Cost Allocation: Joint Products and Byproducts
CHAPTER 16
COST ALLOCATION: JOINT PRODUCTS AND BYPRODUCTS
16-1 Exhibit 16-1 presents many examples of joint products from four different general industries. These include:
Industry
Separable Products at the Splitoff Point
Food Processing:
• Lamb
• Lamb cuts, tripe, hides, bones, fat
• Turkey
• Breasts, wings, thighs, poultry meal
Extractive:
• Petroleum
• Crude oil, natural gas
16-2 A joint cost is a cost of a production process that yields multiple products simultaneously.
A separable cost is a cost incurred beyond the splitoff point that is assignable to each of the specific products identified at the splitoff point.
16-3 The distinction between a joint product and a byproduct is based on relative sales value.
A joint product is a product from a joint production process (a process that yields two or more products) that has a relatively high total sales value. A byproduct is a product that has a relatively low total sales value compared to the total sales value of the joint (or main) products.
16-4 A product is any output that has a positive sales value (or an output that enables a company to avoid incurring costs). In some joint-cost settings, outputs can occur that do not have a positive sales value. The offshore processing of hydrocarbons yields water that is recycled back into the ocean as well as yielding oil and gas. The processing of mineral ore to yield gold and silver also yields dirt as an output, which is recycled back into the ground.
16-5
1.
2.
3.
4.
5.
6.
The chapter lists the following six reasons for allocating joint costs:
Computation of inventoriable costs and cost of goods sold for financial accounting purposes and reports for income tax authorities.
Computation of inventoriable costs and cost of goods sold for internal reporting purposes.
Cost reimbursement under contracts when only a portion of a business's products or services is sold or delivered under cost-plus contracts.
Insurance settlement
COST ALLOCATION: JOINT PRODUCTS AND BYPRODUCTS
16-1 Exhibit 16-1 presents many examples of joint products from four different general industries. These include:
Industry
Separable Products at the Splitoff Point
Food Processing:
• Lamb
• Lamb cuts, tripe, hides, bones, fat
• Turkey
• Breasts, wings, thighs, poultry meal
Extractive:
• Petroleum
• Crude oil, natural gas
16-2 A joint cost is a cost of a production process that yields multiple products simultaneously.
A separable cost is a cost incurred beyond the splitoff point that is assignable to each of the specific products identified at the splitoff point.
16-3 The distinction between a joint product and a byproduct is based on relative sales value.
A joint product is a product from a joint production process (a process that yields two or more products) that has a relatively high total sales value. A byproduct is a product that has a relatively low total sales value compared to the total sales value of the joint (or main) products.
16-4 A product is any output that has a positive sales value (or an output that enables a company to avoid incurring costs). In some joint-cost settings, outputs can occur that do not have a positive sales value. The offshore processing of hydrocarbons yields water that is recycled back into the ocean as well as yielding oil and gas. The processing of mineral ore to yield gold and silver also yields dirt as an output, which is recycled back into the ground.
16-5
1.
2.
3.
4.
5.
6.
The chapter lists the following six reasons for allocating joint costs:
Computation of inventoriable costs and cost of goods sold for financial accounting purposes and reports for income tax authorities.
Computation of inventoriable costs and cost of goods sold for internal reporting purposes.
Cost reimbursement under contracts when only a portion of a business's products or services is sold or delivered under cost-plus contracts.
Insurance settlement