Joint Products and
Byproducts
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Joint Products
 Joint products are two or more products separated
in the course of processing, each having
sufficiently high saleable value. For example:
 Products from oil refining process petrol and deisel.
 There will be joint cost for producing these
products and these costs will be distributed over
products using different methods.
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Methods of distribution of Joint Costs
 Physical unit Method
 Sales Value of production at split off point
 Net Realisable Value ( Expected final sales price –
further expenses to process)
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Physical-Measure Method
 Allocates joint costs to joint products on the basis of
the relative weight, volume, or other physical measure
at the splitoff point of total production of the products
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Sales Value at Splitoff Method
 Uses the sales value of the entire production of the
accounting period to calculate allocation percentage
 Ignores inventories
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Net Realizable Value Method
 Allocates joint costs to joint products on the basis of
relative NRV of total production of the joint products
 NRV = Final Sales Value – Separable Costs
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Sell-or-Process Further Decisions
 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
 Separable Costs need to be evaluated for relevance
individually
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Sell-or-Process Further Example
Final Sales Value= units x sales price per unit
after processing
= 200,000
Sales value at Split off = units x sales price per
unit at split off =(150,000)
Incremental Revenues
= 50,000
Further processing costs
= (40,000)
Profit or (Loss) due to further process
= 10,000
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By Products
 By products are outputs of some value produced
incidentally in manufacturing something. For
example:
 Sawdust and bark are secondary products from timber
industry.
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Byproducts
 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
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Comparative Income Statements for
Accounting for Byproducts
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Questions
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Exercise No.01
The Builden Company produces three joint
products Builden, buildeze and Buildrite.
Total joint production cost for the November
was $21,600
Additional Data:
Builden Buildeze Buildrite
Units produced
6000
8000
10,000
Sales price per unit $2.2
$1.25
$1.28
Required: Allocation of cost among
products using:
1. The Sales Value Method
2. The Physical Unit Method
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Exercise No.02
The Tracy company manufactures joint products X and Y as
well as Byproduct Z. Cumulative cost data for the period show
$204,000, representing 20000 completed units processed in
Refining Department at an average cost of 10.20. Costs are
assigned to X and Y by Net Realizable value method which
considers further processing costs in subsequent operations.
To determine the cost allocation to Z, the production method
is used. Additional Data:
Z
X
Y
Quantity processed
2000
8000
10,000
Sales price per unit
$5
$20
$25
Further processing
cost per unit
$1
$5
$7
Marketing and admin exp $1
Required: Cumulative cost allocated to Z,X and Y.
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Exercise No.03
The Domecq Company produces three products using
A, B and C as a result of initial joint processing plus
separable further processing. Records show the
following :
A
B
C
Units produced
6000
12000
6250
Units sold
4000
9000
4250
Further processing costs $50,000
$80,000
$70,000
Sales price per unit
$50
$37.50
$40.00
Total Joint Costs: $320,000
Required: calculate the following using NRV
method:
1.
Total production cost of each product.
2.
Total profit of each product.
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Exercise No.04
CBA Company produces three products using C, B and
A . During February the following information was
recorded:
C
B
A
Units produced
2000
5000
3000
Units sold
1500
4200
2400
Further processing costs $8,000
$5,000
$2,000
Sales price per unit
$10
$6
$7
Total Joint Costs: $28,000
Required: calculate the:
1.
Total production cost of each product using
NRV value method.
2.
Total profit of each product.
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Exercise No.05
Vreeland Company produces three products X, Y and Z
. The joint cost totals $60,000. Additional information
was recorded:
X
Y
Z
Units produced
2000
4000
2000
Further processing costs $9,000
$7,000
$5,000
Market value at split off $40,000
$35,000
$25,000
Final market value
$55,000
$45,000
$30,000
Required: calculate from the above figures:
1.
Total production cost of each product using
Net Realizable Value method.
2.
Total production cost for each product using
the average unit method.
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Exercise No.06
Newport Company produces three products R, S and T
. The joint cost totals $350,000. Additional information
was recorded:
R
S
T
Units produced
20,000
50,000
30,000
Further processing costs$40,000
$60,000
$30,000
Unit sales price
$7
$5
$8
Required: calculate from the above figures:
1.
Gross Profit of each product assuming that
all units produced were sold using Net
Realisable value method.
2.
A decision as to whether Product R should
be sold at the split off point for $4.5 per unit
or processed further and sold for $7 per unit.
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Exercise No.07
The Laerock Company ‘s joint cost of producing
1000 units of product A, 500 units of product B
and 500 units of product C is $100,000. The unit
sales values of three products at split off point are
A-$20; B-$200; C-$160. Ending inventories include
100 units of A, 300 units of B and 200 units of C.
Required:
The amount of joint cost that would be
included in the ending inventory of the
three products using Sales value
method and average unit cost method.
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