Process costing

Faculty: Zaira Anees

Process costing
• A single product is produced either on a continuous basis or in long
production runs. All units of product are identical.

• Costs are accumulated by department, during an accounting period.

• The department production report is the key document showing the

accumulation and disposition of costs by a department

• Unit costs are computed by department on the department production

report.
• There might be losses in the process (due to evaporation or chemical reaction)
so the quantity of output might therefore be less than the quantity of materials
input. Process costing provides a system of costing that allows for expected
losses in the manufacturing process
• When there is a continuous production process, it is difficult to measure the
quantity of work-in-process (incomplete production) at the end of a financial
period. Process costing provides a method of measuring and costing incomplete
WIP.
• In some processes, more than one product might be output from the same
process. When more than one product is output, they might be called joint
products or a by-product. Process costing offers methods of costing each of the
different products
• In some process manufacturing systems, there is a series of sequential
processes. For example a manufacturing system might consist of three
consecutive processes: raw materials are input to Process 1, then the
output from Process 1 goes onto the next process (Process 2) and the
output from Process 2 then goes into a final process, Process 3. The
output from Process 3 is the final product
Situations where process costing might be
appropriate
• Process costing is used when output is produced in a continuous
process system, and it is difficult to separate individual units of output
• chemicals manufacture
• the manufacture of liquids;
• the continuous manufacture of high volumes of low-cost food items
such as tins of peas or beans, or bottles of tomato ketchup
LOSSES
• Normal loss is the expected loss in processing.
• Abnormal loss: When actual loss exceeds normal loss, there is
abnormal loss
• Abnormal gain: Abnormal gain occurs when the actual loss is less
than normal loss
• Normal losses are valued on scrap per unit.
• Good Output, abnormal loss and abnormal gain all are valued on the
basis of cost per unit of good output.
• Total cost = Direct material + Direct labour + production overheads
• Expected output = input – normal loss
• Scrap from normal loss = quantity of normal loss x scrap per unit
Q1
• 600 tonnes of raw material, costing £430,032, were input to a process
in a period. Conversion costs totaled £119,328. Losses, in the form of
reject product, are normally 12% of input. Reject product is sold for
£260·00 per tonne. 521 tonnes of finished product passed inspection
in the period. The remaining output was sold as reject product.
• There was no work-in-progress either at the beginning or the end of
the period.
• Required:
• Prepare the process account, including any abnormal losses/gains.
• CPU = £1,005 per tonne, valuation of output = £523,605, abnormal loss = £7035
Q2
• Q2) 1,500 kg of raw material, whose price was £18 per kg, were input
to a process in a period. Conversion costs totaled £120,000. Losses, in
the form of reject product, are normally 8% of input. Reject product is
sold for £3 per kg. Actual loss during the process was 100 tonnes.
There was no work-in-progress either at the beginning or the end of
the period.
• Required:
• Prepare the process account, including any abnormal losses/gains.
• CPU = £89.94 per kg, valuation of output = £125,915, abnormal gain = £1,799
Q3
• Details of a process for the last period are as follows:
• Materials 15,000 kg at £2.5 per kg
• Conversion cost was around £12,000
• Normal losses are 10% of input in the process, and can be sold as scrap
for 20c per kg.
• The output for the period was 14,200 kg from the process.
• There was no work in progress at the beginning or end of the period.
• (b) The value of the abnormal loss for the period is ___2551______
• (c) The value of the output for the period is $ ______51751_______
Q4
• Details of the process for the last period are as follows.
• Materials 10,000 kg at £0.50 per kg
• Conversion cost £12,000
• Normal losses are 10% of input in the process, and without further
processing any losses can be sold as scrap for £0.20 per kg.
• The output for the period was 8,400 kg from the process.
• There was no work in progress at the beginning or end of the period.
• The value of the abnormal loss for the period is $__1,120_____ to
the nearest $10.
Q5
• 1,200 tonnes of raw material, costing £30,000, were input to a process in a period.
Conversion costs totaled £36,000. Losses, in the form of reject product, are normally 15% of
input. Reject product is sold for £2.60 per tonne.
• 1,000 tonnes of finished product passed inspection in the period. The remaining output was
sold as reject product. There was no work-in-progress either at the beginning or the end of
the period.
• For the period:
• i) Expected output will be __________ tones (1,020 tonnes)
• ii) Cost per unit of normal output will be _________ per tonne (£64.25)
• iii) Abnormal loss will be ________ tonnes (20 tonnes)
• iv) Total valuation of output will be £__________ (£64247)
• v) Total valuation of abnormal loss will be £__________ (£1285)
Q6
• A company uses process costing to value output. During the last
month the following information was recorded:
• Input 1,500 unit of material at £12.0 per unit
• Conversion cost £50,000
• Normal loss: 300 units which has a scrap value of £4 per unit
• Actual loss: 200 units
• Cost per unit (to two decimal places) will be
• £______55.667_____ per unit
Q7
• R Ltd makes one product, which passes through a single process. Details of the process
account for period 1 were as follows:
• Material cost – 20,000 kg £26,000
• Labour cost £12,000
• Production overhead cost £5,700
• Output 18,800 kg
• Normal losses 5% of input
• There was no work-in-progress at the beginning or end of the period. Process losses
have no value.
• The cost of the abnormal loss (to the nearest £) is
• A £437 B £441 C £460 D £465
Q8
• Costs incurred in a process totalled £84,000 for a period. 30,000 units
of finished product were manufactured, of which 3,600 units were
rejected. This is the normal level of rejects for the process. Rejected
units are sold for £2.00 per unit.
• What was the cost per unit of good output (to the nearest penny)?
• £___2.909_____ per unit
Q9
• Costs incurred in a process totalled £205,000 for a period. 30,500
units of finished product were manufactured including 2,500 units
which were rejected on inspection and disposed of. The level of
rejections in the period was 500 units higher than normal. Rejects are
sold for £2·00 per unit.
• What was the cost per unit for the process?
• £_____7.05______ per unit
Q10
• A company uses process costing to value its output. The following was
recorded for the period:
• Input materials 5,000 units at £4.00 per unit
• Conversion costs £14,000
• Normal loss 5% of input valued at £0.5 per unit
• Actual loss 150 units
• There was no opening or closing stocks.
• What was the valuation of one unit of output to one decimal place?
• £___7.131_______
Q11
• A process costing system for J Co used an input of 3,500kg of
materials at $20 per kg and labour hours of 2,750 at $25 per hour.
Normal loss is 20% and losses can be sold at a scrap value of $5 per
kg. Output was 2,950 kg.
• What is the value of the output?
• A $142,485 B $146,183 C $149,746 D $152,986
Q12 – Answer: 22500
Q13 – Answer: 11.60
Process costing with closing WIP
  Material Conversion cost Total
cost during the period xx xx  
less: scrap from normal loss (xx)    
  xx xx  
     
