Copyright © 2015 Pearson Education, Inc. All Rights Reserved. Cost Allocation: Joint Products and Byproducts.

Slides:



Advertisements
Similar presentations
Cost Allocation: Joint Products and By-products
Advertisements

© 2009 Pearson Prentice Hall. All rights reserved. Cost Allocation: Joint Products and Byproducts.
Cost Allocation: Joint Products and Byproducts
© John Wiley & Sons, 2005 Chapter 9: Joint Product and By-Product Costing Eldenburg & Wolcott’s Cost Management, 1eSlide # 1 Cost Management Measuring,
Management Accounting ACCT 481 Michael Dimond. Michael Dimond School of Business Administration Managing & Allocating Costs Pricing Decisions Cost Management.
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Chapter 23 1.
Copyright © 2003 Pearson Education Canada Inc. Slide Chapter 15 Cost Allocation: Joint Products and Byproducts.
© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 21-1 INCREMENTAL ANALYSIS Chapter 21.
McGraw-Hill/Irwin Copyright 2006 by The McGraw-Hill Companies, Inc.
Cost Allocation: Service Department Costs and Joint Product Costs
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Chapter Seven.
Contrôle Interne Avancé-HEC Lausanne- 2007/ Thème 5 Cost Allocation: Joint Products and Byproducts.
Chapter 9 Joint Product and By-Product Costing Key Topics: –Joint processes and common costs Main products and byproducts –Allocation methods –Choosing.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Constant Gross-Margin Percentage NRV Method Step 2: Deduct.
Cost Allocation: Joint Products and Byproducts
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Cost Allocation: Joint Products and Byproducts Horngren, Foster &
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Cost Allocation: Joint Products and Byproducts Chapter 16.
Cost Allocation: Joint Products and Byproducts Chapter 16.
Hilton Maher Selto 9 Joint-Process Costing McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
2009 Foster School of Business Cost Accounting L.DuCharme 1 Cost Allocation: Joint Products and Byproducts Chapter 16.
Copyright © 2015 Pearson Education, Inc. All Rights Reserved. Spoilage, Rework, and Scrap.
16-1 Cost-Volume-Profit Analysis The Break Even Point and Target Profit in Units and Sales Revenue 1 Fundamental concept underlying CVP  All.
McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Thirteen Short-Run Decision Making: Relevant Costing COPYRIGHT © 2012 Nelson Education Ltd.
Accounting for losses and scrap in process account
Lecture 26 Joint Product Costing Details. Cost Allocation: Joint Products and By-products.
Managerial Accounting by James Jiambalvo
IE 475 Advanced Manufacturing Costing Techniques
ACCT 2302 Fundamentals of Accounting II Spring 2011 Lecture 19 Professor Jeff Yu.
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 9 Joint-Process Costing.
Copyright ©2008 Prentice Hall. All rights reserved 2-1 Building Blocks of Managerial Accounting Chapter 2.
Cost Management ACCOUNTING AND CONTROL
Lecture 30. Physical Measure Method Allocates joint costs to joint products on the basis of the relative weight, volume, or other physical measure at.
Cost Allocation: Practices Chapter Eight McGraw-Hill/Irwin Accounting for Decision Making and Control, 5/e © 2006 The McGraw-Hill Companies, Inc.,
Cost Allocation: Joint Products and By-products ACCT7320 Dr. Bailey Tuesday, February 17, 2009.
Cost Allocation: Joint Products and By-products Chapter 15.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Cost Allocation: Joint Products and Byproducts.
CHAPTER 16 Cost Allocation: Joint Products and Byproducts.
Lecture 29 Estimated Net Realizable Value (NRV) Method.
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.
The Islamic University –Gaza
Cost Allocation: Joint Products and By-products
Cost Accounting Traditions and Innovations Barfield, Raiborn, Kinney Chapter 9 Cost Allocation for Joint Products and By-Products.
Service Department and Joint Cost Allocation
Joint Products. Joint products are main products that are results form manufacturing operations in which companies produce two or more products of significant.
The Islamic University –Gaza
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license.
Cost Allocation: Joint Products and Byproducts
Joint Product and By-Product Costing Key Topics: –Allocation methods –Choosing a method –Using joint cost allocation information Decisions to process further.
IES 342 Industrial Cost Analysis & Control | Dr. Karndee Prichanont, SIIT 1 Cost Allocation: Service Departments & Joint Product Costs Chapter 12 Objectives:
Management and Cost Accounting, 6 th edition, ISBN © 2004 Colin Drury MANAGEMENT AND COST ACCOUNTING SIXTH EDITION COLIN DRURY.
Chapter 9 Joint Product and By-Product Costing Key Topics: –Joint processes and common costs Main products and byproducts –Allocation methods –Choosing.
CHAPTER 9: JOINT PRODUCT AND BY- PRODUCT COSTING Cost Management, Canadian Edition © John Wiley & Sons, 2009 Chapter 9: Joint Product and By-Product Costing.
Chapter 10 Service Department and Joint Cost Allocation.
The McGraw-Hill Companies, Inc. 2006McGraw-Hill/Irwin 9 Joint-Process Costing McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Joint-Process Costing
Cost Allocation: Joint Products and Byproducts
Cost Allocation : Joint Products and Byproducts
Hilton • Maher • Selto.
Cost Allocation: Practices
Cost Allocation: Joint Products and Byproducts
Cost Allocation: Joint Products and Byproducts
Cost Allocation: Joint Products and Byproducts
Service Department and Joint Cost Allocation
GLENCOE / McGraw-Hill.
Cost Allocation: Joint Products and Byproducts
Cost Allocation: Joint Products and Byproducts
Chapter 16 Joint Costs.
Joint and by-product costing
Cost Allocation: Joint Products and Byproducts
Presentation transcript:

