EXERCISE 4

JOINT AND BY-PRODUCT COSTING

1. Clay Sdn. Bhd. produces vases for plants in three sizes. The production manager is
considering processing them further by adding specific decorative finishes. The relevant
information is as follows:

Product Units Additional Final sales value per vase

processing cost (RM)
(RM)
Medium 25 000 27 000 14.00
Small 50 000 120 000 15.00
Large 16 000 43 000 25.00

The joint costs for Clay Sdn. Bhd. products is RM250 000. There is 5% normal loss
when the decorative finishes are applied and placed in the oven for glazing.

Required:
(a) Prepare the profit or loss for Clay Sdn. Bhd. when the joint cost is allocated using
net realizable value.

(b) Explain the accounting treatment of by-products.

1
 SOLUTION

By-product net revenues should be deducted from the cost of the joint production process prior
to allocating these costs to the individual joint products. The accounting treatment of by-products
was illustrated with the data presented in Example 6.4.

Product Sales value Further Estimated Joint cost Profit / (loss)

RM RM NRV allocation
RM RM RM
Medium 25 000 X 95% 27 000 305 500 305 500/1 235 000 243 658
23 750 x 14 x 250 000
=332 500 = 61 842
Small 47 500 x 15 120 000 592 500 592 500/1 235 000 472 561
=712 500 x 250 000
=119 939
Large 15 200 x 25 43 000 337 000 337 000/1 235 000 268 781
=380 000 x 250 000
=68 219
1 235 000