Equivalent Production Unit (EPU)      
output from process xx xx  
closing WIP xx xx  
abnormal loss / (abnormal gain) xx xx  
EPU xx xx  
       
Cost per EPU (CPU) xx xx xx
       
Valuation      
output from process xx xx xx
closing WIP xx xx xx
abnormal loss / abnormal gain xx xx xx
Equivalent units
• A number of partially complete units is the equivalent of a number of
complete units depending on their degree of completion.
Q14
• Materials material input in the process was valued at $81,600. Labour
and overhead costs $16,848
• Output transferred to finished goods 16,000 kg. Closing work in
progress 1,800 kg
• There were no process losses during the period
• Closing work in progress is 100% complete for material, and 75%
complete for both labour and overheads.
• Required: Prepare process account
Q15
• At the start of the month there was no work-in-progress. During the
month, 300 litres of raw material were input into the process at a
total cost of $6,000. Conversion costs during the month amounted to
$4,500. At the end of the month, 250 litres of Chemical X was
transferred to finished goods inventory. The remaining work-in-
progress was 100% complete with respect to materials and 50%
complete with respect to conversion costs. There were no losses in
the process.
• Prepare process account
 material conv cost total
cost per EPU 6000 4500
EPU
output 250 250
closing WIP 50 25
EPU 300 275
cost per EPU 20 16.36364
Valuation
output 5000 4090.909 9090.909
closing WIP 1000 409.0909 1409.091
 Q16
The incomplete process account relating to period 4 for a company which manufactures paper is shown below:

