Cost Allocation：Joint Products and Byproducts.doc

Cost Allocation：Joint Products and Byproducts CHAPTER 16 Cost Allocation: Joint Products and Byproducts Joint Cost Terminology Joint Costs – costs of a single production process that yields multiple products simultaneously Splitoff Point – the place 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 now-identifiable specific products Joint Cost Terminology Categories of Joint Process Outputs: Outputs with a positive sales value 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 Value can be high or low Joint Cost Terminology 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 Joint Cost Terminology Byproducts – outputs of a joint production process that have low sales values compare to the sales values of the other outputs Joint Process Flowchart Reasons for Allocating Joint Costs Required for GAAP and taxation purposes Cost values may be used for evaluation purposes Cost-based contracting Insurance settlements Required by regulators Litigation Joint Cost Allocation Methods Physical Measures – allocate using tangible attributes of the products, such as pounds, gallons, barrels, etc1. Market-Based – allocate using market-derived data (dollars): Sales value at splitoff Net Realizable Value (NRV) Constant Gross-Margin percentage NRV 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 Physical-Measure Example Consider the following example of two products a