D.1. Joint and Byproduct Costing Flashcards

The point at which joint products stop sharing the same production process and become different, identifiable products.

Accurate allocation of costs to products is needed primarily for financial reporting purposes and pricing decisions.

Costs incurred in the production of joint products prior to the splitoff point, the point at which joint products stop sharing the same production process and become different, identifiable products.

A low-value product that occurs naturally in the process of producing higher value products.

A method that allocates joint production costs based on the sales value of each individual joint product at the splitoff point, relative to the total sales value of all joint products.

Only when all the joint products can be sold at the splitoff point.

A method used to allocate joint costs when one or more joint products must be processed beyond the splitoff point to be sold.

It may also be used under certain circumstances if one or more of the joint products may be processed beyond the splitoff point to increase its value above the selling price at the splitoff point.

When a market price at splitoff for one (or more) of the joint products does not exist because the product is not marketable at the splitoff point.

Costs incurred after the splitoff point that are allocated to each product as they are incurred by that product.

• Costs are allocated to products in proportion to their expected revenues.
• It is easy to calculate and is simple, straightforward, and intuitive.
• The historical amount of revenue from which the cost allocation base is derived is recorded and available in the accounting system.
• It is the best measure of the benefits received from the joint processing.
• It can be used even when further processing is done, as long as selling prices exist for all the joint products.

• Selling prices at the splitoff point must exist for all the products.
• Market prices of joint products may vary frequently, but this method uses a single set of selling prices throughout an accounting period, which can introduce inaccuracies into the allocations.

• The NRV method is complex and requires information on the specific sequence of further processing and the separable costs of further processing.
• The NRV method is often implemented with simplified assumptions. Companies assume a specific set of processing steps beyond the splitoff point, but the actual process may be different.
• Selling prices of joint products may vary frequently, but the NRV method uses a single set of selling prices throughout an accounting period, which can introduce inaccuracies into the allocations.

A method where joint cost allocation is done based on the weight, volume, or other physical measure of the joint products, such as pounds, tons, or gallons.

In order to use the Physical Measure method, it must be possible to measure all the joint products using the same unit of measurement.

A method where joint cost allocation is done based on the physical units of output.

The total joint cost is divided by the total number of units of all the joint products produced to calculate the average cost per unit. Then that average cost per unit is multiplied by the number of units of each product produced to find the amount of cost to be allocated to each product.

• Easy to use
• Objective allocation
• Useful when rates or prices are regulated