Cost Allocation:
Joint Products & Byproducts
Prepared by:
Dahlia Sari / Evony Silvino / Nureni Wijayati / Adela
Pravita / Celine Cecilia
Terakreditasi:
Anggota dari:
Menyiapkan Pemimpin Inklusif, Relevan & Bereputasi
the costs of a single production process that https://www.youtube.com/watch?v
yields multiple products simultaneously =gx--7aGr8Eg
Split-off point
Joint cost Separable cost
the costs of a single production process that all costs (manufacturing, marketing, distribution, etc.) incurred beyond
yields multiple products simultaneously the splitoff point that are assignable to one or more individual products.
Further
processing
Beef Cut Corned Beef
Joint Input Joint Production Further
Process processing
Beef Ribs Frozen Beef Ribs
Split-off point
Joint cost Separable cost
Joint Products products that have relatively high
sales value at the splitoff point
Further
processing
Beef Cut Corned Beef
Joint Input Joint Production Further
Process processing
Beef Ribs Frozen Beef Ribs
Illustrations
Split-off point
Joint cost Separable cost
Further
processing
Beef Cut Corned Beef
Joint costs: Price = $100/kg Price = $200/units
Beg. inv = 0 Separable
$500,000 Production = 7,500 kg
Beg. inv = 0
Production = 10,000 units
Trf. out = 7,500 kg costs: Sales = 8,000 units
Sales = 5,000 kg $500,000 End. inv = 2,000 units
End. inv = 2,500 kg
Further
processing
Beef Ribs Frozen Beef Ribs
Joint Input Joint Production
Process Price = $50/kg Price = $150/units
Beg. inv = 0 Separable Beg. inv = 0
Production = 2,500 kg Production = 2,000 units
Trf. out = 2,500 kg costs:
Sales = 1,750 units
Sales = 2,000 kg $100,000 End. inv = 250 units
End. inv = 500 kg
For inventory costing for
Reimbursement under contracts
financial accounting purposes
Why
Allocate
Joint
Cost?
For inventory costing for
Rate regulation
internal accounting purposes
Approaches to Allocate Joint Cost
Approach 1: Approach 2:
Physical measure Market based
Estimated Net-
Physical-units Sales value at Constant Gross-
realizable-value
method split-off method margin percentage
method
“Allocation based on the
Allocation based on a Allocation based on the
“Allocation based on final overall gross-margin
physical measure of the relative values of the
sales values less separable percentage that is identical
joint products at the split-off products at the split-off
processing costs.” for each of the individual
point. point.
products.”
Split-off point
Joint cost Separable cost
Further
processing
Beef Cut Corned Beef
Joint costs: 75% Production: Price = $200/units
$500,000 7,500 kg Separable Beg. inv = 0
Production = 10,000 units
costs: Sales = 8,000 units
Joint costs allocated:
$375,000 $500,000 End. inv = 2,000 units
Further
25% processing
Beef Ribs Frozen Beef Ribs
Joint Input Joint Production
Process Production: Price = $150/units
2,500 kg Separable Beg. inv = 0
costs: Production = 2,000 units
Joint costs allocated: Sales = 1,750 units
$250,000 End. inv = 250 units
$125,000
Approach 1: Physical Measures
Approach 1I: Sales Value at Splitoff
Split-off point
Joint cost Separable cost
Further