There was no opening work in process (WIP). Closing WIP, consisting of 700 units, was complete as shown:
Material 100%
Labour 50%
Production overhead 40%
Losses are recognised at the end of the production process and are sold for $1.75 per unit.
60.1 The value of the closing WIP was
A $3,868. B $4,158. C $4,678. D $5,288.
60.2 The total value of the units transferred to finished goods was
A $21,052.50 . B $21,587.50. C $22,122.50. D $22,656.50.
Q17
• A company uses process costing to establish the cost per unit of its
output.
• The following information was available for the last month:
• Input units 9,000
• Output units 7,850
• Closing stock 650 units, 100% complete for materials and
60% complete for conversion costs
• What were the equivalent units for conversion costs?
• __________.
output 7850 7850
closing WIP 650 390
Abnormal loss 500 500
EPU 9000 8740
Q18
• Raw materials costing £12,800 were input to a process during a
period. Conversion costs totalled £18,430. There was no work-in-
progress at the beginning of the period and no process losses during
the period. 3,600 units of the product were completed in the period
with 400 units remaining in the process at the end of the period,
complete for materials and with 70% of the conversion costs applied.
• What was the production cost per unit?
• A £7·81 B £7·95
• C £8·05 D £8·68
Q19
• A company operates a process costing system No losses occur in the process.
• The following data relate to last month:
• Units Degree of completion
• Completed during the month 900
• Closing work in progress 150 48%
• The cost per equivalent unit of production for last month was £12.
• What was the value of the closing work in progress?
• A £816 B £864
• C £936 D £1,800
Q20
• In a process, all materials are added at the start of the process.
• Input in the process 2,500 units
• Output from the process 2,000 units
• Normal loss 200 units
• Closing WIP 300 units (60% complete with respect to labour
cost)
• There was no abnormal loss or abnormal gain in the process
• Equivalent production units of material will be ____2300___ units and
labour will be ____2,180____
Q21
• A process requires the input of a single raw material at the start of the process.
There are no process losses. 10,000 units of the material were input to the process
in a period. At the end of the period, processing was only 75% complete on 800
units of the material. There was no work-in-progress at the beginning of the
period.
• What were the equivalent units of production?
• Raw material Conversion costs
• A 9,400 9,400
• B 9,800 9,800
• C 10,000 9,400
• D 10,000 9,800
Q22
• The following information relates to a production process for a
period:
• Input costs £208,350
• Completed output 12,690 units
• Closing work-in-progress 2,000 units (60% complete)
• There were no process losses or opening work-in-progress.
• What was the cost per unit for the process?
• £________ per unit (£15 per unit)
Q23
• Material transferred from process X 2,000 litres at $4 per litre.
Conversion costs incurred $12,250. Output transferred to finished
goods 1,600 litres. Closing work in progress is fully complete for
material, but is only 50 per cent processed.
• What is the value of the completed output? ______
• What is the value of the closing work in progress? __________
 material conv cost total
cost per EPU 8000 12250
EPU
output 1600 1600
closing WIP 400 200
EPU 2000 1800
cost per EPU 4 6.805556
Valuation
output 6400 10888.89 17288.89
closing WIP 1600 1361.111 2961.111
Q24 (leave this question)
• Following information is available for a production process for the last period:
• Material input 200 kg at $4 per kg
• Labour 100 hours at $15 per hour
• Production overheads $1000
• Transfer to finished goods 150 kg
• Material is added at the start of the process. Normal losses are 10% of input.
Losses are identified when the process is 50% complete. There was no WIP at
the beginning or at the end pf period.
• Calculate cost per completed unit
• A. $22.00B. $20.48C. $19.59D. $18.33
Process costing with Opening WIP –
weighted Average method
Opening WIP with weighted Average Method
  Material Conversion cost Total
cost during the period xx xx  
cost of opening WIP xx xx  
less: scrap from normal loss (xx)    
  xx xx  
     
Equivalent Production Unit (EPU)      
output from process xx xx  
closing WIP xx xx  
abnormal loss / (abnormal gain) xx xx  
EPU xx xx  
       
Cost per EPU (CPU) xx xx xx
       
Valuation      
output from process xx xx xx
closing WIP xx xx xx
abnormal loss / abnormal gain xx xx xx
Process costing with Opening WIP – FIFO
Opening WIP with weighted FIFO method
  Material Conversion cost Total
cost during the period xx xx  
less: scrap from normal loss (xx)    
  xx xx  
     
Equivalent Production Unit (EPU)      
Opening WIP xx xx  
Units started and completed xx xx  
Closing WIP xx xx  
Abnormal loss / (abnormal gain) xx xx  
EPU xx xx  
       