Copyright © 2015 Pearson Education, Inc. All Rights Reserved. Cost Allocation: Joint Products and Byproducts

Copyright © 2015 Pearson Education, Inc. All Rights Reserved. 1. Identify the split-off point in a joint-cost situation and distinguish joint products from byproducts 2. Explain why joint costs are allocated to individual products 3. Allocate joint costs using four methods 4. Identify situations where the sales value at splitoff method is preferred when allocating joint costs 16-2

Copyright © 2015 Pearson Education, Inc. All Rights Reserved. 5. Explain why joint costs are irrelevant in a sell-or-process further decision 6. Account for byproducts using two methods 16-3

Copyright © 2015 Pearson Education, Inc. All Rights Reserved.  Joint costs—the costs of a production process that yields multiple products simultaneously.  Splitoff point—the juncture 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 specific products identified at the splitoff point. 16-4

Copyright © 2015 Pearson Education, Inc. All Rights Reserved.  Categories of joint process outputs: 1. Outputs with a positive sales value 2. Outputs with a zero sales value.  Product—any output with a positive sales value, or an output that enables a firm to avoid incurring costs:  Sales value can be high or low. 16-5

Copyright © 2015 Pearson Education, Inc. All Rights Reserved.  Main product—output of a joint production process that yields one product with a high sales value compared to the sales values of the other outputs.  Joint products—outputs of a joint production process that yields two or more products with a high sales value compared to the sales values of any other outputs.  Byproducts—outputs of a joint production process that have low sales values compared to the sales values of the other outputs. 16-6

Copyright © 2015 Pearson Education, Inc. All Rights Reserved. 16-7

Copyright © 2015 Pearson Education, Inc. All Rights Reserved. Before a manager is able to allocate joint costs, he or she must first look at the context for doing so. Joint costs must be allocated to individual products or services for several purposes, including:  Computation of inventoriable costs and cost of goods sold for financial accounting and tax reporting.  Reimbursing companies that have some products reimbursed under cost-plus contracts.  Regulating the rates or prices of one or more of the jointly produced products.  Litigation or insurance settlement situations 16-8

Copyright © 2015 Pearson Education, Inc. All Rights Reserved. 1. Market-based—allocate using market- derived data (dollars): 1. Sales value at splitoff 2. Net realizable value (NRV) 3. Constant gross-margin percentage NRV. 2. Physical measures—allocate using tangible attributes of the products, such as pounds, gallons, barrels, and so on. 16-9

Copyright © 2015 Pearson Education, Inc. All Rights Reserved

Copyright © 2015 Pearson Education, Inc. All Rights Reserved

Copyright © 2015 Pearson Education, Inc. All Rights Reserved.  The sales value at splitoff method allocates joint costs to joint products produced during the accounting period on the basis of the relative total sales value at the splitoff point.  This method uses the sales value of the entire production of the accounting period, not just the quantity sold.  The sales value at splitoff method follows the benefits-received criterion of cost allocation

