JOINT AND BY-PRODUCT COSTING

ACTIVITY BASED COSTING

BACKFLUSH COSTING
 Two or more products produced
together in a joint process

Joint Common industries that have joint

products: food processing, chemicals,

Products mining, lumber, and petroleum.

These products can be separately

identifiable at the split-off point
 Split-off point is the point of
production where the joint products
can be sold as is or be subject to
further processing

Joint Costs incurred in a joint process are

Products
allocated to the joint products

Sales value at split-off, estimated net

realizable value, physical measures
By-Products
• In contrast to joint products, have little market value
• Joint costs are usually not allocated to a by-product
• By-products are frequently valued at market or net realizable
value
• Accounted for as a contra-production cost, that is reduction in
the joint costs that will be allocated to joint products
• Alternatively, it could be recognized when sold and reflected as
ordinary sales, other income, or contra to cost of sales
 • Allocates overhead costs to
ACTIVITY products based on the resources
consumed by each activity
BASED • Accomplished through assignment
of costs to cost pools that
COSTING represent specific activities
• This may be used in conjunction
(ABC) with either job order or process
costing
 • Activities may be classified as
value-added and non-value-added
ACTIVITY • Value-added activities are
perceived by customers as
BASED increasing the worth of a product
or service that they are willing to
pay
COSTING • Non-value-added activities
increase cost but do not increase
(ABC) its value to customers
• Non-value-added activities may be
eliminated and/or restructured
 • Cost drivers are activities that have a
direct cause and effect relationship to
the incurrence of a particular cost
ACTIVITY • Traditional costing uses variable and
fixed or total overhead cost pools and
BASED views cost driver at output unit level
(labor hours, machine hours, etc.)
• Traditional costing use only volume
COSTING related cost drivers (output unit level)
• ABC uses both transaction related
(ABC) (batch level, process level, facility
level) and volume related cost drivers
(output unit level)
 • Used by companies who are implementing a
just-in-time (JIT) production system
• Backflush costing uses normal or standard

Backflush
costs to work backward or to “flush-out”
the costs of the goods finished or sold
• Backflush costing does not strictly adhere to
Costing generally accepted accounting principles
(GAAP)
• Difference is not often material due to the
negligible amount of inventories that is a
characteristic of a JIT production system