Cost per EPU (CPU) xx xx xx
       
Valuation      
Opening WIP xx xx xx
Units started and completed xx xx xx
Closing WIP xx xx xx
Abnormal loss / (abnormal gain) xx xx xx
 units material conversion
opening WIP 400 100 300
USAC 42100 42100 42100
closing WIP 500 400 150
EPU 42600 42550
Q25
• Following are some details given about a process.
• Opening WIP was 500 units with
• Stage of completion Cost incurred
• Material 100% complete £4,500
• Labour 60% complete £6,000
• Production overheads 60% complete £5,000
• 15,500
• During the period 7,000 units were input in the process costing £70,000. Labour cost was £60,000 and
production overheads are expected to be 120% of labour cost Actual output during the period was 6,700
units.
• Closing WIP was 800 units which was 100% complete with respect to material and 75% complete with respect
to labour and overheads.
• Required: -
• Prepare process account by using weighted average and FIFO
 weighted average method
Material Labour Overheads total
opening WIP 4500 6000 5000
cost during period 70000 60000 72000
cost 74500 66000 77000

EPU
output 6700 6700 6700
closing WIP 800 600 600
EPU 7500 7300 7300

cost per unit 9.933333 9.04109589 10.54794521 29.52237

valuation
output 66553.33 60575.3425 70671.23288 197799.9
closing WIP 7946.667 5424.65753 6328.767123 19700.09

process account
opening WIP 15500 output 197799.9087
DM 70000 closing WIP 19700.09132
DL 60000
overheads 72000

217500 217500
 FIFO
Material Labour Overheads total
cost during period 70000 60000 72000

EPU
OPENING wip 0 200 200
USAC 6200 6200 6200
closing WIP 800 600 600
EPU 7000 7000 7000

cost per unit 10 8.57142857 10.28571429 28.85714286

valuation
opening WIP 0 1714.28571 2057.142857 3771.428571
USAC 62000 53142.8571 63771.42857 178914.2857
closing WIP 8000 5142.85714 6171.428571 19314.28571

process account
opening WIP 15500 output 198185.7143
DM 70000 closing WIP 19314.28571
DL 60000
overheads 72000

217500 217500
q26
• Following are some details given about a process.
• Opening WIP was 1,200 units with
• Stage of completion Cost incurred
• Material 100% complete £14,000
• Conversion cost75% complete £16,000
• £30,000
• During the period 12,000 units were input in the process costing £120,000. Conversion cost amounts
was £180,000.
• Actual output during the period was 11,000 units.
• Closing WIP was 2,200 units which was 100% complete with respect to material and 60% complete with
respect to conversion cost.
• Required: -
• Prepare process account by using FIFO and Weighted average method
 weighted average method
Material Labour total
opening WIP 14000 16000
cost during period 120000 180000
cost 134000 196000

EPU
output 11000 11000
closing WIP 2200 1320
EPU 13200 12320

cost per unit 10.15152 15.9090909 26.06060606

valuation
output 111666.7 175000 286666.6667
closing WIP 22333.33 21000 43333.33333

process account
opening WIP 30000 output 286666.6667
DM 120000 closing WIP 43333.33333
CC 180000

330000 330000
 FIFO
Material CONV. COST total
cost during period 120000 180000

EPU
OPENING wip 0 300
USAC 9800 9800
closing WIP 2200 1320
EPU 12000 11420

cost per unit 10 15.7618214 25.76182137

valuation
opening WIP 0 4728.54641 4728.54641
USAC 98000 154465.849 252465.8494
closing WIP 22000 20805.6042 42805.6042

process account
opening WIP 30000 output 287194.3958
DM 120000 closing WIP 42805.6042
CC 180000

330000 330000
• Production data for four-litre containers of paint:
• Units (containers) in process, April 1: 100% complete as to materials,
• 60% complete as to labour and overhead. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
• Units (containers) started into production during April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420,000
• Units (containers) completed and transferred to the Finishing Department . ……. . . . . . . . . . . . . . . . . . . 370,000
• Units (containers) in process, April 30: 50% complete for materials, 25% complete for conversion cost . . 80,000
• Cost data:
• Work in process inventory, April 1:
• Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,000
• Labour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,000
• Overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,000
• Cost added during April:
• Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$851,000
• Labour. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330,000
• Overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 665,000
• Required: -
• Prepare process account by using FIFO and Weighted average method
• Pg 226: Gerison Chapter 6
 weighted average method
Material Labour OVERHEADS total
opening WIP 92000 21000 37000
cost during period 851000 330000 665000
cost 943000 351000 702000

