Units $ per unit
P 4,000 5,000 5
R 6,000 5,000 10

1. If costs are apportioned between joint products on a sales value basis, what was the
cost per unit of product R in June? $2.50
2. If costs are apportioned between joint products on a physical unit basis, what was the
total cost of product P production in June? $8000
Question:
A company manufactures two joint products, and one by product, in a single process. Data
for November are as follows:
$
Raw material input 216,000
Conversion costs 72,000
There were no inventories at the beginning or end of the period.
Output Sales price
Units $ per unit
Joint Product E 21,000 15
Joint Product Q 18,000 10
By Product X 2,000 2

By product sales revenue is credited to the process account. Joint costs are apportioned
on a sales value basis. What is the full production costs of product Q in November?
Question:

Two products (W and X) are created from a joint process. Both products can be sold
immediately after split-off. There are no opening inventories or work in progress. The
following information is available for last period.

Total joint production costs is $776,160.

Product Production units Sales units Selling price per unit

W 12,000 10,000 $10


X 10,000 8,000 $12

Using the sales value method of apportioning joint production costs, what was the value of
the closing inventory of product X for last period?
Question:

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