Joint product and by product costing

Presentation on joint product and by product costing

2. Prepared By:
Muhammad Usman

Cost Allocation:
Joint product and
By-Product Costing

3. •This chapter 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, no cost methods are
frequently used to account for by-
products.

CHAPTER SUMMARY

4. JOINT PRODUCTS:
When two are more products are produced from the same basic raw material
and are of almost equivalent value, it is known as joint product.
EXAMPLE:
In refining of crude oil, both petrol and diesel is obtained.

By PRODUCTS:
By product are incidental products resulting from the processing of another
product.
EXAMPLE:
In processing of sugarcane both sugar and molasses is obtained











JOINT PRODUCTS AND BY-PRODUCTS
Sales Value Low
Main Products
Joint Products
High
By Products

5. JOINT PRODUCTS AND BY-PRODUCTS
•A by-product has a relatively low sales value compared
with the sales value of a joint or main product.
Revenue from byproducts generally reduces the costs of the
joint products.


•Some outputs of the joint production process have zero
sales value.
No journal entries are made to record the processing of such
outputs with zero sales value.

6. Joint costing
When by a process more than one product is produced, the
material and conversion cost incurred prior to split of stage is know
as joint cost.








•SPLIT OFF POINT
Split-off point is the juncture in the process when separate
identifiable products emerge.
•SEPARABLE COST
Separable costs are costs incurred beyond the split-off point
and are assignable to separate products.

WHAT IS JOINT COSTING

Joint
Costs

Product A

Separable
Costs A

Product B

Separable
Costs B

Split-off
Point

7. Why Allocate Joint Costs?
Allocate joint costs to products for:
•inventory costing and cost of goods sold
calculations.
•cost reimbursement under contracts
•customer profitability analysis
•insurance settlement computations
•rate regulation situations

8. METHODS OF APPORTIONMENT OF JOINT COST

There are the five methods of apportionment of joint cost:

•Sale Value at split off point

•Reverse cost method

•Net realizable value method(NRV)

•Physical unit method

•Contribution margin method

9. What does this method mean:
If the product would not have been further processed
and sold at split of stage then the sale value it would
have realized would from the basis for apportionment
of joint cost.
For example:
Crude oil sold out in the market before further
process of refining.

Sale value at split off method

10. •A method of allocating the joint cost of joint
product on basis of estimated profit if there is not
given the value of sale at split of point.
For example:

Sale - profit - admin and selling expense = total factory
cost - cost of single product produced
REVERSE COST MEHTOD

11. •Allocates joint costs to joint products on the basis of
relative NRV of total production of the joint products
For Example:
NRV = Final Sales Value – Separable Costs

NET REALIZE VALUE METHOD (NRV)

12. •Allocates joint costs to joint products on the basis of the
relative weight, volume, or other physical measure at the
split off point of total production of the products





•Allocates joint costs to joint products in a way that the
overall gross-margin percentage is identical for the
individual products.
•Joint costs are calculated as a residual amount.

PHYSICAL UINT METHOD
CONSTANT GROSS MARGIN METHOD

13. •To calculate the cost of joint product is difficult but
with the help these method the apportionment of
joint cost can be made, the most suitable method
for the apportionment of joint cost is,
Net Realize Value Method(NRV).
CONCLUSION

14. Thank you
very much