Copyright © 2015 Pearson Education, Inc. All Rights Reserved

Copyright © 2015 Pearson Education, Inc. All Rights Reserved.  The physical-measure method allocates joint costs to joint products produced during the accounting period on the basis of a comparable physical measure, such as the relative weight, quantity or volume at the splitoff point

Copyright © 2015 Pearson Education, Inc. All Rights Reserved

Copyright © 2015 Pearson Education, Inc. All Rights Reserved.  Allocates joint costs to joint products produced during the accounting period on the basis of relative NRV.  NRV = Final Sales Value – Separable Costs.  In many cases, products are processed beyond the splitoff point to bring them to a marketable form or to increase their value above their selling price at the splitoff point

Copyright © 2015 Pearson Education, Inc. All Rights Reserved

Copyright © 2015 Pearson Education, Inc. All Rights Reserved

Copyright © 2015 Pearson Education, Inc. All Rights Reserved

Copyright © 2015 Pearson Education, Inc. All Rights Reserved.  The constant gross-margin percentage NRV method allocates joint costs to joint products produced during the accounting period in such a way that each individual product achieves an identical gross-margin percentage. The method works backward in that the overall gross margin is computed first.  Joint costs are calculated as a residual amount by subtracting the separable costs and gross margin from the final sales value

Copyright © 2015 Pearson Education, Inc. All Rights Reserved.  The constant gross-margin percentage NRV method can be broken down into 3 steps: 1. Compute the overall gross margin percentage 2. Compute the total production costs for each product 3. Compute the allocated joint costs

Copyright © 2015 Pearson Education, Inc. All Rights Reserved

Copyright © 2015 Pearson Education, Inc. All Rights Reserved.  If selling price at splitoff is available, the sales value at splitoff method is preferred even if further processing is done. Reasons include:  Best measure of benefits received  Independent of further processing decisions  Common allocation basis (revenue)  Simplicity  If selling prices are not available, the NRV method is the best alternative  Despite this, some firms choose not to allocate joint costs at all

Copyright © 2015 Pearson Education, Inc. All Rights Reserved.  In chapter 11, we introduced the concepts of relevant revenues, which are expected future revenues that differ among alternative courses of action, and  Relevant costs, which are expected future costs that differ among alternative courses of action.  These concepts can be applied to decisions on whether a joint product or main product should be sold at the splitoff point or processed further

Copyright © 2015 Pearson Education, Inc. All Rights Reserved.  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

Copyright © 2015 Pearson Education, Inc. All Rights Reserved.  The potential conflict between cost concepts used for decision making and cost concepts used for evaluating the performance of managers often arises when sell-or-process further decisions are being made.  Firms should be wary of using the full cost of a joint product as the basis for making pricing decisions (potential lack of cause- and-effect relationship) 16-26

Copyright © 2015 Pearson Education, Inc. All Rights Reserved.  Two methods for accounting for byproducts  Production method—recognizes byproduct inventory as it is created, and sales and costs at the time of sale.  Sales method—recognizes no byproduct inventory, and recognizes only sales at the time of sales: byproduct costs are not tracked separately

Copyright © 2015 Pearson Education, Inc. All Rights Reserved

Copyright © 2015 Pearson Education, Inc. All Rights Reserved

Copyright © 2015 Pearson Education, Inc. All Rights Reserved.  The production method is consistent with the matching principle and is the preferred method.  The production method recognizes the byproduct inventory in the accounting period in which it is produced and simultaneously reduces the cost of manufacturing the main or joint products, thereby better matching the revenues and expenses from selling the main product.  Sales method is simpler but allows a firm to “manage” reported earnings by timing the sale of byproducts

Copyright © 2015 Pearson Education, Inc. All Rights Reserved. TERMS TO LEARNPAGE NUMBER REFERENCE ByproductsPage 634 Constant gross-margin percentage NRV method Page 641 Joint costsPage 633 Joint productsPage 634 Main productPage 634 Net realizable value (NRV) method Page 641 Physical-measure methodPage 638 ProductPage 634 Sales value at splitoff methodPage 637 Separable costsPage 633 Splitoff pointPage

Copyright © 2015 Pearson Education, Inc. All Rights Reserved