A presentation on joint product and by product costing

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1. A PRESENTATION ON JOINT PRODUCT AND BY-PRODUCT COSTING BY: JYOTISMAN DAS MOHAPATRA CHITTARANJAN PRUSTY DEBASHISH KHOSLA JAYANT BISOI

2. INTRODUCTION It describes the joint production processes and their outputs—joint products and by-products. Several methods are developed to allocate joint costs to joint products. By-products are not usually allocated any of the joint costs. Instead, non cost methods are frequently used to account for by-products. This concludes with the caution that allocated joint costs are not useful for output and pricing decisions. Further processing costs are used in management decision making.

3. JOINT PRODUCT Joint products are two or more products produced simultaneously by the same process . Joint products become separate and identifiable at the split-off point . Joint products (such as butter, cheese, and cream from milk, and fuel oil, gasoline, and kerosene from crude oil) are separately unidentifiable, and incur undifferentiated joint costs, until they reach the split-off point.

4. BY-PRODUCT A by-product is a secondary product derived from a manufacturing process . It is not the primary product or service being produced. A by-product is the 'output from a joint production process that is minor in quantity and/or Net Realisable Value ( NRV ) when compared to the main products'. These are deemed to have no influence on reported financial results, by-products do not receive allocations of joint costs. A by-product can be useful and marketable or it can be considered waste.

5. JOINT & SEPARABLE COST Joint costs are the total of the raw material, labor, and overhead costs incurred up to the initial split-off point . Joint costs can be allocated to the final product only in some arbitrary manner because such costs cannot be traced directly to the products they benefit . Joint cost allocation is much less useful for cost control and managerial decision making . Separable costs are those costs incurred after the split-off point; they can be easily traced to individual products.

6. METHODS OF APPORTIONMENT OF JOINT COST Sale value at split of point Reverse cost method Net realisable value method(NRV) Physical unit method

7. Sale value at split of point The simplest joint product cost allocation method is the sales value at split-off method, whereby you determine the proportion of total revenue that each product coming from a joint production process will generate, and then apportion all joint costs based on the relative proportions of revenue that are to be earned by each product.  if Product A earns $10 and Product B earns $5, then 2/3 of the total joint cost will be allocated to Product A and 1/3 of the total joint cost will be allocated to Product B.

8. Reverse cost method Market value method or Reversal cost method is similar to the last technique (By Product Revenue deducted from Production Cost).  it reduces the manufacturing cost of the main product , not by the actual revenue received.  This estimate must be made prior to split-off from the main product……..  

9. Net realisable value method(NRV)  The  net realizable value , also known as  NRV , is the return that you would expect to get on an item after the item has been sold and the cost of selling that item has been subtracted . Calculating NRV is fairly simple . T ake the selling price of an item and you subtract any costs that you incurred getting that item ready for sale . NRV= Sale value after further processing – further processing cost

10. Physical Units Method of apportionment Therefore, the basic of apportionment is the physical volume of units found at the point of separation. This method is applied if the joint products are capable of being expressed in the some unit of measurement. Moreover, if any loss arising during processing is also apportioned on the same basis. If the units of measurement of joint products are heterogeneous, this method cannot be applied. This method has the assumption of all the joint products equally desirable and valuable.

11. By product costing method Cost method Non-cost method

12. Cost method Opportunity cost/ replacement cost method Standard cost method Joint cost distribution method

13. Non-cost method Miscellaneous or other income method Credit of by-product net sale value to the process account By-product sales deducted from the total cost