Professional Documents
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Joint Costing
Joint Costing
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.