1. Joint Products

2. Joint products are main products that are results form manufacturing operations in which companies produce two or more products of significant sales value. Joint products are main products that are results form manufacturing operations in which companies produce two or more products of significant sales value. Many companies start with a single raw material and end up with two or more products. eg. Crude oil ends up with kerosene, heating oil, gasoline and other petroleum products. Many companies start with a single raw material and end up with two or more products. eg. Crude oil ends up with kerosene, heating oil, gasoline and other petroleum products.

3. The raw materials are treated until a point called the split of point. At this point the single product is divided into two or more products. The raw materials are treated until a point called the split of point. At this point the single product is divided into two or more products. By products are products that are merely incidental products resulting from the processing of another products. By products are products that are merely incidental products resulting from the processing of another products.

4. Joint costs Joint costs Joint costs are costs that are incurred due to simultaneous process of manufacturing two or more products. Joint costs are costs that are incurred due to simultaneous process of manufacturing two or more products. Joint costs are not obtained separatelyand have to be allocated to the products. Allocation of joint products because: Joint costs are not obtained separatelyand have to be allocated to the products. Allocation of joint products because:

5. To calculate the value of work in process, finished goods and cost of goods sold. To calculate the value of work in process, finished goods and cost of goods sold. To value inventory for insurance purposes. To value inventory for insurance purposes. to value inventory and cost of goods sold for internal financial reporting to value inventory and cost of goods sold for internal financial reporting

6. Cattle Steak Hamburger Sausage

7. The split-off point and separable cost The split-off point and separable cost Split off point is the point where we can identify joints products separately from by products. After the split off point we can identify products and production costs are easily traceable. Separable production costs are materials, labor and overhead costs. Split off point is the point where we can identify joints products separately from by products. After the split off point we can identify products and production costs are easily traceable. Separable production costs are materials, labor and overhead costs.

8. Accounting for by-products Accounting for by-products This is done by deducting the separable costs (production, marketing and administrative) from the net market value. This is done by deducting the separable costs (production, marketing and administrative) from the net market value. Assignment of costs to joint products Assignment of costs to joint products Joint products can be allocated by two ways: Joint products can be allocated by two ways:

9. Physical measure (quantity method): in it we accumulate the cost of the joint products and divide it upon the different products. Physical measure (quantity method): in it we accumulate the cost of the joint products and divide it upon the different products. Gross Market or sales value: assumes that input costs are matched with revenue generated by each output. Gross Market or sales value: assumes that input costs are matched with revenue generated by each output.

10. Problem Problem Noor company manufactures three products A, B, and C from a particular joint process. Each product may be sold at a split-off and may be processed further. Joint production costs for the period are $ 264000. All production costs of additional processing are of a variable nature and are directly traceable to the products involved. Noor company manufactures three products A, B, and C from a particular joint process. Each product may be sold at a split-off and may be processed further. Joint production costs for the period are $ 264000. All production costs of additional processing are of a variable nature and are directly traceable to the products involved. The following data are from the company records. The following data are from the company records.

11. Units Sales value Separable costs Sales value Units Sales value Separable costs Sales value at split off after processing at split off after processing A 18000$330000$36000$350000 A 18000$330000$36000$350000 B80001980006000225000 B80001980006000225000 C60001320009000148000 C60001320009000148000

12. Required: Required: determine the joint cost to each group of joint product using the quantity method determine the joint cost to each group of joint product using the quantity method Assume the management assigns weights of 2:3:1 to products A, B, and C respectively based on the engineering skills required. What is the joint cost per actual unit produced? Assume the management assigns weights of 2:3:1 to products A, B, and C respectively based on the engineering skills required. What is the joint cost per actual unit produced?

13. Using the gross market method, distribute the cost among the joint products. Using the gross market method, distribute the cost among the joint products. Determine the unit cost that is most relevant to sell or process for each product group. Determine the unit cost that is most relevant to sell or process for each product group. Recommend which product should be additionally processed to maximize net contribution to profit. Support your recommendation by a cost analysis. Recommend which product should be additionally processed to maximize net contribution to profit. Support your recommendation by a cost analysis.

14. Solution Solution 1. Joint productJoint cost allocation 1. Joint productJoint cost allocation A$148500 (18000/32000 X 264000) A$148500 (18000/32000 X 264000) B66000(8000/32000X 264000) B66000(8000/32000X 264000) C 49500(6000/32000X 264000) C 49500(6000/32000X 264000) 264000 264000 or $264000/ 32000 = $8.25 per unit or $264000/ 32000 = $8.25 per unit

15. 2. 2. Joint product Weighted Joint Cost/ Cost Allocation unit actual Units Joint product Weighted Joint Cost/ Cost Allocation unit actual Units A36000144000$8 A36000144000$8 B240009600012 B240009600012 C 6000240004 C 6000240004 $264000 = $ 4 cost per weighted unit $264000 = $ 4 cost per weighted unit 66000 66000

16. ` 3. Joint product Joint cost allocation 3. Joint product Joint cost allocation A$132000 ( 330000/ 660000 X 264000) A$132000 ( 330000/ 660000 X 264000) B 79200 ( 198000/ 660000X 264000) B 79200 ( 198000/ 660000X 264000) C52800 ( 132000/660000X 264000) C52800 ( 132000/660000X 264000) 264000 264000

17. 4. The separable cost per unit is the relevant cost factor in sell of process further decision. Unit separable cost is as follows for each joint product: 4. The separable cost per unit is the relevant cost factor in sell of process further decision. Unit separable cost is as follows for each joint product: Joint productUnit separable cost Joint productUnit separable cost A$ 2 (36000/18000) A$ 2 (36000/18000) B0.75( 6000/ 8000) B0.75( 6000/ 8000) C1.50 ( 9000/6000) C1.50 ( 9000/6000)

18. Products Products ABC ABC Sales after 350000 225000 148000 Sales after 350000 225000 148000 additional processing additional processing Sales value 330000 198000 132000 Sales value 330000 198000 132000 at split off at split off Differential 20000 27000 16000 Differential 20000 27000 16000 revenue revenue Differential cost 36000 6000 9000 Differential cost 36000 6000 9000 Income (16000) 21000 7000 Income (16000) 21000 7000

19. Joint products B and C should be further processed; however product A should be sold at the split-off point. Joint products B and C should be further processed; however product A should be sold at the split-off point.