CHAPTER 16

Cost Allocation:
Joint Products and Byproducts

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© 2012 Pearson Prentice Hall. All rights reserved.
 Joint-Cost Basics

Joint costs Joint products

By product Split off point

Separable costs
2009 Foster School of
Business Cost © 2012 Pearson Prentice Hall. All rights reserved. 2
Accounting L.DuCharme
 Joint Cost Terminology

Joint costs—costs of a single production process that

yields multiple products simultaneously

Split off point—the place in a joint production

process where two or more products become
separately identifiable
Separable costs—all costs incurred beyond the
splitoff point that are assignable to each of the now-
identifiable specific products
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 Joint-Cost Basics

Coal

Gas Benzyl Tar

(ex: BBG) (ex: industri kimia) (ex: industri properti)

2009 Foster School of

Business Cost © 2012 Pearson Prentice Hall. All rights reserved. 4
Accounting L.DuCharme
 CRU
DE
OIL

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 Joint Cost Terminology
Categories of
joint process
outputs:

Outputs with a
Outputs with a
positive sales
zero sales value
value

Product—any output with a positive sales value, or

an output that enables a firm to avoid incurring costs

 Value can be high or low

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 Joint Cost Terminology

Joint products—
Main product—output
outputs of a joint Byproducts—outputs of
of a joint production
production process that a joint production
process that yields one
yields two or more process that have low
product with a high
products with a high sales values compare to
sales value compared
sales value compared the sales values of the
to the sales values of
to the sales values of other outputs
the other outputs
any other outputs

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 Joint Products and Byproducts

Main Products
Byproducts
Joint Products

High Low

Sales Value
2009 Foster School of
Business Cost © 2012 Pearson Prentice Hall. All rights reserved. 8
Accounting L.DuCharme
Examples of Joint Cost Situations

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Joint Process Overview

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 Reasons for Allocating Joint Costs

Computation
of
inventoriable
Required for Internal
costs and cost Required for
GAAP and analysis of Cost-based Insurance
of goods sold rate and price Litigation
taxation divisional contracting settlements
for financial regulations
purposes profitability
accounting
and tax
reporting

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Joint Cost Allocation Methods
Sales value at splitoff

Market-based—allocate using
Net realizable value (NRV)
market-derived data (dollars):

Constant gross-margin percentage

NRV

measures—allocate using tangible

Physical attributes of the products, such as
pounds, gallons, barrels, and so on

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Joint Cost Illustration Overview

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Joint Cost Illustration Data

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 Physical-Measure Method
• Allocates joint costs to joint products on the
basis of the relative weight, volume, or other
physical measure at the splitoff point of total
production of the products

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Physical Measures Illustration

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 Sales Value at Splitoff Method

Ignores inventories

Uses the sales value

of the entire
production of the
accounting period to
calculate allocation
percentage

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Sales Value at Splitoff Illustration

Cost per gallon

Gross Margin

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 Net Realizable Value Method

NRV = Final Sales

Value – Separable
Allocates joint costs Costs
to joint products on
the basis of relative
NRV of total
production of the
joint products

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Joint Cost Illustration Overview

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Net Realizable Value Method Overview

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Net Realizable Value Method Illustrated

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 Cost per gallon

Gross Margin

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Constant Gross Margin NRV Method

Joint costs are

calculated as a
residual amount.
Allocates joint costs
to joint products in a
way that the overall
gross-margin
percentage is
identical for the
individual products.
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Constant Gross Margin
Find:NRV
Gross Illustrated
Margin
Percentage

Joint costs
allocated

Gross Margin

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 Method Selection

If simplicity is the
primary
If selling price at If selling price at consideration, Despite this, some
splitoff is available, splitoff is not physical-measures firms choose not to
use the sales value available, use the method or the allocate joint costs
at splitoff method. NRV method. constant gross- at all.
margin method
could be used.

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 Sell-or-Process Further Decisions

In sell-or-process further decisions, joint costs are irrelevant. Joint products have been produced,
and a prospective decision must be made: to sell immediately or process further and sell later.

Joint costs are sunk costs.

Don’t assume all separable costs in joint-cost allocations are always incremental costs.

Some separable costs may be fixed costs.

Separable costs need to be evaluated for relevance individually .

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Sell-or-Process Further Flowchart

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 Byproducts

Two methods for

accounting for byproducts

Sales method—recognizes
Production method—
no byproduct inventory,
recognizes byproduct
and recognizes only sales
inventory as it is created,
at the time of sales:
and sales and costs at the
byproduct costs are not
time of sale
tracked separately

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Byproducts Illustration Overview
DM: $150,000 CC: $100,00

Main
Product

By
Product

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Comparative Income Statements for
Accounting for Byproducts

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 Production Method: Byproducts Recognized at Time
Production Is Completed

Mencatat
inventory
1.DM,
2. CC
3. FG main
product & FG
by product

Mencatat:
4a. COGS main
product
4b. Sales main
product
5. Sales by
product

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Sales Method: Byproducts Recognized at
Time of Sale
Record:
inventory
1.DM,
2. CC
3. FG main
product

Record:
4a. COGS main
product
4b. Sales main
product
5. Sales by
product

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 End of chapter 16

Smg menjadi ilmu yg bermanfaat

^__^

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© 2012 Pearson Prentice Hall. All rights reserved.
• Exercise: 16-18 & 16-24
• Homework: 16-19 & 16-25

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