processing
Beef Cut Corned Beef
Joint costs: 86% Sales Value: Price = $200/units
$500,000 7,500 kg x $100 Separable Beg. inv = 0
= $750,000 costs: Production = 10,000 units
Sales = 8,000 units
Joint costs allocated: $500,000 End. inv = 2,000 units
$428.571
Further
14% processing
Beef Ribs Frozen Beef Ribs
Joint Input Joint Production
Process Sales Value:
Price = $150/units
2,500 kg x $50 Separable Beg. inv = 0
= $125.000 Production = 2,000 units
costs:
Sales = 1,750 units
Joint costs allocated: $250,000 End. inv = 250 units
$71.429
Approach 1I: Sales Value at Splitoff
Approach 1I: Net-realizable-value Method
Split-off point
Joint cost Separable cost
Further
processing
Beef Cut Corned Beef
Joint costs: 88% NRV: Sales Value:
$500,000 $2,000,000 - $500,000 Separable 10,000 units x $200
= $1.500.000 costs: =$2,000,000
Joint costs allocated: $500,000
$441.176
Further
12% processing
Beef Ribs Frozen Beef Ribs
Joint Input Joint Production
Process NRV:
Sales Value:
$300,000 - $100,000 Separable 2,000 units x $150
= $200,000 costs: =$300,000
Joint costs allocated: $100,000
$58.824
Approach 1I: Net-realizable-value Method
Approach 1I: Constant Gross-Margin Method
Split-off point
Joint cost Separable cost
Further
processing
Beef Cut Corned Beef
Joint costs: Production costs:
$500,000 Joint costs allocated: Separable $2,000,000 -
$956.522 - $500,000 costs: 52,17% x $2,000,000
= $456.522 $500,000 = $956.522
Further
processing
Beef Ribs Frozen Beef Ribs
Joint Input Joint Production
Process
Joint costs allocated: Separable Production costs:
$143.478 - $100,000 $300.000 -
costs: 52,17% x $300.000
= $43.478 $100,000 = $143.478
Approach 1I: Constant Gross-Margin Method
Approach 1I: Constant Gross-Margin Method
Accounting for Byproducts
Split-off point
Joint cost Price = $10/kg
Beg. inv = 0
Production = 51,250 kg
Sales = 42,250 kg
End. inv = 9,000 kg
Chicken Meat
Byproducts
Joint Input Joint Production Price = $2/kg
(Chicken) Process
Beg. inv = 0
Production = 5,250 kg
Direct materials = $225,000 Sales = 1,700 kg
Conversion costs = $125,000 End. inv = 3,550 kg
Chicken Skin
relatively low value or quantity when
compared to major products
Production Sales
Method Method
Revenue
Main product: Chicken Meat (42,250 kg x $10 per kg) $422,500 $422,500
Byproduct: Chicken Skin (1,700 kg x $2 per kg) ----- 3,400
Total revenues 422,500 425,900
Cost of goods solds:
Total manufacturing costs ($225,000 + $125,000) 350,000 350,000
Deduct byproduct revenue and inventory (5,250 kg x $2 per kg) (10,500) -----
Net manufacturing costs 339,500 350,000
Deduct main-product inventory (59,620)¹ (61,463)²
Cost of goods sold 279,880 288,537
Gross margin $142,620 $137,363
Gross-margin percentage ($142,620 ÷ $422,500; $137,363 ÷ $425,900) 33.76% 32.25%
Inventoriable costs (end of period):
Main product: Chicken Meat $59,620 $61,463
Byproduct: Chicken Skin (3,550 kg. x $2 per kg)³ 7,100 0
¹(9,000 ÷ 51,250) x net manufacturing cost = (9,000 ÷ 51,250) x $339,500 = $59,620
²(9,000 ÷ 51,250) x total manufacturing cost = (9,000 ÷ 51,250) x $350,000 = $61,463
³Recorded at selling prices.
