Professional Documents
Culture Documents
Allocation of Joint Costs
Allocation of Joint Costs
Allocation of Joint Costs
and Byproducts
Chapter 16
Separable costs
Raw milk
Coal
Main Products
Joint Products Byproducts
High Low
Sales Value
Approach 1: Approach 2:
Market based Physical measure
10,000 units of A at a
selling price of $10 = $100,000
Joint processing
cost is $200,000
10,500 units of B at a
selling price of $30 = $315,000
11,500 units of C at a
selling price of $20 = $230,00 Splitoff point
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 16 - 13
Allocating Joint Costs Example
A B C Total
Sales Value $100,000 $315,000 $230,000 $645,000
Allocation of
Joint Cost
100 645 31,008
315 645 97,674
230 645 71,318
200,000
Gross margin $ 68,992 $217,326 $158,682 $445,000
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 16 - 14
Sales Value at Splitoff
Method Example
Product A:
($75,000 $ 23,256) $75,000 = 69%
Product B:
($315,000 $97,674) $315,000 = 69%
Product C:
($230,000 $71,318) $230,000 = 69%
To A1:
85 575 $200,000 = $29,565
To B1:
300 575 $200,000 = $104,348
To C1:
190 575 $200,000 = $66,087
Step 3:
Deduct the expected separable costs from the
total costs to obtain the joint-cost allocation.
Step 1:
Compute the overall gross-margin percentage.
Expected final sales value $708,000
Deduct joint and separable costs 333,000
Gross margin $375,000
Gross margin percentage:
$375,000 $708,000 = 52.966%
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 16 - 26
Constant Gross-Margin
Percentage NRV Method
Step 2:
Deduct the gross margin.
Sales Gross Cost of
Value Margin Goods sold
Product A1: $120,000 $ 63,559 $ 56,441
Product B1: 346,500 183,527 162,973
Product C1: 241,500 127,913 113,587
Total $708,000 $375,000 $333,000
($1 rounding)
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 16 - 27
Constant Gross-Margin
Percentage NRV Method
Step 3:
Deduct separable costs.
Cost of Separable Joint costs
goods sold costs allocated
Product A1: $ 56,441 $ 35,000 $ 21,441
Product B1: 162,973 46,500 116,473
Product C1: 113,587 51,500 62,087
Total $333,000 $133,000 $200,000
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 16 - 28
Approach 2: Physical
Measure Method Example
It uses a
It is simple.
meaningful basis.
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 16 - 31
Choosing a Method
Method A:
The production method recognizes byproducts
at the time their production is completed.
Method B:
The sale method delays recognition of
byproducts until the time of their sale.