EPU
output 370000 370000 370000
closing WIP 40000 20000 20000
EPU 410000 390000 390000

cost per unit 2.3 0.9 1.8 5

valuation
output 851000 333000 666000 1850000
closing WIP 92000 18000 36000 146000

process account
opening WIP 150000 output 1850000
DM 851000 closing WIP 146000
CC 995000

1996000 1996000
 FIFO
Material Labour total
cost during period 851000 995000

EPU
OPENING wip 0 12000
USAC 340000 340000
closing WIP 40000 20000
EPU 380000 372000

cost per unit 2.2394737 2.67473118 4.914204867

valuation
opening WIP 0 32096.7742 32096.77419
USAC 761421.05 909408.602 1670829.655
closing WIP 89578.947 53494.6237 143073.571

process account
opening WIP 150000 output 1852926.429
DM 851000 closing WIP 143073.571
CC 995000

1996000 1996000
 weighted average method
Material CC total
opening WIP 76600 34900
cost during period 410000 234500
cost 486600 269400

EPU
output 320000 320000
closing WIP 27000 12000
EPU 347000 332000

cost per unit 1.4023055 0.81144578 2.213751259

valuation
output 448737.75 259662.651 708400.4028
closing WIP 37862.248 9737.3494 47599.59724

process account
opening WIP 111500 output 708400.4028
DM 410000 closing WIP 47599.59724
CC 234500

756000 756000
 FIFO
Material Labour total
cost during period 410000 234500

EPU
OPENING wip 40000 60000
USAC 240000 240000
closing WIP 27000 12000
EPU 307000 312000

cost per unit 1.3355049 0.75160256 2.08710745

valuation
opening WIP 53420.195 45096.1538 98516.34929
USAC 320521.17 180384.615 500905.788
closing WIP 36058.632 9019.23077 45077.86269

process account
opening WIP 111500 output 710922.1373
DM 410000 closing WIP 45077.86269
CC 234500

756000 756000
Prepare process account by using FIFO
and Weighted average method
 weighted average method
Material CC total
opening WIP 45500 25000
cost during period 425500 145000
cost 471000 170000 0

EPU
output 380000 380000
closing WIP 27000 12000
EPU 407000 392000

cost per unit 1.1572482 0.43367347 1.590921627

valuation
output 439754.3 164795.918 0 604550.2181
closing WIP 31245.7 5204.08163 0 36449.78188

process account
opening WIP 70500 output 604550.2181
DM 425500 closing WIP 36449.78188
CC 145000

641000 641000
 FIFO
Material Labour total
cost during period 425500 145000

EPU
OPENING wip 12500 35000
USAC 330000 330000
closing WIP 60000 40000
EPU 402500 405000

cost per unit 1.0571429 0.35802469 1.415167549

valuation
opening WIP 13214.286 12530.8642 25745.14991
USAC 348857.14 118148.148 467005.291
closing WIP 63428.571 14320.9877 77749.55908

process account
opening WIP 70500 output 563250.4409
DM 425500 closing WIP 77749.55908
CC 145000

641000 641000
Q30
• Opening WIP was 4,000 units (£6,500 for material and £8,000 for
conversion cost). Direct material input during the process was 35,000
units costing £280,000. Conversion cost incurred during the period
was £300,000. Output from the process was 33,000 units. Closing WIP
was 6,000units (75% complete for material and 60% complete for
labour and overheads). Calculate cost per unit of completed output
and valuation of closing WIP.

• Since stage of completion of opening WIP is not given in the question,

we cannot apply FIFO. So using Weighted average method
 weighted average method
Material CC total
opening WIP 6500 8000
cost during period 280000 300000
cost 286500 308000 0

EPU
output 33000 33000
closing WIP 4500 3600
EPU 37500 36600

cost per unit 7.64 8.41530055 16.05530055

valuation
output 252120 277704.918 0 529824.918
closing WIP 34380 30295.082 0 64675.08197

process account
opening WIP 14000 output 529824.918
DM 280000 closing WIP 64675.08197
CC 300000

