Ch 9 Joint-process Costing

7/28/2019 Ch 9 Joint-process Costing

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Joint processes

Process that converts a single input intomultiple outputs

Common

input

Intermediateproduct

Intermediateproduct

Finalproduct

Intermediateproduct

Finalproduct

Finalproduct

Finalproduct



Joint processes

Split-off point

Input splits into two or more products

Intermediate productProduct that requires more processing before it

can be sold

Final product

Product that is ready for sale



Joint processes

By-product

Minor product resulting from the process

Has some value, can be sold

ScrapNot really a “product”

Has possible minor value

Recycling

WasteNo value

May incur cost to dispose of it



Joint processes

Joint costCost to operate the process

Further processing cost

Cost incurred beyond the split-off point

Benefits a particular product

Sell as-is or process further?

incremental revenue vs. incremental cost



Allocation of joint costs

Once incurred, joint costs are sunk costs

Why allocate them to resulting products?

Inventory valuation

Contracts

Casualty loss estimation

Etc.

Performance measurement

Only allocated to main products



Allocation of joint costs

Allocation methods

Net realizable value method

Allocated proportionately to products based ontheir final sales value minus further processingcosts, if any

Physical measures method

Allocated proportionately based on some physicalmeasure of the products

Weight, volume, length, etc.



Joint cost allocation example

Himshey Chocolate Company producesbulk chocolate which can be sold as is, or processed into bars and “smooches”

Joint costs, including cocoa beans, milk,sugar, etc. are $1,200,000 to produce1,000,000 pounds of chocolate




Output100,000 pounds of bulk chocolate

600,000 pounds of bars

300,000 pounds of “smooches” 10,000 pounds of cocoa bean shells

Further processing costs and selling pricesBulk chocolate: $5,000; $150,000

Bars: $60,000; $800,000Smooches: $45,000; $900,000

Shells: $500; $1,000




Net realizable value method

Bulk chocolate Bars Smooches TotalSales revenue 150,000$ 800,000$ 900,000$ 1,850,000$

Further processing costs 5,000 60,000 45,000 110,000 Net realizable value atsplit-off 145,000$ 740,000$ 855,000$ 1,740,000$

Percent of total netrealizable value 8.33% 42.53% 49.14% 100.00%

Allocation of joint costs 100,000 510,345 589,655 1,200,000$Gross margin 45,000$ 229,655$ 265,345$ 540,000$




Physical measures method

Bulk chocolate Bars Smooches TotalPounds of output 100,000 600,000 300,000 1,000,000

Percent of total weight 10.00% 60.00% 30.00% 100.00% Allocation of joint costs 120,000$ 720,000$ 360,000$ 1,200,000$

Sales revenue 150,000$ 800,000$ 900,000$ 1,850,000$ Allocation of joint costs 120,000 720,000 360,000 1,200,000$

Further processing costs 5,000 60,000 45,000 110,000 Gross margin 25,000$ 20,000$ 495,000$ 540,000$



Accounting for by-products

Minimal value, so accounting is notcomplex

Method 1: Treat NRV of by-product as other revenue

Method 2: Treat NRV of by-product as areduction of the cost of the main products

Allocate the cost reduction on the same basis aswas used to allocate joint costs



Accounting for scrap and waste

Scrap

NRV is usually negative

Disposal cost is usually greater than the sales value

NRV is an overhead cost or part of joint costs

If NRV is positive, treat as by-product

WasteNo sales value

Disposal cost is overhead or part of joint costs

Ch 9 Joint-process Costing

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