Journal Entries
Production method Sales method
Dr. Work in Process
Direct materials
225,000
purchased and used in
Cr. Accounts Payable
production
225,000
Dr. Work in Process
Conversion costs used
125,000
in the production
Cr. Various accounts
process
125,000
Dr. Byproduct Inventory—Chicken Skin 10,5001
Dr. Finished Goods—Chicken Meat 350,000
Dr. Finished Goods—Chicken Meat 339,5002 Cost of goods
Cr. Work in Process
Cr. Work in Process completed
350,000
350,0003
Dr. Cash or Accounts Receivable 422,5004
Sale of main products
Cr. Revenues—Chicken Meat 422,500
Dr. Cost of Goods Sold 279,8805 Dr. Cost of Goods Sold 288,5376 Cost of goods sold
Cr. Finished Goods—Chicken Meat 279,880 Cr. Finished Goods—Chicken Meat 288,537 (main product)
Dr. Cash or Accounts Receivable 3,4007
Dr. Cash or Accounts Receivable 3,400
Cr. Byproduct Inventory—Chicken Skin Sale of byproducts
Cr. Revenue—Chicken Skin 3,400
3,400
1 5,250 kg x $2 per kg = $10,500
2 $350,000 - $10,500 = $339,500
3 225,000+$125,000 = $350,000
4 42,250 kg x $10 per kg = $422,500
5 (42,250 kg. ÷ 51,250 kg) x $339,500 = $279,880
6 (42,250 kg. ÷ 51,250 kg) x $350,000 = $288,537
7 1,700 kg x $2 per kg = $3,400
EXERCISE 1
The Green Company processes unprocessed goat milk up to the split-off point where two products, condensed goat
milk and skim goat milk result. The following information was collected for the month of October:
Direct Materials processed: 103,000 gallons (after shrinkage)
Production: Condensed goat milk 45,000 gallons
Skim goat milk 58,000 gallons
Sales: Condensed goat milk $3.00 per gallon
Skim goat milk $2.50 per gallon
The costs of purchasing the of unprocessed goat milk and processing it up to the split-off point to yield a total of
103,000 gallons of saleable product was $186,480. There were no inventory balances of either product. Condensed
goat milk may be processed further to yield 44,500 gallons (the remainder is shrinkage) of a medicinal milk product,
Xyla, for an additional processing cost of $7 per usable gallon. Xyla can be sold for $25 per gallon.
Skim goat milk can be processed further to yield 56,700 gallons of skim goat ice cream, for an additional processing
cost per usable gallon of $7. The product can be sold for $12 per gallon.
There are no beginning and ending inventory balances.
Should Green produce and sell skim milk ice cream from goats rather than goat skim milk? Why?
Allocate joint processing costs based upon the relative sales value at the split-off point. (Round intermediary
percentages to the nearest hundredth.)
Condensed Goat Milk Skim Goat Milk
Revenues 45,000 × $3.00 = $135,000 58,000 × $2.50 = $145,000
$135,000 / $280,000 = $145,000 / $280,000=
Percentage
0.4821 0.5179
$186,480 × .0.4821 = $186,480 × .0.5179 =
Joint costs
$89,910 $96,570
Gross margin $45,090 $48,430
GM percentage $45,090 / $135,000 = 0.334 $48,430 / $145,000 = 0.334
Xyla Ice Cream
44,500 × $25 = 56,700 × $12 =
Revenue
$1,112,500 $680,400
Joint cost (89,910) (96,570)
($7 × $44,500) = ($7 × 56,700) =
Process costs
(311,500) (396,900)
Revenue (net) 711,090 186,930
Gross margin (45,090) (48,430)
Difference $666,000 $138,500
EXERCISE 2
The Kenton Company processes unprocessed milk to produce two products, Butter Cream
and Condensed Milk. The following information was collected for the month of June:
Direct Materials processed: 24,500 gallons (after shrinkage)
Production: Butter Cream 12,000 gallons
Condensed Milk 12,500 gallons
Sales: Butter Cream 11,500 gallons
Condensed Milk 12,000 gallons
Sales Price: Butter Cream $3.50 per gallon
Condensed Milk $7.50 per gallon
Separable costs in
total: Butter Cream $14,000
Condensed Milk $34,700
The cost of purchasing the of unprocessed milk and processing it up to the split-off point to
yield a total of 24,500 gallons of saleable product was $55,000.
The company uses constant gross-margin percentage NRV method to allocate the joint costs
of production. What is the constant gross-margin percent for Kenton?
Total
Total final sales value (12,000 × $3.50) + (12,500 × $7.50) $135,750
Total production costs ($55,000 + $14,000 + $34,700) 103,700
Gross margin $32,050
Gross margin % 23.6%
SELF-STUDY
PROBLEM 17-38 Joint-cost allocation with a
byproduct
THANK YOU
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