594000 594500
Q31
• A company which operates a process costing system had work-in-
progress at the start of last month of 300 units (valued at $1,710)
which were 60% complete in respect of all costs. Last month a total of
2,000 units were completed and transferred to the finished goods
warehouse. The cost per equivalent unit for costs arising last month
was $10. The company uses the FIFO method of cost allocation. What
was the total value of the 2,000 units transferred to the finished
goods warehouse last month?
• = 1710+(10*0.4*300)+(10*1700) = $19,910
Q32
• A company operates a process costing system using the first-in-first-out (FIFO) system of
valuation. No losses occur in the process. The following data relate to last month:
• Units
• Opening work-in-progress 200 with a total value of £1,530
• Input to the process 1,000
• Completed production 1,040
• Last month the cost per equivalent unit of production was £20 and the degree of
completion of the work-in-progress was 40% throughout the month.
• 55.1 What was the value (at cost) of last month’s closing WIP? $1280
• 55.2 What was the cost of the 1,040 units completed last month?
• =1530+((1040-200)*20)+(200*0.6*20)
Q33
• A company uses FIFO method t value work in progress and output.
The following relates to this procedure for a period:
• WIP Units Degree of completion
• Opening 1000 40%
• Closing 800 30%
• During the period 4,000 units were introduced into the process
• How many units were both started and completed during the period
• A. 4200 units B. 4360 units C. 3960 units D. 3200 units
34
• The following data relates to the manufacture of a liquid for the last
month:
• Input 2000 units at a total cost of £20,160
• Output 1,680 units
• Normal loss 10% of input, with no resale value
• There are no opening and closing inventories
• What is cost per unit of the process output for the last month?
__11.20_______.
 Q35
• The final stage of production adds Material Z to units that have been transferred into Process D and converts them to the finished product. There
are no losses in Process D.
• Data for Process D in the latest period are shown below:
• S Units
• Opening work in progress 225
• Material Z: 80% complete
• Conversion costs: 80% complete
• Units transferred in 500
• Units transferred out 575
• Closing work in progress 150
• Material Z: 60% complete
• Conversion costs: 40% complete
• The equivalent units to be used in the calculations of the cost per equivalent unit for Material Z and Conversion Costs, assuming first-in-first-out
(FIFO) costing are:
• Material Z Conversion costs
• A 485 455
• B 485 500
• C 575 455
• D 575 500
JOINT AND BY PRODUCT
• Joint products are two or more products separated in a process, each
of which has a significant value compared to the other and are
desirable from the process
• These products incur undifferentiated joint costs until a split off
point, after which each product incurs separate processing. Prior to
the split-off point, costs can only be allocated to the joint products.
• There are three methods on the basis of which joint costs can be
distributed among joint products
• Physical output method
• Sales revenue method
• Net realizable value method
By-product
• A by-product is an incidental product from a process which has an insignificant
value compared to the main product.
• A by-product is a supplementary or secondary product (arising as the result of a
process) whose value is small relative to that of the principal product.

• Proceedings of by product are either to process account or credited to sales

revenue account
• 1. If its credited to sales revenue account, no adjustment will be made in joint cost
• 2. If its credited to process account, adjustment will be made in joint cost
• Adjusted cost = joint cost – scrap proceedings from by product
Q25
Q26
Q27
• A company manufactures Products A and B jointly in a single operation. The following information
relates to the most recent period:
• A Kg Costs (£)
• Raw material input 120,000 432,000
• Conversion costs 348,000
• Output
• – Product A 72,000
• – Product B 48,000
• Product A is sold for £8.60 per kg. Product B can be sold for £7.80 per kg
• REQUIRED:
• If company uses physical output method for valuation of its joint product then cost attributable to
product A will be £_____________
• If company uses sales revenue method for valuation of its joint product then cost per unit of product B
will be £_____________ £6.12
 28

Products A and B are manufactured in a joint process. The following data is available for a period:
Joint process costs £30,000
Output:
Product A 2,000 kg
Product B 4,000 kg
Selling price:
Product A £12 per kg
Product B £18 per kg
What is Product B’s share of the joint process costs if the sales value method of cost apportionment is used?
A £7,500 B £18,000 C £20,000 D £22,500
Q29
• A process produces two joint products, X and Y, with selling prices of
$10 per litre and $20 per litre respectively. In a period, joint costs
were $56,000 and finished output was:
• Product X 5,000 litres
• Product Y 2,000 litres
• The sales value method is used to apportion joint costs.
• What amount of joint costs should be apportioned to Product Y?
________________
Q30
• 47. Consider the following two descriptions:
• (1) A product which is incidental to the main purpose of a process
• (2) A product which has an insignificant value relative to other
products from a process
• Do the above describe a by-product?
• Description (1) _______________
• Description (2) _______________
Q31
Q32
• Joint costs $42,000
• Output
• Product Quantity Estimated Estimated future
•S selling price cost
•X 1,000 $20 $5
•Y 1,000 $25 $7
•Z 500 $12 0
• Distribute Joint cost on the basis of NRV